The inadequacy of affordable housing is one of the most challenging issues plaguing cities all around the world-and Malaysia is no exception. With tighter lending rules, high living cost and stagnant wage growth, purchasing a home has become an impossible dream for the low and middle-incomed; steep property prices have also made it more difficult for many people to get a foothold. The government has recently introduced an initiative that enables property developers to give out loans to buyers who face difficulties in securing housing loan from banks.
While it is unclear whether this is the best solution to encourage the slowing market, according to Ishmael Ho, CEO of Ho Chin Soon Research, what it does prove is that buying interest is still strong. Presently, there is a total of 1.4 million Malaysians in need of affordable housing and out of this number, 350,000 are those residing in Selangor. Many initiatives have been taken to solve this housing issue such as PR1MA and Rumah Selangorku among others, however the problem still persist.
“The government has targeted to develop a total of 500, 000 units of affordable housing by 2018. In 2014, they allocated a subsidy of RM1 billion with a target of 80,000 units of PR1MA housing. The year after that, the subsidy allocation was increased to RM1.3 billion for another 80,000 units to be built. And in the following year, the target more than doubled to 175,000 units with 1.6 billion subsidy,” shares Ishmael.
He added that according to PR1MA, as of Q1 this year there is a total of 74,399 units currently under construction and yet by the end of 2015, only 883 units have so far been completed and delivered.
The effect of population on housing demand
Throughout history, the pressure to provide quality, affordable housing has never been more pressing than it is today. The wave of urbanization has millions of people streaming into the cities which created a demand for shelter. Ishmael points out that the data on price trend should reflect the correlation between the growing population and the booming market. “When population is going strong, that’s when the market will also strengthen in tandem. By looking at the data on price fluctuation over the years you can easily identify when was the best time and where was the best place to buy properties.”
The Catch 22 of Affordability
Despite having a strong population growth rate and high GDP per capita, Selangor has been slow in meeting the housing demand of its dwellers. Ishmael opines that this is largely contributed by the challenges they face because of the separation of power between the federal and state government. Land cost often is one of the biggest factors in improving the economics of affordable housing development, thus it is important to unlock land in the right locations.
This however gets a little complicated due to sovereignty or perhaps political reasons. While land matter is a state matter, PR1MA is a federal government initiative. Therefore, there is a larger volume of PR1MA homes in states that are governed by the ruling party instead of the cities that are actually in dire need of affordable housing due to its rapid population growth like Greater Kuala Lumpur.
“Some of the states that received most of these PR1MA houses have lower GDP per capita, slower population growth and significantly lower property price transaction as compared to Klang Valley,” says Ishmael.
To solve this, each state has come up with its own affordable housing initiative which made providing quality and affordable shelter for the millions of people streaming into the urban areas one of the most pressing challenges we face today.
“Under the Rumah Selangorku initiative, developers who are building townships are required to build affordable units as part of their project, which means they have to concurrently develop their projects and supply the market with affordable housing. While it does help solve the shortage problem, the catch is that when it gets too costly for them, the cost gets transferred to non-affordable housing. It’s a cycle that keeps driving property prices up.”
The Buying Dilemma
Since most affordable shelters are built outside of the main city areas, those working in the city and looking to purchase a home will find themselves in quite a bit of a pickle. Living closer would mean paying the cost of an arm and a leg for a shoebox, while living farther out equal long hours travelling in exchange for a spacious home. When faced with such buying dilemma, Ishmael advises to let your career trajectory be your benchmark.
“If you’re in the early 20s and you’re quite optimistic about your career path (i.e. future promotion, salary increment), sacrifice space and stay within the first tier, i.e within a 20km radius from the Kuala Lumpur City Centre. This eliminates the need for long commute that could negatively affect work productivity. But as first tier properties come with a bigger price tag, be humble with your selection and buy within your affordability.”
“On the other hand, look for property within the second tier (30km radius) if you’re more or less financially stable and you’re ready to settle down. Especially if you already have a child/children, make sure you purchase landed property instead of high rise because at this point, space is absolutely essential for you,” advises Ishmael.
While it’s tempting to buy a shiny new property, Ishmael suggests to look for secondary market opportunities in areas such as Puchong, Kajang, Kepong and Sentul. “Study the Ho Chin Soon Research map and pay attention to these matured areas. Also, follow the MRT and LRT lines as better infrastructure and mobility tends to create new opportunities. The only issue you may face when it comes to purchasing a secondary market property is that you need to have solid capital outlay.”
In a Nutshell
Despite claims of rising material, labour and land cost as factors that lead to the rise of property prices and keep it at an all-time high, the demand for property particularly the affordable ones is still strong. But the elephant in the room remains the complication that arise from the separation of power between the state and the federal government that contributed to the shortage in certain states.
“One of the excuses that we constantly hear is that we don’t have enough affordable housing due to the scarcity of land. The irony is that there is a lot of reserved land in areas such as Puchong and Semenyih that has not been put to use. There are plenty of lands in other areas out there yet to be unlocked,” shares Ishmael.
DISCLAIMER: The opinion stated in the article is solely of Ishmael Ho, CEO of Ho Chin Soon Research and is not in any form an endorsement or recommendation by iProperty.com. Readers are encouraged to seek independent advice prior to making any investments.
This article was first published in the iProperty.com Malaysia November 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine. Better yet, order a discounted subscription by putting in your details in the form below!