Budget 2016 Revision: For A Better Property Market

Budget 2016 Revision: For A Better Property Market

DEVELOPERS

Sale of housing costing below RM300,000 will only be limited to first-time house buyers. Various parties, including property developers, lauded the move by the premier to give the younger generation a chance at property ownership.

“The Government’s mandate that all houses priced up to RM300,000 limited to only first-time house buyers as well as the Integrated House Ownership Expo roadshow will definitely boost home ownership among Malaysians,” said Tan Sri Dato’ Sri Leong Hoy Kum, Group Managing Director of Mah Sing Group Bhd.

Leong further elaborated that the recalibration of Budget 2016 to address the current challenges in the global economic environment will be proactive in providing sufficient liquidity in the financial system for home buyers.

“It will also drive demand for our housing projects located everywhere around Malaysia,” Leong added.
Mah Sing also highlighted that most of their projects are priced above RM300,000 and this new initiative by the government will not affect their sales.

“89% of our planned residential launches for 2016 are priced well below RM1 million, including Cerrado serviced apartments in Southville City @ KL South are priced from RM388,000. The new township of Laman Ayu township in Rawang, new blocks in D’Sara Sentral and Lakeville Residence in the Central region, Ferringhi Residence 2 in Penang and Meridin East township in Pasir Gudang are indicatively priced from RM350,000,” Leong added.

LBS Bina Group Bhd looks positively on the revised budget as the group does not see much major impact on developers.

“The revised policies on the RM300,000 properties limited to first-time house buyers is designed to further assist aspiring homeowners in the affordable segment,” said Tan Sri Lim Hock San, Managing Director of LBS Bina Group Bhd.

Lim also highlighted that the Budget revision’s call for residential property sale limitation will not affect developers’ sales.

“The projects LBS are involved in which falls under this new policy are government-linked projects, such as Rumah Selangorku and Perumahan Penjawat Awam 1Malaysia (PPA1M), which has their own specific guidelines and this will not affect LBS’s sales,” Lim explained.

The Prime Minister, also noted that the revised GDP growth forecast was adjusted to 4% – 4.5% as well as the continuation of major infrastructures projects such as the Mass Rapid Transit (MRT), Light Rail Transit (LRT), Pan-Borneo Highway, Malaysian Vision Valley, Cyber City Centre, RAPID Pengerang and the High-Speed Rail (HSR).

“We believe that both of these revisions demonstrate that the Government is realistic. By adjusting to the current market scenario, these initiatives should help support the property industry,” Lim enthused.

 

The move to limit sales of new homes priced up to RM300,000 to first-time homebuyers is a commendable one as it increases the chances for the younger generation to own a house. The new restriction will serve to control the problem of speculation and competition among property investors over the limited supply of properties in that price bracket.

However, this new restriction will not have a significant impact on the market and developers’ sales, as current house prices in many places have exceeded RM300,000.  Many of our customers are looking for a piece of property that will have capital appreciation in strategic areas, hence, in my opinion, location is more important that the pricing. As it is, most of the properties developers are selling are not in this price range. At RM300,000,  potential buyers will only be able to purchase a very small unit or a unit that is on the outskirts of the city.

The Government’s mandate that all houses priced up to RM300,000 limited to only first-time house buyers will not affect most developers as this measure only affects the low-cost housing segment.

The revised policy is a  Iaudable move as it protects genuine homebuyers in the affordable segment. Having a home is one of the most important pillars of our modern day society and this move would help more people who are looking to own a home to be able to obtain one rather than to lose out to speculators.

The revision of the budget shows the ability of our government to adapt quickly to market changes. The vigorous efforts by our government to assist the rakyat in coping with the rough economic conditions is much appreciated. Moreover, it would help to boost investor confidence. I am confident that we will sail through this rough patch as we have done in the past. It can be seen that as soon as the budget was revised the ringgit appreciated against the greenback.


In my opinion, the measure by the Government to encourage first-time house buyers to purchase properties priced RM300,000 and below will have limited impact on the sales of property developers. I expect the property sales volume of developers to remain sideways in 2016.

I feel that in order to encourage home ownership, there should be a relaxation of end financing guidelines, lowering of RPGT or other incentives such as waiver of stamp duties.

The new foreign workers levy structure is expected to result in an average of 11% to 15% increase in the cost of construction. This will have an impact on the property development industry as contractors are rather dependent on foreign workers and the sudden increase in the levy would definitely increase operating costs.

On the plus side, following the announcement of the budget revision, there were no cuts to big upcoming and ongoing projects under Budget 2016 and this bodes well for the construction sector.

The announcement of a reduction in EPF contribution and the implementation of a special tax relief plus status quo on the salary of government servants will result in higher household disposable income. This will improve consumer spending going forward and will benefit the retail and food and beverage industries.

 

EXPERTS

Experts’ Views On Budget 2016 Recalibration
One of the new measures that was implemented by the government via the Budget 2016 recalibration is to help first-time house buyers, effective immediately, the sale of new houses priced below RM300,000 are only restricted to this market segment, among other measures to help the lower-income groups.

iProperty.com asked the opinion of a few experts about this new policy. List of questions posed to them were:

1) How will this new measure benefit aspiring house buyers?

2) With the new policy in place, what are the long term effects that could affect the Malaysian property market?

3) Houses that comes with a cost of RM35,000 under the People’s Housing Project (Projek Perumahan Rakyat) will get a financing package at 4% limited for only 10,000 house buyers, will this be sufficient to help the needy?

4) What are your other thoughts about the Budget 2016 revision?


1) Finding a reasonable and decent house at RM300,000 within the city and its surrounding townships is close to an impossibility. In view of the population concentration and high property prices, it is only natural for the government to address the cries of the populace when young adults cannot afford a home. It is fair and equitable that this policy applies only to first-time house buyers as property market within major cities are in a high mode of speculative activities. This will evidently help to curb the affordability issue.

2) If this policy is properly and carefully implemented, thousands will be able to have a roof to call their own and they will be able to build equity as well – which is not only a need but the fundamental right of every citizen. Developers will probably focus on building homes within this price range of under RM300,000 which in turn will sustain the banking and construction industry as well as other sectors related to property while contributing to the economy.

3) The range of those who need the RM300,000 housing is wide, varied and many. An allocation to 10,000 applicants may not be enough and there is no clear definition of what the loan-to-value ratio will be.

4) We have many policies that are good in nature but generally lacks the proper execution. The authorities cannot allow any form of abuse in the new policy of limiting houses priced RM300,000 and below. We must have stringent measures to curb such abuse, including confiscation of property secured through fraudulence, misrepresentation as well as bribery. An independent and respected body formed by a group of citizens must be empowered to ensure that the implementation is effected honorably. 
1) REHDA finds that sale of houses below RM300,000 limited to first-time house buyers is not suitable for smaller town developments especially in Malacca as most first-time house buyers in the state usually do not qualify for houses between RM200,000 to RM300,000. 

2) The Malaccan State Government has in fact put in place selling prices of housing developments at the layout approval stage to ensure more affordable homes to be built and to curb speculative activities. With the introduction of this new policy, the controlled pricing strategy may need to be reviewed.

3) The 4% interest for public housing at RM35,000 is lauded and appreciated by REHDA. The government should also consider relaxing the criteria for the loan application because most people within the lower-income category do not have any income tax or Employee Provident Fund statement to back up their loan requirement.

4) A lot of public servants who had to be transferred to other states especially in smaller towns will be discouraged to buy properties below RM300,000 due to the new policy. REHDA Malacca hopes that the government will consider refining the policy for first-time house buyers so that the policy only applies to major cities such as Johor Bahru, Kuala Lumpur and Penang, while smaller and less developed states such as Kedah, Perlis, Perak, Negeri Sembilan and other states to have a different price limitation of RM180,000 houses for first-time house buyers.

1) The new rule depends on the location of the property as it is not easy to find such a property within Kuala Lumpur. This new measure is good as it gives the first-time house buyers more choices to buy their first property and do not have to compete with those who already own a home. Many home buyers are still waiting and hoping that the prices will drop even further because of our economic situation.

2) Property developers and secondary property sellers will have a smaller pool of buyers in the future. They have no choice but to re-price their properties to be above RM300,000. If this is not managed properly, it will promote a lot of illicit dealings which are not healthy for the industry and the property market.

3) 10,000 is definitely not enough to cater to the lower-income groups. There should be a much bigger allocation than the announced figure.

4) The economic situation has driven the government to amend and revise the earlier announced Budget 2016. I encourage policy makers to look at the root of the problem before executing immediate effect implementations. I feel that the new housing policy may cause more harm than good as we are already living in a state of oversupplied properties and economic downturns. Any new tightening policy will negatively affect the property market further.

 

1) First-time house buyers will now have an insulated market to choose their first home from and the bank will be willing to lend to the people within this segment as the speculative element is at the bare minimum. 

2) Having the new policy in place will place a long term effect on the property market. As such, new residential houses below the RM300,000 price range will be a controlled supply. Rural localities may also experience hikes in real estate property prices of up to RM300,000.

3) There is a need for a clear and standard guideline to define the needy as most of the hardcore poor may not qualify for a loan even if the cost of the property is just RM35,000, let alone the offered attractive interest rate of 4%. Unless there is a comprehensive study on the long-term effects of this new policy, sufficiency is out of the question.4) The Budget 2016 revision is all about increasing liquidity in the market with hopes that the new policies introduced will boost the economy. However, it is too late and too superficial to have any impact on the property market.

1) The new policy is good in principal, however it may have limited benefits in reality. This is because there is hardly any new projects that are launched within Greater Kuala Lumpur which cost less than RM300,000 that are not one-room studio apartments. First time house buyers will still be challenged with home loan qualifications given that they have lower salaries and have to endure higher costs of living.

2) Residential developers can easily circumvent this new measure by pricing their new units above RM300,000 by 10% to 15% more, thus being eligible to sell their units to a wider market. However, this is expected to have a negligible or very little impact on the Malaysian property market in the long run.

3) Typically, buyers for low-cost housing will find difficulty in securing housing loans from commercial banks and they will be forced to approach other lenders such cooperatives or even loan sharks which will charge exorbitant interest rates. As such, this financing scheme will be beneficial to assist the lower income groups to buy their own homes. However, this scheme should be extended to all eligible buyers under the People’s Housing Scheme and there must be more stringent checks on the said buyers to ensure that the scheme is not abused or rented out to foreign workers.

4) Our country is currently facing various headwinds along with the falling oil and commodity prices, depreciation of Ringgit and the rising cost of living. There should be more initiatives to increase the people’s purchasing power by reducing the cost of living, which the Budget 2016 and its revision failed to address.


1) It is an excellent move by the government and this will perhaps demonstrate the caring side of our leaders. This will be helpful in boosting home ownership among the young adults. However, there are many loopholes that the new measure failed to address as it is very vague, such as:-

a) Will all properties priced at RM300,000 and below be limited to first-time house buyers?

b) Is it limited to newly launched properties or will this apply to secondary properties as well?

c) Will the banks be given a special waiver by Bank Negara Malaysia (BNM) for these first-time house buyers for the net income loan assessment?

2) This will definitely encourage more developers to build more affordable residential properties priced at RM300,000 and below.

3) There are definitely more than 10,000 buyers for houses that cost RM35,000 and this scheme is not feasible. The number of offered schemes must be increased.

4) The authorities should reduce the compulsory contributions by the developers as well as development charges or conversion fees. These charges causes the cost of building properties to increase and such expenses will be passed down to the house buyers.


1) Theoretically, this will mean less speculation within the RM300,000 and below residential properties segment, leaving it insulated from artificial price increases. However, the government has already introduced speculation curbs such as lower LTV ratios for third properties and higher Real Property Gains Tax (RPGT). Coupled with the fact that the property market is in a general period of consolidation, speculation is minimal so I view this announcement as purely cosmetic. Earlier speculation curbs had a more meaningful impact on the whole market.

2) In the long term, we can expect this segment to be insulated from over-speculation. However, there could be a negative effect. Many first-time home buyers can afford to buy a residential property below RM300,000 but are unable to get a loan to purchase it. The number of first-time home buyers who cannot get a loan due to some blemish in their credit history is pretty high. These people would need to rent. If residential properties below RM300,000 can only be acquired by first-time house buyers, supply for the rental market in this segment may be very low thereby limiting access to affordable housing.

3) According to statistics, the low-cost housing segment is not the one that needs help. It is the affordable segment which varies from state to state. But even if you calculate the savings, it does not translate to much as the loan amount is small. For a loan on a RM35,000 home with 90% LTV, and 30-year duration, the difference between 4% interest and 4.5% interest is about RM9 on monthly payments. It is not significant enough in helping the needy. Furthermore, it is only limited to 10,000 house buyers.

4) When the Budget was first announced in October 2015, I felt more could have been done for the property market, especially in the affordable housing segment. I still hold the same view with the revision. In fact, in the revision, the concessions for the property market appear to be only cosmetic.

GEN-YS

Differing Views On New Housing Policy

Gen-Ys express their opinions on the new housing policy where RM300,000 residential properties will only be limited to first-time house buyers.

Loh Chia Hau, 26

In my opinion, the new policy of limiting RM300,000 and below properties to only first-time house buyers is redundant. Most fresh graduates still cannot own a property due to stringent bank requirements as well as high the Base Lending Rate (BLR). There should be better financing adjustments to spur home ownership among the younger adults.

Mustapha Shah, 29

This move by the Government will surely encourage home ownership among the younger generation as there could be less competition from property investors. About 60% of the Malaysian population are people aged 39 and below, and a huge number of them will benefit from this new strategy. The only concern about this new policy is that there is no clear definition of what these residential properties are.

Kelly Siow, 24

This policy could prove to be a double-edged sword. On one end, the current property market scene will see more property developers building cheaper and affordable projects within the RM300,000 range to attract more first-time house buyers. On the other end, we may also witness newer development projects to cost slightly above RM300,000 so that developers can attract a wider customer base as it is not only limited to first-time house buyers.

Mas Fadilah, 31

As this policy is implemented nationwide, suburban areas such as Seremban and Rawang will be adversely affected where new developments within these townships will have a price tag above RM300,000 as developers do not want to limit themselves to a specific and narrow range of customers. This could lead to market speculation.

Dinesh Prakash, 34

With most younger workers based in cities such as Kuala Lumpur, Penang and Johor, it is pretty difficult for them to find properties within the RM300,000 range in these cities – unless they have to opt for lower built-up space such as studio or shoe-box units. Even so, such units are limited in these areas. However, this move will deter investors and speculators from hogging up the cheaper units as these units are now limited to first-time house buyers.

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