Quicker release for Bumiputera quota units will help reduce home prices by hopefully another 5%

The Perak state government’s decision to allow an earlier release of unsold Bumiputera housing lots, will help reduce property prices. Now the question is, will other states follow suit?

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It is official – developers in Perak are now allowed to apply for the release of Bumiputera units if the property cannot be sold within six months, as compared to two years earlier.

The decision to shorten the time limit to open unsold Bumiputera properties to non-Bumiputera buyers was incorporated in the new Perak Housing Policy. This policy will come into effect on April 1 2019, as announced by Menteri Besar Datuk Seri Ahmad Faizal Azumu on February 13 this year.

It was also reported that the state’s 50% of the Bumiputera quota will be released to other non-Bumiputera buyers on the following conditions:

  • The physical construction has achieved 30%
  • That at least 60% of the non-Bumiputera lots have been sold

Meanwhile, the balance 50% of the Bumiputera quota will be released after the following conditions have been attained:

  • After physical construction has reached 80%
  • That at least 90% of the non-Bumiputera lots have been sold

It should be noted that any housing developer who blatantly sell Bumiputera lots to non-Bumiputera buyers without the State’s prior approval, would be subjected to fines or double the levy payment.

More lenient Bumi quota policy is a step in the right direction

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The National House Buyers Association (HBA) welcomes the move by the Perak State Government to allow the ‘timely’ release of Bumiputera lots, as such a move will lead to lower house prices for both Bumiputera and non-Bumiputera buyers in the long run.

With this initiative, housing developers are able to factor in the ‘shorter holding costs’ and thus bring down the price of homes, provided that they do not conveniently ‘uplift their profit margin’.

Most are familiar with the more common costs incurred when building a house, such as land acquisition, construction and building material costs that includes labour, cement, steel and bricks.

However, there is one cost which Malaysians tend to overlook – time, also known as holding cost. The longer the housing developer or building contractor takes to finish constructing a project and sell off all their properties, the higher the cost incurred.

One of the biggest issues with the property industry has always been the issue of Bumiputera quotas.

Under the New Economic Policy (NEP), property developers are required to reserve a certain number of units of the project at a minimum of say, 30% for only Bumiputera buyers to purchase. This Bumiputera quota policy differs from State to State and ranges between 30% to 50%. Furthermore, these Bumiputera reserve units are also to be offered at a discount to the market price, ranging from 5% to 15%.

For housing developers, it would be quite mind-boggling to understand and achieve said state policies. Let’s not forget that developers are not charitable organisations and any additional cost incurred by their projects will eventually be passed on to house buyers.

What happens if the developer is unable to find sufficient buyers for the Bumiputera-reserved units? What if the State Housing Board too are unable to source for qualified Bumiputeras to purchase these unsold units?

It has always been a known fact that the Bumiputera discount is invariably borne by the non-Bumiputera buyers (other buyers). The longer it takes for the developer to sell their Bumiputera units, the higher the cost borne by developers as their capital is locked down in those unsold units. This ‘holding cost’ is eventually transferred to future homebuyers, regardless of whether they are Bumiputera or not, in the form of higher home prices.

Most housing developers factor into their budget the anticipated ‘holding cost’ for a period of 3 years since the current mechanism dictates so. Developers have been lamenting for some time now that the release mechanism for Bumiputera units is not transparent and inconsistent between states. These requirements even differ between local councils within the same state!

Other States should take Perak as an example

HBA had called for transparent and consistent policies for the automatic release of these Bumiputera reserve units before, and the move by the Perak State Government is indeed a step in the right direction and should be emulated by other states with robust property development projects such as Selangor, Penang and Johor. It must be heralded to reflect the good policies for the wellbeing of our Rakyat across the board.

The State Government should also consider dispensing with Bumiputera discounts, currently at 5-15% for high-end property costing in an excess of RM1 million. After all, should ‘millionaires’ be entitled to discounts which is invariably borne by all ‘ordinary’ homebuyers?

Back when the NEP was first announced, the percentage of Bumiputera in urban areas might have been considered to be low.

However, as we approach the year 2020 which is our original target to become a developed country, the percentage of Bumiputeras in urban areas can be considered to be high. Hence, this requirement may be less relevant in today’s urban development.

Although in an ideal sense, it is always good to have a balanced ethnic mix in every housing area; this may be difficult to implement as ethnic groups do have a certain preference for certain areas.

It would not be too practical to implement a strict 30% Bumiputera quota for areas such as Kepong or Cheras for example. At the same time, a 30% Bumiputera quota would not be sufficient for areas such as Shah Alam or Datuk Keramat.

Conclusion

HBA believes that the move by the Perak State Government to allow the faster release of Bumiputera quota units is a step in the right direction and will ultimately benefit future Bumiputera buyers as well in the long run.

As the market is well aware of, unsold Bumiputera units are additional costs for developers and will eventually be passed down to buyers. Hopefully, with this initiative, the housing market may see a further drop in home prices to about 5%.

 

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