Transit Oriented Developments (TODs): Are they actually affordable?

We studied the newly launched TOD projects along the MRT Sungai Buloh – Kajang line to understand who can actually afford these properties and how we can make them more accessible to the M40.

© MRT Corp

What is a Transit Oriented Development (TOD)?

Transit-oriented development (TOD) is a planning and design strategy that clusters jobs, housing, services, and amenities together around public transit systems. It has been successfully applied in cities around the world like Stockholm, Copenhagen, Hong Kong, Tokyo, and Singapore. In Malaysia, Klang Valley, in particular, TOD seems to be an increasingly embraced development concept following the development of the MRT Sungai Buloh – Kajang (SBK) line.

Figure 1: Stations along the MRT SBK line grouped into 5 zones © Adapted from MRT Corp

More and more housing developers are tailoring their new launches towards TOD projects, as they see them as an alternative means of revitalising property values. On one hand, TOD is an effective model to incorporate affordable housing – by lowering the overall household transportation costs through reducing dependence on private cars – so as to encourage homeownership among middle- and low-income households who want to live and work close to the city center. This is especially true for young couples and first home buyers. On the other hand, by capitalising the property value with the injection of rail infrastructure, developers can garner more interest from the public, leading to an overall positive market sentiment that will spur growth further.

Who can actually afford TODs in the Klang Valley?

To assess if the newly launched TOD projects are within the affordable price range of the mass homebuyers, the affordable house price of three income groups (T20, M40, and B40) is calculated by using the Housing Cost Burden (HCB) approach. Then, it is to be compared with the launch prices of the newly launched TOD projects along the MRT SBK line.

Based on the Household Income and Basic Amenities Survey conducted by the Department of Statistics Malaysia (DOSM) in 2016, the median monthly household income for T20, M40, and B40 in Kuala Lumpur is RM26,306, RM10,823, and RM5,257, respectively; while in the case of Selangor, it is RM21,125, RM8,790, and RM4,397, respectively.

By assuming the mortgage rate at 4.5% p.a., with a tenure of 30 years, plus 10% down payment; coupled with the assumption that the cost of servicing housing loan must not exceed 30% of the nett household monthly income; the calculated HCB house prices for each of the income group in Kuala Lumpur and Selangor are as shown in Table 1. The calculated HCB house prices are then divided by the affordable buildup size of 900ft2 (as stated in the National Affordable Housing Policy), so as to obtain the per-square-foot HCB house price.

Table 1: Median monthly household income and the respective HCB house price. © DOSM

READ: How much should the average Malaysian household income be to afford a home in Klang Valley?

Within the period of 2018 – 2020, as many as 24 TOD projects have been rolled out adjacent to the 31 MRT stations. They are all high-rise mixed use developments located within walking distance (not more than 700m) from the transit stations (Table 2). 

Table 2: Newly launched TOD projects along the MRT SBK line, 2018 – 2020. © Major online property portals in Malaysia (Note: Based on pre-sale price, launch price to be determined further)

By comparing the average per-square-foot launch prices (RM/ft2), with the exclusion of units that are allocated under the affordable housing schemes such as Rumawip, Rumah Selangorku (RSKU) and PR1MA; one can find that locational gradient plays its role in influencing house prices; in which the average launch prices peak from RM518/ft2 in Kajang zone to RM2,200/ft2 in KLCC zone, and then decline to RM833/ft2 in Sungai Buloh zone (Figure 2). 

Figure 2: The per-square-foot launch prices (RM/ft2) of newly launched TOD project. © Major online property portals in Malaysia

As one can observe, almost all newly launched TOD projects namely those in Sungai Buloh, Petaling Jaya, Cheras and Kajang are affordable to a T20 household from Kuala Lumpur – projects located in KLCC zone is above the T20’s Housing Cost Burden. Meanwhile, a M40 household can only afford units located in Cheras (Selangor) and Kajang, plus certain units located in Cheras (KL) (Figure 3).

Figure 3: Launch prices (RM/ft2) of TOD projects benchmarked with Kuala Lumpur and Selangor household affordability level. © Major online property portals in Malaysia & DOSM

Projects that are not affordable to the typical M40 household in KL are those located adjacent to the Maluri MRT Station, which mainly leverage on the developers’ branding, low density living, unique design, and exclusive facilities & amenities like UNA Serviced Apartment @ Peel; V Residence 2 @ Sunway Velocity; The Locus @ KLCV; and Parc 3. Should a M40 household wish to own a unit in Maluri; properties like Lavile and M Vertica that featuring high density living environment are within its affordable price range.

In terms of a T20 household from Selangor, it can afford most of these newly launched projects except for those in KLCC and Petaling Jaya zone. An M40 household, however, can barely afford a unit in Selangor Cheras, not to mention projects that are located in KL Cheras. To note, none of these newly launched TOD projects is affordable to a B40 household, either in Kuala Lumpur or Selangor. 

What are the side-effects of TODs?

The introduction of TOD into neighbourhoods is likely to cause upward pressure on local house prices. This is because proximity of any proposed developments to the transit stations tends to be associated with higher rental yield and property “sell-out”, which will then intensify the transformation of the vicinity into high opportunity and hot neighbourhoods with higher economic benefit and capital growth.

© 123rf

Subsequently, due to the high land value in areas that are adjacent to transit stations, coupled with the higher level of difficulty in meeting standards of TOD model, developers are likely to launch high-end properties instead of mass housing projects; which, then, further accelerates gentrification in TOD projects.

MORE: Freehold, leasehold and Bumi Lot: Learn the differences and limitations

How can we make TODs more accessible for the masses?

Increasing plot ratio and reducing built up area can help to enhance M40 households’ housing affordability level. As shown in Figure 4, a household from Selangor can easily afford a unit, even located in KL, if the built up is reduced to 600ft2 or 700ft2. For example, by offering a smaller unit (660ft2) with a rather low-density living environment (507 unit) that is close to the MRT station (150m), Nexus @ Taman Pertama is said to be a solution for the first-time homebuyers in owning an affordable property within the city centre (excluding prime locations).

Figure 4: Launch prices (RM/ft2) of TOD projects benchmarked with different affordable levels of a M40 Selangor household. © Major online property portals in Malaysia & DOSM.

Apparently, the spikes of TOD projects along the MRT SBK line are well beyond the mass housing buyers’ affordability level, as newly launched TOD projects tend to be tagged as a high-end market product, contributing to the process of gentrification. Clearly, the overall effect of the MRT SBK line on local property value is bullish. At this moment, only projects that are located in Selangor, Cheras and Kajang are still within the M40 households’ affordability level. However, due to the spillover effect of development around KL Cheras, properties in said areas may soon become unaffordable.

One should realise that TOD can offer both the opportunities and challenges to the development of affordable housing. Even though TOD is initially aimed to serve the middle- and low-income groups, it will inevitably generate new demand for development that quickly transforms the neighbourhood into high-end enclave of housing, retail, and offices catering to higher-income earners, setting in motion a speculative real estate market. This would most likely exacerbate the problem it is expected to fix — the provision of affordable housing with good access and connectivity.

If you enjoyed this guide, read this next: Why Partial CCC should be disbarred for all homebuyers’ sakes

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