New state housing policy gets mixed reaction

Developers hope policymakers consider possible implications on Negri Sembilan’s property market

The new housing policy in Negri Sembilan is causing a stir, with speculation that it could mean higher prices for homebuyers and the exit of some developers from the state.

The battle between profits and home quality could also come into question, with the policy possibly being equated with higher costs for developers.

At risk is the Malaysia Vision Valley, a 108,000ha project under the 11th Malaysia Plan (11MP) in Negri Sembilan, which aims to be an integrated development that will complement the Klang Valley.

How the new policy could affect the state, as well as the Vision Valley project, will be more transparent only when details are released.

It is a known fact that land prices are no longer cheap. In many cases, the land costs make up for between 20% and 30% of the total cost for developers.

“If developers buy a piece of land in a prime location and the enforced rule is to build 50% affordable homes, the developer may not actually be able to return a profit. This is a discouragement of capitalism, entrepreneurship and development,” says PPC International Sdn Bhd chief executive officer Siva Shanker.

Negri Sembilan’s new policy, which took effect on June 5, sees affordable houses making up for at least half of the new houses to be built in the state.

Out of half of the quota for affordable houses, 15% must be priced below RM80,000 and another 15% below RM250,000. The remaining 20% must be priced below RM400,000.

The developer is free to set the prices for the rest of the new houses.

Under the new policy, the bumiputra quota in the state has also been increased to 50% from 30% previously.

Negri Sembilan Mentri Besar Datuk Seri Mohamad Hasan was quoted earlier this month as saying that the houses priced below RM80,000 must be landed residential units not smaller than 20 ft by 60 ft. These houses will not be privileged to the bumiputra discount.

“This is because poverty knows no race ... Whoever is qualified to buy this category of houses will buy them at the price fixed by the developers,” he says.

Mohamad says the state increased its bumiputra quota because 70% of residents in Negri Sembilan are Malays and bumiputras.

He said the policy was enforced after discussions with the Negri Sembilan Real Estate and Housing Developers’ Association Malaysia (Rehda).

Pressure on developers

Chang Kim Loong, the honorary secretary-general of the National House Buyers Association, says the policy could also keep developers from entering the Negri Sembilan market.

“Compliance with these new policies may not provide reasonable profits for the developers, and thus, provide more reasons to ‘cut corners’ and construct ‘defective’ houses, shoddy workmanship and using sub-standard materials. This will not benefit the house buyer,” says Chang.

He hopes the policymakers consider the possible implications on the state’s property market. “Even at present times, it is suspected that some developers have unsold bumiputra units and are a drain on the resources of some developers.”

“The end result is that some developers may not want to get into the property development business in Negri Sembilan and this may not be good for the industry or the people or the Government policies. After all, developers are not charitable organisations; they are in for the profits,” Chang says.

Malaysia Vision Valley will be in western Negri Sembilan covering Nilai, Seremban and Port Dickson.

The project can be seen as a new growth area, as it provides an alternative for those seeking more affordable housing compared to what one would have to fork out for a property in the Klang Valley.

Whether or not this would mean new highways and infrastructure to improve connectivity to the Kuala Lumpur city centre is yet to be known.

Rehda Negri Sembilan chairlady Jenny Wang says no details on Vision Valley have been conveyed yet, and only knows about the project through the local media.

One big effect from the new housing rules in Negri Sembilan is bumiputra lots.

“It’s a known fact that most developers are struggling to sell their bumi units. If you have to carry them for a number of years, it is going to incur cashflow and interest and the developer is going to project that into his cost and will increase it accordingly,” says Siva.

Chang reiterates that this could result in property developers exiting the Negri Sembilan market in the short-term vision to gain popularity. “It is akin to a small population of the rakyat financing house ownership for the majority,” he says.

To deal with this, the state government will launch a bumiputra housing portal that will list unsold units.

“After this, it is hoped that the developers would no longer complain about the difficulty in selling the bumiputra lots,” Mohamad says.

Wang looks forward to the release mechanism. “With that, if a developer can judge that they really cannot sell to bumi buyers, we can work together,” she says.

The state government or government-linked companies (GLCs) buying up bumiputra units could be something to chew on, Chang adds.

“If the Negri Sembilan state economic agency or their GLCs can absorb it or are seriously conscious of wanting to ensure 50% bumiputra house ownership, then they should buy up those unsold bumi units from the onset rather than ‘dicing’ with the slow mechanism of release of bumiputra units to the non-bumis.”

Market dynamics affected

Siva adds that it is important for the issue of affordable housing and property development to be separated.

“They can’t go hand in hand. Everything can’t be affordable when living costs and building costs have gone up. It comes to a point when affordable means compromising on something, which is either the location or the size or the quality and deliverables,” he says.

This would mean that more affluent buyers of the property are truly subsidising the others. “It’s not fair to ask the rich to pay extra money for their houses so that the poor and middle class can buy another house,” Siva says.

He stresses that capitalism and social responsibility have to be separated. One possible way is to have the more luxurious developments done at a prime location, whereas the more affordable ones are slightly further away and perhaps smaller in size.

“It would be unfair to ask a luxury carmaker like Mercedes or BMW to compel them to produce 50% of the cars they make in the lower price segment. It’s the same if you ask developers to do this,” Siva says.

Affordable housing is a social issue, and hence the individual state governments should get involved and not place the responsibility solely on the developers.

“The developers are in this game to make a profit for their shareholders. If you ask him to compromise his profits for social responsibility, yes, he will do it to some extent, but he isn’t going to like it if you force him to do it every single time,” Siva explains.

Seeing that the policy has been implemented in Negri Sembilan, this may spur other states to follow suit. But Wang says other states would only look at carrying out policies that address their specific needs.

Industry experts say the implementation of the policy would not impact the general property market much, as Negri Sembilan is a small state. The total value and transaction is not as big.

“If it was in Selangor, the Klang Valley, Penang and Johor, then we would have something to worry about. It’s not so significant at the moment,” Siva says, referring to the impact on the entire property market.

But the impact would be felt more on the buyers’ perception. “Things like these are very detrimental to perception among the buying public,” he says.

Now that it has been implemented, the fear of it being implemented in other states is there.

Siva says while it may be an isolated incident, it is undeniable that everyone out there is saying that it is going to get worse.

For the first time in about three years, the values transacted in the first quarter of 2015 remained the same. Although transactions have been on a downtrend since 2012, values still rose.

Siva says the blame can be put on the start of the goods and services tax.

“But I also think perhaps there’s a lot of doom and gloom in the market due to 1Malaysia Development Bhd, the ringgit, and oil prices although it is stabilising now. But these are things that people feel worried about, and the first thing they will do is stop buying.

“They adopt a status quo mentality: wait and see. Although we don’t want prices to go up so high, as it’s not healthy, we want steady growth that is sustainable over the long term,” he says. - By The Star