The Malaysian Property Market Under Pakatan Harapan

All eyes are on Malaysia following GE14 and as property investors, everyone is wondering what does this mean for the Malaysian property market under Pakatan Harapan.

Based on their manifesto, they have outlined a number things which are definitely going to have an effect on the property market over the next 5 years and beyond. Before looking at what Pakatan Harapan has promised to change, let’s see what past property data has shown to happen post general elections in previous years.

 

In 1999, 225,890 properties worth RM34.4 billion were sold, with transaction volume and prices surging 21.4% and 23.4% y-o-y. Similarly, post-2004 general election, 293,210 properties worth almost RM60 billion were transacted, marking an increase of 20.5% and 38.1% respectively, from the previous year.

In 2008, 340,240 properties valued at RM88.3 billion were sold. Compared with the previous year, this annual growth rate in volume slowed to a single digit at 9.9%, while the total value increased 14.5% y-o-y. However, in the 2013 general election, transaction volume slid 10.9% y-o-y to 381,130, although transaction value climbed slightly by 6.7% to RM152.3 billion.

 – Edgeprop.my

 

Past data shows that the property markets tend to continue to rise following elections but it’s not possible to say whether this growth is due to newly introduced housing policies or simple supply and demand dynamics, and property market cycles.

It’s also important that we bear in mind that, never has a new party been in Government, and there will most surely be disruption to the status quo. This will be the first time since Malaysia’s independence that a coalition government has taken the wheel to steer Malaysia away from its poor global reputation as a nation muddled in kleptocracy and cronyism.

Let’s look at the most relevant and impactful changes that the new Pakatan Harapan Government has laid out in their manifesto, as well as the other new changes that are most certain to have an impact on the property market in Malaysia.

 

Build One Million Affordable Homes in 2 Terms

I am curious as to the benefits of this item in their manifesto, considering that I have previously written about the oversupply of housing in Malaysia and did note that affordable housing was also one of the sectors of which contributed to this oversupply.

According to the Malaysian Insight, CBRE WTW, has said that the problem is not the lack of affordable homes but the lack of communication between 10 different government agencies that supply affordable housing to the people.

Other reports from the Straits Times have also said that, CBRE WTW also mentioned that there is a property demand mismatch in various locations. This meaning that the wrong type of housing has been built in the wrong communities.

Will simply building more affordable housing be the best way forward?

Perhaps building more homes should not be the focus but the result of better housing policy and incentives for developers and buyers. It makes sense to have this listed on their manifesto to show lower income earners that they are being looked after but building more homes for the sake of building more homes might not be the right way to go.

 

To Develop a New Housing Loan Scheme for First Time Buying Youth

The Barisan Nasional government already had set up some first-time buyer’s schemes, of which one we did write about previously (This scheme is no longer available though) as well as a few others which are listed on Propsocial – here.

It is possible that this new scheme they are working on will be improved versions of what is already available and be focused on lower interest rates or tiered interest repayments to benefit the youth specifically.

Targeting young people in particular it is a great way for the government to incentivize the youth to start their property investing journey as soon as they can.

 

Increase in Quota for Affordable Housing & Give Tax Incentives to Companies Focusing on Affordable Housing

This point kind of ties in with the provision of one million more affordable homes as described above. It will be good to allow more developers to be involved in the affordable homes market but once again, like mentioned above, it’s important to make sure that the homes are built in the right areas where there is demand for it.

It will be good though to encourage developers to build affordable homes instead of building luxury or middle income residences where they have higher margins though. It will depend on how well they implement this.

It could very well, persuade developers to build quality affordable housing for those who need it on a large scale and drive up home ownership rates in the country.

Hopefully, there will also should be fair bidding systems on these affordable housing projects and proper quality checks on the make and build. If the goal of Pakatan Harapan is to make sweeping change, they should start by ensuring that affordable housing maintains a certain standard and that all companies have a fair chance to bid on the tender. No more sneaky land sales of reserved land anymore.

 

Widen the Rent-to-Own Scheme

Malaysia’s first Rent-to-Own scheme currently being carried out by Maybank. The scheme is known as HouzKEY and reduces upfront monetary commitments significantly. Edgeprop compares the scheme to your typical mortgage below.

HouzKEY
Source: https://www.edgeprop.my/content/1240171/malaysia%E2%80%99s-first-its-kind-rent-own-scheme

The major benefit is that it allows home owners to avoid coming out with a ton of cash for their deposit and stamp duty upon purchasing a unit and allows you to lock-in today’s property price and purchase it lower than the property price one year from now, allowing you to reap the rewards of capital appreciation of the property price right from the get go. The downside is that monthly repayments do become about 20% heavier.

Another great thing about the scheme, is that it gives you the option of simply abandoning the contract if you choose to within 5 years of your rental period with absolutely no penalty.

If the scheme still doesn’t sound sexy enough, it also offers a cash-out benefit for renters who want to terminate the agreement after more than one year and allows the owner to request for the bank to sell the property at market value and for the renters to enjoy 100% of the gains from the sale! The Star talks more about the scheme here.

Hopefully, widening this scheme means that more banks will participate or that there will be added benefits, or perhaps even reduced requirements so that a larger amount of people have access to the scheme.

Making this the norm could cause quite a storm in the property market but we’ll just have to wait and see to find out how exactly they plan to widen it.

 

Set Time Limits on Companies to Complete Construction to Prevent Land Hoarding

This initiative is one that might go under the radar for many as something that’s not very important, when in fact, it might have one of the heaviest impacts compared to the rest of the property related items in their manifesto.

Hoarding land is something that developers will do to remove supply from the market to artificially increase its value. If you know anything about diamonds, you will know that this is what US diamond retailer conglomerate, ‘De Beers’ have done to control the global Diamond market in the same way.

By gathering up large amounts of land when it’s cheap and simply holding on to it for years without making use of it for development, available land becomes more valuable because there’s less of it on the market. Developers then look for easy gains when they can sell it in the future once the price goes up because of this.

It has been proposed that past lending policy allowed developers to become extremely rich by hoarding land in this manner and ‘flipping’ it for a huge profit or simply hoarding it until they were able to.

This has led to housing developments having a higher price for entry as developers only seek to make homes that are higher priced as they have much better margins compared to building affordable homes. Developers are simply keeping land undeveloped until it becomes more ‘scarce’ and the price goes up again before making use of it.

An article in the Malay Mail in 2016 looked extensively at this issue and considered reasons as to how it has resulted in an environment of expensive housing and deep pocketed developers, which you can read more about – here.

According to the article, (which referenced Bursa King), the top five developers alone in Malaysia, had land banks with a gross development value of RM80 billion in 2016!

 

Incentives Given to Smaller Developers

Smaller developers in Malaysia currently face huge challenges going up against developing giants such as Eco World, IOI, Mah Sing, Sime Darby and SP Setia. The Pakatan Harapan Government feels that they would like to outstretch a helping hand to those smaller companies who want to get in on the big game of property development with this one.

Since developers only realise their profits progressively throughout the construction process, they end up with a lot of their capital being tied up until the project is completed. This is easily managed by the larger companies but it creates a huge strain on aspiring developers who are looking to enter the space.

Though personally, I feel that this is a good thing as it keeps out a lot of the crappy wannabe developers looking to make a quick buck on a development, thereby preventing the number of poor quality overpriced projects. Unfortunately, it’s not like there haven’t been complaints about some of the big gun’s dishing out poorly finished projects either in recent years.

Perhaps it will help bring on some new players to the field that will cause the big boys to stop cutting down on quality for better margins and bring up property development standards in Malaysia altogether.

 

Reform PR1MA Programme

The Pr1ma Housing Programme was part of the previous government’s grand plans to provide and develop affordable housing for middle income earners in proliferating urban hotspots across the country. The programme seems like a really good idea if you look at it on paper but sadly execution of the Pr1ma Programme was extremely poor.

Basically, the scheme allows owners who don’t own more than one property yet, with a combined household income between RM2,500 and RM15,000 to be eligible for a 110% home loan without paying any down payment for a RM100,000 to RM400,000 specifically designed Pr1ma home.

prima houses
Source: https://www.imoney.my/articles/pr1ma-step-up-end-financing-home-malaysia

Besides having a few questionable dynamics which this article on imoney talks about – here, the programme faced huge volumes of complaints from applicants who failed to secure their homes.

Many people who had applied through Pr1ma were losing out to those who had applied through the developer and many more that were accepted by Pr1ma had their loans rejected in the end.

There were also complaints saying that the housing developments were hardly in proliferating urban areas but on fringing townships located far away from any growing urban areas.

It’s about time they revised the programme and cleaned it up from the inside out.

 

Establish a National Affordable Housing Council

This will be a great move if they set up the council properly. One of the major problems has been that there isn’t a single centralized authority out there able to advise low income earners on their options for affordable housing as well as oversee the development of these homes.

There are so many various programmes out there and the 10 agencies governing them have various different views, agendas and ways of working, as well as separate requirements, which have resulted in a poorly communicated mess that seems to only end up benefitting the developers.

A council overseeing all matters from construction to sale of affordable homes would benefit all those in need of affordable housing tremendously. The Edge agrees with this sentiment as well, and believes that it is a step in the right direction which they have written about – here. It is our shared hope that the plan is orchestrated well and the right people are put in charge.

 

Zero Percent (0%) GST

It is expected that this move will be a warm welcome to the Malaysian property market under Pakatan Harapan. The reduction to 0% from 6% is expected to reduce the cost of development and according to some developers, these savings will be passed on to the buyers.

I am somewhat doubtful about this however, as I don’t see developers really bringing their prices down because of this.

It should also be known that the sales and service tax (SST) will be implemented in its place and though less encompassing, still covers certain raw materials required for development.

The good that I think it will do, is that it might slow property prices from going up as fast as they would have in the future, if the tax was still 6%, but unless a research firm was willing to spend the money and find out what that scenario would be like, your guess is as good as mine.

 

New Housing Minister – Zuraida Kamaruddin

zuraida-kamaruddin-pakatan-housing-minister
Source: http://www.penangpropertytalk.com/2018/05/newly-appointed-housing-minister-pledges-balanced-housing-opportunities/

Besides policies, there’s also an entirely new cabinet – The new, Minister of Housing, Zuraida Kamaruddin, (who was also the PKR Women’s Chief and is serving her third term as the Ampang MP) will be overseeing housing initiatives in the country.

Considering that she does not have much experience in the property sector and that she has expressed her focus to be on equal housing opportunity for Bumiputeras, it seems that her views are very much in line with Pakatan Harapan’s items listed in their manifesto.

It is to be expected that new policies and initiatives under her will target the lower income earners and be done to support home ownership for those who are currently unable to purchase their own homes.

As investors, I believe that there is the potential for various roadblocks to be created from profiteering off low cost housing initiatives and other lower cost housing opportunities currently in the market, but it could also open up new ones.

 

Axing of Big Infrastructure & Suspect Land Deal Projects

The Pakatan Harapan Government has also been coming down hard on many previously planned scheduled mega projects such as the High-Speed Rail (HSR) to Singapore and MRT 3.

Many developments have been sold to investors with the allure that they would be in close proximity to these projects. It will be somewhat of a rude awakening for those who have already made purchases on this basis.

It also remains to be seen what other projects will be laid down on the chopping block – what about Bandar Malaysia or the River of Life?

The Pakatan Harapan Government is also going after suspect land deals by which the state City Halls sold off land to developers at ridiculously low costs compared to what the land is actually worth.

It is unclear how many of the projects that are about to begin will be stopped in their tracks but there is definitely a storm brewing, especially in KL. It will be some time before the truth is uncovered, but they seem adamant that they are going to get to the bottom of things and that many projects will come to a grinding halt.

 

Conclusion  

It remains to be seen whether The Malaysian property market under Pakatan Harapan will thrive but it is certain that they are making plans and taking the right steps to do so.

Their immediate concerns are not investors but those in need of affordable homes. Making sure that those who need homes, are able to get them. It is an important part of developing the country and raising living standards in this manner will be good for the property market in the long term.

This will also likely provide a lot of new opportunities (even though it may remove some old ones) but it would be best to keep your eyes peeled, especially if you are yet to purchase your first property.

Our hope for a bright property market future (as well as the future of all aspects for the entire nation) now lies in the hands of the aptly named, Pakatan Harapan Government.

A new wave of change is upon us, and change always leads to the opening of new doors that never existed before. We just need to be on our toes, to seize these opportunities before the doors swing back closed.

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