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Property
Since 1988, the property sector grew rapidly as a result of
the high demand for residential and commercial properties. To prevent the formation
of an asset bubble, Bank Negara Malaysia introduced some measures to curb property
lending and control asset price inflation. These measures were supported by the recent
Budget.
According to estimates, the supply of non-residential property
will increase dramatically over the next three years. In the Klang Valley, the current
office space will increase by two-thirds, while the capacity for retail space and
hotel rooms will double. With the oversupply and economic slowdown, rentals will
fall and the markets go below replacement cost. This causes concern to investors,
developers and financiers. For residential property, the supply of houses has fallen
short of demand by 15 per cent per annum. It remains a challenge for developers to
build houses within the affordable range. Among the high-rise units, there is an
oversupply of condominiums, especially with more units coming on-stream.
The property sector is heading for a crisis, with rising vacancies
and falling prices. The sector faces financing problems, and is hit by poor stock
market performance, foreign exchange fluctuation, higher interest rates, and economic
slowdown. The depressed property sector results in worker retrenchments and badly
affects other manufacturing and service industries. The banking system will also
be affected, especially for banks with high property exposure. The following measures
are recommended:
- Change the classification of property from "productive"
and "non-productive" into "priority" and "non-priority".
The classification of "non-productive" property sector is an over-simplification
because the property sector has strong linkages with other economic sectors and there
are some projects that merit reconsideration.
- Relax the condition for the extension of credit for construction
and property development. The relaxation of the credit extension condition is a short-term
measure that is urgently needed to prevent the economy from getting into a growth
seizure. In the medium- and long-term, however, the direction of lending should be
channelled to the development of the tradable sectors and avoid over investments
in the property sector.
- Financial institutions should continue to lend selectively
to property developers and the first-time house buyers. Lending must, however, be
based on merits of the case and supported by proper and detailed market and feasibility
studies.
- Property collateral for loans already given out should be
continuously assessed at regular intervals to ensure the adequacy of security values.
- Financial institutions should not take early action to foreclose
on property. Such actions by individual banks can precipitate sharp falls in values,
which will then require more foreclosures. This will cause property values and market
to spiral downwards.
- The Government should consider on the priority basis the establishment
of an entity along the lines of the Resolution Trust Corporation to take over the
stricken assets from banks and resolve them over a longer time period.
- State Governments
Role in Allocation
- State governments should be encouraged to buy up the allocation
of houses for Bumiputera for reallocation later. Failing that, the government should
give a quick waiver on houses that are not taken up after 6 months so that they could
be released to non-Bumiputera and foreigners. Developers are given the right to act
if there is no response by the state government as long as the guidelines are met.
- State governments should also take up low cost houses for
reallocation to those who qualify.
- Purchase of
Property by Foreigners
- The guidelines of state and Federal governments on foreign
purchases of property should be clear and consistent.
- Relax the FIC conditions on the purchase of landed property
costing RM250,000 and above by foreigners for units that are already completed or
at least half completed and provided the finance comes from foreign sources. Once
policies on foreign ownership are made, the government should keep them unchanged
for many years so as not to send conflicting signals and create uncertainty among
foreigners.
- Foreigners should not be allowed to buy and own landed property
(such as link houses, semi-detached houses, and bungalows) costing RM250,000 or less
to ensure that there is no crowding out of local buyers at the lower price range
by foreigners.
- Foreigners should not be allowed to buy and own strata units
below RM250,000.
- Target Malaysia as a centre for financial services to increase
the utilisation of commercial office space and hotel utilisation.
- Given the excess capacity of retail and commercial space,
consider making Malaysia as the shopping hub for Asia. This measure to bring in tourists
and foreign exchange should be accompanied by tax liberalisation on luxury goods.
- Planning Control
and Discipline
- State government should exercise a great deal of restraint
in land conversions, which should be in accordance with the structure plan revised
every 5-10 years. The Federal Government should monitor the land conversion process.
Proper monitoring of land conversion can also help to control the oversupply of commercial
property.
- Planning is a joint Federal/State function. The Federal Government
must have a say in planning matters.
- Planning authorities and financial institutions should insist
on proper market studies when considering the approval of projects. At present, planning
authorities approve applications without knowing the financial implications of the
project on the economy.
- The valuation reports should be updated from time to time
during the life of the loan to reflect the changing circumstances.
- In view of the prospective glut of office space, there should
be a temporary moratorium on approvals until the situation improves. Banks should
consider stopping projects that are just starting with the groundwork rather than
allowing them to contribute to the non-performing loans.
- Affordable housing in the Klang Valley, Johor Bahru and Pulau
Pinang should be in the range of RM200,000 and below based on the household income
level. For households with an income of RM750-RM1,000 per month, the housing affordability
is around three times the annual household income, i.e. RM27,000-RM36,000.
- Adopt a more flexible ceiling price for low-cost housing.
The ceiling price of RM25,000 for low-cost housing has been questioned because the
price, which has not been changed for the last 15 years, does not take into account
inflation and rising input costs.
- For rural areas and depressed urban centres, the RM25,000
limit could be raised to RM35,000-RM40,000; for developed urban centres, a new level
of low medium-cost housing units (with 3 bedrooms, 2 baths and not less than 800
square feet) and priced at RM60,000-RM75,000 each could be considered. The low-cost
housing provision should be exempted here and replaced by low medium-cost housing,
for which a minimum quota of 30 per cent of total built-up units should be imposed
in order to avoid the creation of urban slums. For luxurious and expensive areas,
the exemption for low and medium-cost housing should remain.
- View the development of low cost housing in an integrated
manner. Developers can only continue to supply low-cost housing at RM25,000 because
of cross subsidisation from the high cost units. Should the demand and supply of
high cost houses become limited because of the difficulty of obtaining finance by
buyers or developers, there will be much less motivation by developers to build low-cost
houses at the controlled price.
- The development of low-cost housing should be supported by
shop houses and infrastructure. There is the need to fine-tune the credit policy
so that banks can look favourably towards the development
- of shop houses if developers can convince the banks about
their viability.
- There is a strong case for the Federal Government, state government,
and local authorities to build low-cost houses for rental at nominal rates to low-income
Malaysians who are unable to purchase the housing units.
- State governments should consider providing land for low-cost
housing to private developers for them to build low-cost housing within the ceiling
price. Private developers with land banks acquired at a low cost should consider
helping out in low-cost housing development.
- The government should formulate a proper immigrant housing
policy to prevent the sprouting of slums in the country. A housing levy should be
imposed on employers for each immigrant employed to defray the cost of providing
low-cost housing for rental to the immigrants. Employers are also encouraged to provide
houses or hostels for their workers.
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