First announced last October in Budget 2011 and officially launched in March by Prime Minister Datuk Seri Najib Tun Razak, the scheme is aimed at helping young professionals between 18 and 35 to own a home priced between RM100,000 and RM220,000. At the launch, Najib expressed his hope that the private sector would view participation in the scheme as a corporate social responsibility (CSR) activity, and not as a venture to profit from.
Ghazali: ‘There are still a lot of existing affordable homes in locations such as Nilai, Rawang and Sepang.’
In other words, the developers are expected to shoulder the costs of MFH projects as part of being dutiful corporate citizens. Nevertheless, it has been reported that the Government was considering providing land at very low cost or for free, even in the Klang Valley, in joint ventures with the private sector. If this indeed happens, says Real Estate and Housing Developers' Association (Rehda) president Datuk Seri Michael Yam, it will help developers to lower costs.
Still, there is this next question on the minds of developers: If the land comes free or cheaper, where will it be? If the sites are far from the city centre or in areas that lack public amenities, will there be enough buyers? As it is, many low-cost housing projects built by the private sector are in areas such as Nilai, Rawang and Sepang, which cannot boast of high demand. If the scheme's objective is to meet demand for homes, allocating land in such locations would be self-defeating.
Lightening the developers' load
Yam says land generally constitutes a fifth of the total gross development cost of stratified properties. “For most parts of the Klang Valley and Penang, the likehood is that housing units below RM220,000 would be stratified apartments with relatively small built-up areas, despite land being free,” he adds.
Elsewhere in Malaysia, it may still be possible to deliver landed properties with smaller built-up areas in less prime areas, if access to completed roads and infrastructure is available, and certain conditions and cross-subsidy requirements are waived.
He points out that the expenditure in developing a property project covers land, manpower, construction materials, consultancy fees, utility contribution, bank interest, cross subsidy for low-cost homes and discounts to meet national aspirations. “If all the stakeholders can review their cost, provide subsidised materials and reduce utility contributions, the final delivery cost can be lowered,” he says. He also suggests that the Government consider providing upfront infrastructure and utilities to further reduce the burden on developers.
Hua Yang Bhd chief executive officer Ho Wen Yan believes that it is possible for developers to offer better homes if the Government supplies the land.
He argues: “With cheaper land cost, better homes with larger living area and better amenities can be provided. With good transportation infrastructure such as integrated highways, the MRT (Mass Rapid Transit), KTM Komuter and other forms of public transport, it is possible to live further away and work in the city. This is a proven model in developed cities all over the world.”
At present, says Ho, urban density in Kuala Lumpur is increasing rapidly. To reduce social and economic pressures, there is a need to look at alternatives beyond the city centre.
He points out that while property developers may not be looking to earn sizeable margins from the MFH scheme, some profit is still needed to make participation viable for them. “Balancing all the factors of cost, land allocation and earnings will be critical towards the long-term sustainability of the scheme. Financial incentives such as tax breaks, rebates and other forms of support will be welcomed by the private sector,” he says.
What buyers want
While the developers focus on costs, the buyers are primarily concerned about three things location, location, location. This has been a perennial point of contention with social housing, be it low-cost or affordable housing. Or any form of housing, for that matter. Because land within or close to the city is expensive, developers tend to build social housing in less-than-prime areas, which explains the poor demand.
Normlly, low-cost housing costs about RM42,000 a unit with a build-up of 650sq ft. Affordable housing, such as those that come under the MFH, is priced between RM100,000 and RM220,000 a unit. Size for units under the scheme has not been determined so far.
With land cost escalating, property consultancy Rahim & Co executive chairman Datuk Abdul Rahim Rahman reckons that developers should be allowed to build premium units in tandem with MFH homes so as to give them a chance to make a profit.
“If the Government provides a 100-acre plot for the scheme for free, or at very low cost, conditions should be imposed whereby the private developer must allocate fixed portions of the project for low-cost and affordable housing. Perhaps 30% of the project can be low-cost housing and 20% for affordable housing. The remainder can generate profits for the developer,” he says.
Generally, Rahim adds, location, demand and transportation are issues that the Government needs to consider. “Old apartments sized at less than 1,000 sq ft can be found for less than RM220,000 in the Gombak area. However, for double-storey houses in Gombak and Cheras, the prices are upwards of RM350,000 and RM450,000 respectively. If they stay in Rawang or Klang, and work in Kuala Lumpur, the cost of daily transport to work is prohibitive.”
Boustead Holdings Bhd director (property) Datuk Ghazali Mohd Ali says if an MFH project is located in the Klang Valley, the developer should be allowed to build affordable homes in place of low-cost units. For similar projects outside the Klang Valley, he says, developers can opt to build low-cost homes instead, as buyer income tend to be lower in such locations and demand may not be as strong given that there is abundant land in these areas.
Ghazali says the MFH affordable homes need to be built in locations where demand is strong as they are meant for young working professionals. “There are still a lot of existing affordable homes in locations such as Nilai, Rawang and Sepang. So it would defeat the purpose of the scheme to build more of such homes in these areas. The Klang Valley remains the top draw for young adults looking for job opportunities. It will continue to be the location of choice for young adult home buyers, unless there is an efficient transportation system serving Nilai, Rawang and Sepang,” he adds.
“Poor response to these units will mean higher holding and opportunity costs for developers.”
The provision of social housing is not something new to developers. Developers of projects of a certain size are required to carve out a portion of their land for low-cost housing. There is also Syarikat Perumahan Negara Bhd (SPNB), a unit of the Minister of Finance Inc, which was set up in 1997 to provide affordable housing.
But for whatever reasons, public response to affordable homes built by SPNB has not been encouraging. Recent reports highlighted the lack of response to 11,400 low and medium-cost housing units completed by the company.
SPNB chairman Datuk Idris Haron says this could be due to the lack of publicity about the homes. With the launch of this MFH scheme, SPNB will act as a one-stop centre for applications and access to financing for homes. National mortgage company Cagamas Bhd will guarantee 10% of the financing for the home purchases. A total of 25 banks have agreed to give out home purchase loans under the scheme.
So far, about 4,516 housing units with retail prices that are categorised under the MFH scheme, have been completed in 12 projects by SPNB. Another 8,991 units in 16 projects are under construction. As of April 30, 772 people had applied for loans under the scheme, while 143 applications have been approved, amounting to RM21.3mil in loans, with an average value of RM149,365 per loan.
By The Star
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