The baffling prices of houses

It is a fundamental fact of economics in any market sector that when the price of a commodity goes up it is because, all things being equal, the supply of the item is too small to meet a much bigger demand.

There is, however, one sector in Malaysia that seems to have defied this textbook logic in a bewildering way. For there are probably few mature economies in the world where the housing sector has been so overpriced for their own people as in Malaysia.

According to the Population and Housing Census, there have actually been more housing units than households in the country. In 2000, for example, the vacancy rate in terms of unoccupied housing units for all of Malaysia was 15.6% – with most units being newly completed in urban areas and put up for sale or rent.

What this effectively indicated was that much of the property was being used for speculative and investment purposes, causing the house prices to be pushed up.

The average house price in Kuala Lumpur was RM390,000 – almost six times the average household income – in 2009. Prices were even worse on Penang Island, averaging about RM540,000 – or eight times the average household income – according to the Socio-Economic and Environmental Research Institute. What these figures basically point to is a glaring mismatch between the demand and supply of houses.

"The majority of Malaysians want affordable homes, but developers are supplying houses that they cannot afford," S. M. Mohamed Idris, president of the Consumers Association of Penang, said. "Developers prefer to cater to investors and speculators who buy to rent, or to flip over and make money."

It is a known fact that developers give preferences and reserve the best units for clients who buy multiple units even before a project is officially launched. "Ordinary house buyers then have to queue and accept less desirable units or buy them from the investors usually at higher prices. Developers even go overseas to aggressively market property as they are still cheap by international standards," Idris said.

Seeing such an absurd situation where property prices have gone beyond the reach of most locals, the Penang State Assembly approved an enactment in November last year to establish a state Housing Board. A key focus of the board is to promote and spawn the development of affordable housing projects by the private sector.

In particular the Penang government is looking at having sufficient housing units, both landed property as well as apartments, that would cost below RM350,000 each.

At about the same time, the federal government announced in its 2011 Budget a My First House Scheme where first-time house buyers with a family income of less than RM3,000 a month need not place a downpayment on their first home when they purchase houses priced below RM220,000.

The scheme may help to lower housing prices in some areas and make homes more affordable especially for young, start-up families. However, not everyone looking towards buying a home in urban areas would really benefit. This is because property prices have been increasing over the years, so much so that link houses on Penang island are being sold at above RM600,000 each while condominiums are above RM400,000.

The Real Estate and Housing Developers Association Penang branch chairman Datuk Jerry Chan said that though the federal scheme may spur some developers to come up with housing projects with units at less than RM220,000 each, prices on the island and near the city are still very much dependent on market demand.

It is possible that the scheme, when teamed with the state government’s recent revision of plot-ratio and current low-interest rates, would benefit young professionals just coming out to work and looking to own their first homes. But the greater over-arching problem of a dearth of affordable, comfortably-spaced houses for the general populace is likely to remain.

There have been some other government measures, such as limiting buyers of a third property to a 70% loan to value ratio, but policies like this have been deemed inadequate to curb excessive investment and speculation. There have also been calls for the government to increase property gains tax on short-term transactions, and even to stop the sale of landed property to foreigners.

But until and unless there is a stronger shift in the consciousness of the government and the private sector for suitable housing catered to the purse strings of our average urban citizen, the reality of the market will show little sign of prices being finally stopped from spiralling out of control.

Himanshu is theSun’s Penang bureau chief. - By Himanshu Bhatt (theSun)

14 comments

April 14, 2011 at 3:41 PMTaphie78

Bravo, very well said! Sokong all the way.
In support of Penang Home for Penang Lang.

Hell with investors and speculators, of course the devil developers, too....

 
April 14, 2011 at 9:51 PMcondomana

Bravo what? Don't simply Bravolah. Himanshu has offered no solution to the current housing problem. He is "baffled"!..:))

Penang Home for Penang Lang?? Hehe, you're so cute and naive. Penang Langs (the mega rich Honda Loh family - the biggest bulk buyers in Penang) are the biggest culprit. Not only they buy bulk, they even built houses themselves to set higher benchmark prices.

The government wants to build nice affordable houses? Make sure you either get a proper system up to check the buyers' eligibility OR build those houses at undesirable locations. If you don't get any of these right, guess what the outcome would be?..;)

 
April 14, 2011 at 11:29 PMalan

The developer themself cannot do speculations. Penang Lang kia sue attitude, and the government's ignorance in protecting lower income groups' purchasing power years ago.

What the government cares is the tax profits and never consider projects' impact on the traffic congestions.

Transportation not been taken care of and roads are still narrow after so many years.

Lack of car parks provided by developers force residents to park their cars at roadside. Developers take this chances to sell extra car parks at high prices.
The police traffic also take chances giving more summons and having good commissions.

Every year we pay good income taxes to the government. What do we enjoy? We pay our own insurance. We need fire volunteer communities whom are more effective. We need the Community Policing to make the rounds.

 
April 15, 2011 at 10:05 AMDaamao

One of the key measures to success of current Penang government would be to take unprecedented step of establishing a platform for affordable housing, much like Singapore's HDB, so housing for the masses is no longer at the mercy of the developers or the speculators, whose sole intend and purpose is to maximize profit at minimum cost, but bare zero social responsibility.

This is what a government is for: people first, performance now. We can all ditch that slogan that carries no added value, and hold our heads high as a developed state, with a developed government.

 
April 15, 2011 at 11:55 AMcondomana

Hi Daamao,

When you said "....maximise profit at minimum cost, but bare zero social responsibility", that reminds me of the low cost flats that developers are required by law to build for every luxury project that is being developed. Example, the few blocks of low cost flats built by E&O just next to those multi-million homes.

So, in fact E&O has fulfilled it's "social responsibility". Now, these flats are suppose to be for low income earners. But I know of someone who owns 10 units of these flats, renting them out to those banglas working in a petrol station nearby.

Are these rich people depriving the poor of housing due to system loopholes? Or is there an oversupply of such low cost units that the surplus units are being sold to high income earners for rental income?

As far as i can see, the low income earners are not making noise about housing as you can get plenty in the market (a long list of low cost flats at auctions).

The real whiners are the middle income people, those who think it's their god given rights to be able to buy a nice full-facility condo or double/triple storey terrace house in a "classy" neighbourhood with RM500k..:)

How do you solve this problem? Hehehe...big headache. The S'pore gov tried to solve this problem by introducing "executive HDB" flats, gov flats that are on par in quality & facility with Bayswater.

Hmmm....I certainly look forward to these "executive gov flats" on the phase-2 740 acre E&O reclaim land. That would be truly "world class". DAP Penang, think out of a box and come up with innovative solution. You will then be a hero!!

 
April 15, 2011 at 1:41 PMcondomana

Hi Alan,

Every year you pay good income tax to the government.

In return, you get to enjoy subsidised RON95 petrol & exceptionally cheap public health care (but I know instead you prefer to pay Dr LohGuanLye, Dr Gleaneagles & Dr Adventist much more so that you can enjoy the torture of waiting in line for hours at these hospitals)..:)

Not enough car parks provided by your developer? and you blame government? Try talk to your developer to give you more car park for free lah stupid!

You pay your own insurance? who doesn't? You go ask the europeans who pays for their insurance and how expensive is their insurance? You want the government to take good care of you, everything first class, work minimal hours like the europeans. Can, like portugal & spain going bankcrupt loh!!

Dumbass people like you never appreciate what you have. Always complain, complain, never your own fault, always someone else's fault. You think Malaysia is hell, while the ang mohs think this is heaven!!

C'mon man. Stop complaining. Think how you can help to make Penang a better place to live.

"Ask not what your country can do for you - ask what you can do for your country"

 
April 15, 2011 at 2:32 PMDaamao

Dear Condomana,
Good points you have there, but let's explore your comments:

1. fulfilling developer's social responsibility - building these low cost flat is merely fulfilling what is required by laws. I would prefer to think in bigger context of providing a safe haven where families grow healthily and children free to roam without worry, just to name a couple.

As you stated, the option for housing today is between devils and deep blue sea so we have not met the objective through low cost flats, not to mention the hanky panky behind the scene.

2. God's given right of owning a decent house/condo at 500k - nothing wrong with that. In fact, why not make it 350k.

The problem is when these "whiners" who work hard and are already earning much more than the per capital income that federal government envision in 2020, but still can't afford these decent housing without breaking their backs.

Let’s ponder the opportunities, if land matters is under jurisdiction of state government, that opens the options of
a. sell these lands as "raw material" to developer and let the developer determine the market value of finished product based on "supply & demand".
b. engaged themselves in turnkey projects, establish guideline on how, and who is entitled to these "affordable" housing to fulfill what I think is the rightful social responsibility.

Many people have asked if the state government is better than its predecessor. Well, apart from the feel good factor, in what way has the new government changed your life? And what better way than to take a leap by offering housing scheme that everyone can be proud of?

Malaysia Boleh? How abt Penang Can for a start le..?

 
April 16, 2011 at 3:53 PMcondomana

Dear Daamao,

Pls let me suggest an option "c" : For E&O to reclaim another 740acres, it has to surrender back 5% of that (that means 15acres which probably might accommodate ~1000+ units of condos of ~1800sqft ). E&O will be required to build condos with decent quality (not too fancy, maybe something like the brezza) on those land and sell it at RM350k to "qualified" buyers.

My parents are "char koey teow" hawkers, my father-in-law is a bricklayer, and bro-in-law is a "diamond-water" salesman. YooHoo!! I'm already "qualified" for 3 units here!!

 
April 18, 2011 at 3:09 AMalan

Char Koey Teow kia, I thought you are clever but you are another dump dump asss.

If the previous goverment is so good why opposition can win the seats today?

You are staying in Malaysia. Have you heard of Petronas? You don't know how much the profit a year? Low petrol price is for all Malaysian. What's wrong?

Long queing in private hospitals? Enjoy cheap hospitalisation services in General Hospitals?
You are right.

CONDOMANA, if there is any emergency, please bring your parents or your loved ones to General Hospital Emergency and pay RM1.00 I wish you Good Luck!!! All the best!!

A well planned development will not create a mass traffic jam on the area. Who approved the projects? Who should be blame for insufficient place for car park? If there is problem, who should look into it?

If you are not BLIND, you can see a lot cars parking roadside those high rise apartments with limited car parks. You may be one of the asshole parking your car there.

Why are you comparing to lazy country so far? You can't see your neighbour Singapore? Australia? I think you must have mental problem or eyes problem. We are in ASIAN.

I think you must have done a lot to the country.
Please ask your Char Koey Teow parents, bricklayer father-in-law and diamond-water salesman bro-in-law REMEMBER TO DECLARE INCOME TAX 2010.

PENANG NEED MORE INCOME FOR FUTURE DEVELOPMENT .

PLEASE DON'T JUST TAKE BUT ALSO REMEMBER TO GIVE SOME BACK.

 
April 18, 2011 at 11:50 AMcondomana

Hello alan,

ah..finally. Just when I thought you were going to keep quiet after being called "dumbass" & "stupid".

OK. Let's see what you have to say.

(1) call me dumb dumb ass, blind, asshole, eye & mental problem (ok I understand your feelings, we are even now!!;)

(2) did I say anything about previous png gov good?? I think current one is better (think we are on same page here..*shake hands*.;))

(3) Yes, I have heard of Petronas. It makes lots of money. Nothing wrong with low petrol price in Msia, that's why it's low mah. But Msia will become a net importer of oil soon you know. How then?

(4) For emergency cases, go private hospital loh. For chronic case, can go gov hospital mah. But then again, depends on what type of emergency, if it's motorbike serious accident, you better ask ambulance to send you to gov hosp, coz private will take time to check if you have insurance, ask you to pay deposit etc..by then, maybe you already "go back to china".

(5) Car park issue? *sigh*. I thought local gov already say must allocate 2 car parks each unit? still not enough meh? have to give how many for free then?

(6) Singapore?? Do you know you have to pay through your underwear even at gov hospitals there? Australia? That country is so rich! so blessed with natural resources. Even China gov also have to go pacify them for their coal & ores (just imagine how much they have). China never come to Msia to pacify for oil (imagine how little we have). Cannot compare lah.....

(7) Hey hey hey, don't say my parents never pay tax ah!! That's way out of line. Can call me blind, asshole etc....but dont call my parents tax evaders. Evading tax is a bad as stealing. We are no thieves!!!

 
April 27, 2011 at 1:25 PMkucing

Condomana,

come on ! where are all the debates ?

Keep going !!

:)

 
May 1, 2011 at 1:28 AMcondomana

Hi kucing,

I want to keep the debate going, but some how having errors while posting comments. Dunno why.

 
March 13, 2012 at 2:19 PMMark

Just to let you guys know, In Singapore, everything here is $$$$. It only serve the rich well. For the poor to be here is as good as living hell. Every little small shit is money. Our normal parking lot at any HDB flat area is SGD$70 per month, multistorey is $90 per month. Cannot choose.
Medical here even if we go through government, we still have to pay quite a sum of money. I went for my MR scan and CT scan previously and the MR scan is like SGD $350 after and CT scan is SGD $105 afetr government subsidised. If were to go through private hospital, MR scan is SGD $1300. imagine that.

Our roads are wide and there's developement everyday in every sector and department. thats why there's always price increase every year. whether if its transportation, education, medical property. etc etc.... never ending.
Now the COE in singapore is SGD$50K to SGD$70K. Do you know abt this?

Everthing here is quite top notch but there's a price to pay. Thats why our PM pay is SGD$3.6million a year.

There's pros and cons in everything the government does. you gain something, you loose something. Be absolute sure what you really need before you demand or ask.

 
March 13, 2012 at 2:35 PMMark

Hi, Just to share what i know. My Aunt is living in melborne. She passed away a few months back. Living in Aust is good, but have to get used to the slow living pace there. housing there is quite ex but every house is freehold. Approx Aust$400K can get you a very decent house with garage and garden, 2 storey high. Living standard there is also very high. An average plate of chicken rice or noodles cost Aust $7.00 per bowl. But its very big, sufficient to feed 2 person (Asian). the Ang Mohs can finish it alone.

Their monthly income tax is 30%, which means you only take back Aust $2.8K if you monthly pay is Aust $4K. Where does this money goes to? medical, developement, feeding the poor and homeless, jobless people, old retiree etc.

Car there is cheap. A few thousand dollars can get you a workable car to bring you from place to place. without a car you are a handicap in Aust. The house are mostly far apart at the outskirt areas but more concentrated at the city area, which is more costly.

The cheapest fast food there is subway. macdonalds and KFC is damn ex. Liquor there is very cheap

One thing I like about aust is that I can smoke and drink in the university campus and its legal. Shiok.

If you are thinking of living in Aust, go to melborne because the "Di Tou She" there is chinese.
So you wont have to worry much about the aussie's being racist at that area. but keep your finger cross because anything could happen. We asians are only half the size they are.