The government’s push for more public-private partnerships (PPP) to construct affordable housing is expected to add a new dimension to the property development landscape, particularly since the initiatives are looking to reach critical mass.
Prime Minister Datuk Seri Najib Razak said the government is ready to consider measures to assist developers of affordable residential properties when he unveiled the 1Malaysia People’s Housing Scheme (PR1MA) recently.
Government assistance could include providing land and facilitation funds to ensure that residential units near urban centres can be offered at prices fixed by the government, Najib was quoted as saying.
Market observers view this as a strong indication that the government intends for the private sector to take the lead in providing the bulk of required housing at inexpensive prices.
The government is already shouldering the responsibility of building and maintaining low-cost public housing projects for the poor and staff quarters for the civil service.
In the last two years, Malaysia’s real estate market has seen a magnificent run particularly in the urban areas of the Klang Valley, Penang and Johor.
While details are still scarce on how the PPP for affordable housing will be structured, the PR1MA scheme involves the government providing land for private sector developers. The units are to be sold at government-approved prices and other conditions are attached.
At a recent conference on affordable housing, Economic Planning Unit deputy director-general I Datuk Mat Noor Nawi said the government would not restrict itself to the PPP models for affordable housing projects.
Mat Noor said the government is studying the viability of other forms of assistance to help spur and sustain private sector participation in affordable housing,
One measure currently being considered, Mat Noor said, is to increase the allowable density for land earmarked for low- and medium-cost housing, which should allow more units to be built on a certain parcel of land.
The longer-term goals include increasing the supply of quality and affordable housing, supporting a financially sustainable industry in order to ensure continuous private sector participation and to promote sustainable planning, Mat Noor said.
There is clearly no easy solution to the affordable housing dilemma.
MIDF Research chief economist Anthony Dass said that while the government can step in to assist developers, the government cannot continually give subsidies to developers of affordable housing.
“We cannot be going on and on about subsidies. The world is changing and we have to move away from subsidies,” Dass said.
There are often fears that margin compression will invariably lead to compromised building quality, when it comes to building low- or medium-cost housing.
One solution is for the government to provide cheaper land for affordable housing schemes to ensure that land costs do not drive up development costs, Dass said.
He stressed that the key to providing affordable housing rests on the implementation of such schemes to ensure that the inexpensive units reach the specific target beneficiaries.
Apart from PR1MA, the government has also announced the My First Home Scheme which aims to help first time home buyers earning a monthly income of below RM3,000 to secure financing for homes priced at between RM110,000 and RM220,000.
These measures underscore the growing concern surrounding the housing needs of the middle income group, which has a monthly household income of RM2,300 to RM6,000. This group is said to form about 40% of the population.
Fears are that the middle class is faced with limited choices when it comes to buying quality residential properties in good locations due to weaker buying power, which is often attributed to stagnating wages and rising prices driven by market forces.
The conundrum is that middle-income earners are often ineligible for low-cost or public housing but at the same time find it increasingly difficult to afford properties due to rising costs.
Quoting government data, Mat Noor stresses the twin challenges of growing price disparity between urban and non-urban areas and the apparent mismatch of supply and demand for housing in the country.
According to Mat Noor, the prices of residential properties in Kuala Lumpur exceed the national average by 113%, where the average price per unit in the capital city is RM450,000 compared with the national average of RM211,000 per unit as at 1Q11.
Property prices outside the Klang Valley, Penang, Sabah and Sarawak are two-thirds below the national average, Mat Noor said, adding that the construction of residential properties is increasingly concentrated in the urban centres of the Klang Valley, Johor and Penang.
As a rough illustration, he points out that about 60% of the housing stock is available for only 43% of the total population.
In terms of property types, Mat Noor said over half the houses built between 2006 and 2010 were high cost concentrated in “lucrative” areas.
“The low to medium segment gets the least focus from developers. There is a tendency to concentrate on high cost housing because that is where most of the profit comes from. It is getting increasingly imbalanced,” Mat Noor told conference delegates.
In light of these plans to address the affordable housing issue via public-private collaboration, where does the private sector stand?
Some industry players point out that it is unsustainable for the government to drive the affordable housing agenda by providing government land for free or at lower prices to private developers.
Industry observers opine that even with minimal government assistance, there is still plenty of room for property developers to build affordable housing projects and still turn a healthy profit.
Among the listed property developers, Hua Yang Bhd is one example of a builder which has largely been operating in the affordable housing segment targeting young professionals and first time home-buyers.
Hua Yang chief financial officer May Chan told The Edge Financial Daily that Hua Yang maintains its profit margins and records earnings growth despite operating in the affordable housing segment.
“Affordable housing does not mean your profits are squeezed. There are definitely measures you can take to maintain your profit margins,” she said.
At the group level, Hua Yang’s gross profit margins range between 25% and 30% while that of its projects average between 30% and 40%, she said.
To maintain profitability, Chan said Hua Yang emphasises design, value engineering and controlling its land costs particularly since land in the Klang Valley and Penang island in particular is priced at a premium.
Hua Yang has fixed an upper limit for land cost at no more than 20% of a project’s total gross development value to manage the group’s development costs and profit margins, Chan said.
Asked what incentives could help spur the affordable housing sector, Chan said: “Reduce the red tape and help create a business-friendly environment to help developers of affordable housing”.