The Star
Rides on Ferris wheels are often breathtaking once the cabin reaches the summit. Our eyes are able to feast on the beautiful skyline, and the spectacular view becomes the highlight. While we are amazed with the marvel of the Ferris wheel, the journey itself makes me wonder sometimes.
Rides on Ferris wheels are often breathtaking once the cabin reaches the summit. Our eyes are able to feast on the beautiful skyline, and the spectacular view becomes the highlight. While we are amazed with the marvel of the Ferris wheel, the journey itself makes me wonder sometimes.
The Ferris wheel goes round and round but it doesn’t really carry us anywhere. When we are on the Ferris wheel, we think we are going somewhere. But at the end of the ride, we still find ourselves at the same place.
In life, I sometimes see similar events to riding on a “Ferris wheel”. This ride is either by choice or more often than not, done routinely. One of these real-life scenarios is the cooling off measures imposed on the property industry. Many countries including China, Hong Kong, Singapore and Malaysia have implemented cooling off measures to control the increase in property prices. These measures apparently have some impact in the short-term. It is, however, questionable if these measures can work in the longer-term.
With different levels of development in each country, it would be incorrect to look at all the measures and their effectiveness in the same breath. On this note, let’s focus on the impact of the cooling off measures on the property sector and home purchasers in Malaysia.
The cooling off measures announced in Malaysia since year 2010 include maximum 70% Loan-to-Value ratio for third property, margin of financing base on net income, and loan tenure reduced from 45 years to 35 years. The budget announcement last October saw the removal of DIBS (Developer Interest Bearing Scheme) and also the increase of the minimum house price for foreign purchaser to RM1mil, as well as the revision of RPGT (Real Property Gain Tax) rates.
With each series of new measures imposed, purchasers are adopting a “wait-and-see” attitude, and delaying their home purchase decisions. This causes a slowdown in production because of unsold stock and developers are not launching new projects as frequently. It eventually creates a medium to longer term shortage in supply.
In a survey conducted by Rehda (Real Estate and Housing Developers’ Association) on its members, the number of projects launched in the second half of 2013 dropped by 32% as compared to the first half of 2013. That shows the lacklustre sentiment in the property market.
Fundamentally, it would not be surprising that the hold back in demand will not last long as the population continues to grow. In February this year, our population hits the 30-million mark and according to National Property Information Centre, our existing number of residential properties as at third quarter of 2013 is only about 4.7 million units.
Comparatively, Australia has a population of around 22 million living in 9.1 million homes according to its 2011’s census. To meet demand of the growing population in Malaysia and to catch up with other developed countries, we need to build more homes to meet existing and future demand. At the same time, we need to make houses more affordable. Unfortunately, the tightening measures are pushing the supply in the opposite direction.
As time progresses, when purchasers return to the market due to genuine needs, and to hedge against inflation which has edged up to 3.5% in February this year (higher than the fixed deposit (FD) interest rate of 3.15%), the demand will resume.
On the supply side, developers are faced with challenges in supplying more homes due to land and material costs being in linear progression with inflation, and this is not helped with the uncertainties of the cooling off measures. Evidently, when demand exceeds supply, the price will rise. This is a basic economic principle.
When home prices increase, the authorities will once again impose more cooling off measures with the intention to control price. This is where the “Ferris wheel” comes to play and the vicious cycle repeats itself.
To escape from this cycle, it is critical to encourage more supply by speeding up the approval process for new developments, and addressing the issue of more affordable housing on a platform where both the Government and the private sector are able to operate as one.
There is a need for the various state authorities to consider the conditions imposed on developers, and reduce those conditions that currently deters the building of affordable housing. Conditions such as 30% to be low cost houses to be sold at a fixed price of RM42,000 each, and 30% quota given to specific race with discount, are slowing down the supply of affordable housing. Perhaps PR1MA should be the agency to focus on this affordable housing in a big way.
The cooling off measures and its impact on the rakyat are like riding on a Ferris wheel that keeps us in the same place despite the number of rides we take. It’s time for the authorities and relevant parties to re-look at this “misery-go-round”, and work out plans that make the vision of “housing the nation” a reality, instead of spinning our wheels on the same spot.
