Four reasons why M’sian homes are too expensive
Published on: Monday, February 17, 2020
Text Size:
As you probably know by now, house prices in Malaysia have been criticised as being severely unaffordable to the average Malaysian.
But if you are not familiar with the issue, check out our previous article on ‘How bad is Malaysia’s unaffordable housing crisis?’.
We explore the reasons why Malaysian properties have become too expensive.
Depending on who you ask or which reports you refer to, the number of reasons may vary but the key ingredients that led to this crisis remain the same.
We have summarised the key causes of Malaysia’s housing unaffordability issue into the four factors listed below:
1. Product mismatch
Supply and demand are like the main leads of a romantic comedy - when they finally meet, everyone is happy.
The tragedy is that there is an oversupply of properties and a lack of demand. The two general reasons are Malaysians are either priced out of the market or they are not enticed by the products offered.
According to the National Property Information Centre (Napic), as of the first half of 2019, 32,810 units of properties are overhang units (new properties that are unsold for more than six months), and 43pc of which are condominiums and apartments.
Surprisingly, Napic’s data shows the majority of overhang property fall within the Housing Ministry’s categories of affordability, priced at RM201,000 to RM300,000 (22.3pc) followed by homes at RM300,001 to RM400,001 (17.5pc).
A possible explanation is that these properties also don’t match market needs as they are often far from city centres, lacking connectivity and public transportation - thereby making them unattractive to prospective buyers.
The third-largest group are overhang homes are above RM1 mil (12.8pc) which often targets foreigners and a small percentage of wealthy Malaysians.
Foreigners were previously allowed to buy Malaysian properties above RM1 mil, but the threshold has since been lowered.
2. The slow growth of income
The slow rise in household income over the years is partially caused by slower foreign and domestic economic growth as a whole.
In simple terms, the prices of Malaysian houses has grown far more than the income of the average Malaysian.
To rub salt to the wound, Bank Negara’s Annual Report for 2018 stated that salaries for fresh graduates have actually reduced compared to 2010.Ouch!
3. Rising costs of building homes
The number of superhero movies and tv shows is not the only thing that has risen in the past decade. The costs to develop a property has also risen over the years, often contributed by factors such as:
l High costs of compliance with various regulations including title application and conversion charges, planning requirements and capital contributions (payments to utility providers).
l Higher costs for land purchases and scarcity of suitable land.
l Increase in costs of construction materials and natural resources.
l Increase in costs of labour.
4. Quotas and cross-subsidies
Land is under the purview of state authorities so housing policies can vary across Malaysian states. Property developers must fulfil the policy requirements including quotas for development size, housing types and specific housing prices.
In regards to the above, Rehda’s Affordable Housing Report (2018) listed cross-subsidies (an indirect tax) amongst other challenges to more affordable housing in Malaysia. Cross-subsidies mean property developers must charge buyers higher prices for ordinary units in order to cover losses from charging lower prices for more affordable units.
At first glance, it may seem like a good thing but remember that Napic’s data showed affordable homes do make up part of the bulk of overhang homes.
Imagine as a buyer you have finally found a property you can afford at a suitable location. If the more affordable units are sold out, you are left with the choice of buying another property at a further location or pay more for pricier units thanks to cross-subsidies.
Stay ahead of the crowd and enjoy fresh insights on real estate, property development, and lifestyle trends when you subscribe to our newsletter and follow us on social media. – The Star Property
