Developers against Budget 2015 cooling measures
Published on: Monday, September 22, 2014
KOTA KINABALU: It was a relief that Bank Negara maintained its base 3.25 per cent interest rate for most hard pressed highly geared mortgage loan servicing property buyers. Many had feared another 0.25 per cent increase to 3.50 as a cooling measure on the property sector.In a survey, most Malaysian property developers, claiming a slowdown in sales after Putrajaya introduced cooling measures to rein in spiralling house prices, are opposed to further cooling measures expected with next Budget 2015 to be tabled by the prime minister next month.Many felt that the market's pessimism is expected to continue to next year with lowering sales as the Property Industry Survey for the first half of 2014 by the Real Estate and Housing Developers' Association (Rehda) in West Malaysia showed that 85 per cent of 152 developers admitted to experiencing a drop in sales.
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Rehda said it has been lobbying for an automatic release mechanism, whereby developers may sell one-third of the units previously allocated for Bumiputera buyers if there are no takers after six months.Subsequently, another one-third shall be released after a further 12 months, and the rest after another 18 months.Only 20 per cent felt optimistic over the property market industry's outlook in the second half of 2014 with 13 per cent were optimistic for the first half of 2015, when the goods and services tax (GST) is expected to be implemented by April 1 next year.Developers are against proposals to increase the Bumiputera allocations in residential areas that are traditionally occupied by non-Bumiputera, as it will result in more idle units due to lack of demand.
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Rehda stated that over one in three Bumiputera lots in the Greater Klang Valley went unsold as some councils have raised the quota to as high as 70 per cent."Demographic locality cannot be pushed. We're not trying to be racist but it's a fact. If you were to ask a non-Bumi to buy a house in Keramat, a lot of people will say 'no'," Rehda president Datuk Seri Fateh Iskandar Mohamed Mansor said, referring to a Malay-majority residential area. "If you were to ask a Bumi to buy a house in Jinjang probably, it's going to be difficult," he added, referring to a Chinese-majority area.
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"That's a fact; it's the reality. Yet these quotas are still being put in every place," said Fateh.Rehda said it supports Putrajaya's initiative for a 30 per cent Bumiputera quota, but some local councils such as in urban areas such as Petaling Jaya and Subang Jaya are arbitrarily raising this to 50 and even 70 per cent.Despite that, Fateh said its suggestion has so far been snubbed by both federal and state authorities. "It's because land is a state matter. There is a loophole there," explained Fateh, who is also the Selangor Umno treasurer.The issue has been an ongoing headache for developers, as Rehda complained last year that the Bumiputera quota has been abused by higher-income buyers.Bumiputeras are automatically entitled to a seven per cent discount on houses or property, regardless of their financial standing, following the implementation of the now-defunct New Economic Policy (NEP). In Sabah, it is around five per cent.Rehda indicated that unreleased units were as high as 56 per cent of unsold homes costing above RM500,000 in prime areas of Selangor, Kuala Lumpur, Johor and Penang.In Rehda Institute's Property Industry Survey for the first half of 2014, most unsold units, at 34 per cent, were priced between RM250,000 and RM500,000, and were mainly located in Perak and Pahang.Another 31 per cent of unsold homes were priced between RM500,000 and RM1 million, and were mainly located in Selangor and Johor.A total of 31 per cent out of 86 developers claimed that unsold units had a "severe impact" on their cash flow, with 64 per cent saying there was "some impact". It is fair to understand that even established developers find it difficult to continue building houses if about one third of their products is left unsold. It should be noted that construction workers and suppliers of construction materials have to be paid on schedule. The workers and suppliers may sympathise with the developers, but they also need money to feed their families.Fateh said consumer financing is a "major obstacle" for the developers as 53 per cent of developers complained of problems with their buyers getting their loans approved."It's so difficult to get financing. The rejection rate is so high. The term 'responsible lending' is something that I hope the banks will relook at," Fateh said. The survey showed that the highest number of rejected loan applications, at 30 per cent, were for homes priced between RM250,000 and RM500,000.Like Shareda, Rehda took issue with the 70 per cent maximum loan-to-value ratio imposed by the banks, pointing out that the majority of first time home buyers can afford to service their loans.It also called for the Developer Interest Bearing Scheme (DIBS) to be reinstated for first time home buyers, and for more flexibility from financial institutions for buyers in bigger cities.DIBS was introduced in 2007 by a developer in Penang when there was a global financial crisis. Fearful that the traditional 30 per cent down payment to book a house might be an obstacle to sell its houses, the developer introduced a 5/95 payment scheme whereby buyers paid only 5 per cent of the property price and borrowed 95 per cent from banks. Making it even more attractive, the developer paid the interest for the buyers' loans until the project was completed. The scheme was a tremendous success.As more and more developers adopted this scheme, DIBS became popular among property developers. However, as one of the cooling measures of property price increase, the scheme was banned in 2014.This comes as the price range of most property developments launched in the period, increased significantly compared to the previous half.Prices for most launches in Kuala Lumpur rose to above RM1 million from being between RM500,000 to RM1 million previously.Perak was the only state that experienced a fall in the most-launched price range in the first half of 2014, while there was no new launch at all in Terengganu."Realistically, prices of houses cannot go down," said Fateh, as the survey showed that 61 per cent of respondents said that their overall costs of doing business increased. "The only way is to provide more supply, not by making loans difficult," he added.In Budget 2014 tabled last year, Putrajaya doubled the real property gains tax (RPGT) to 30 per cent for properties disposed within three years of acquisition, 20 per cent within the fourth year, and 15 per cent on the fifth year.Putrajaya banned the DIBS in which the developer pays the interest payments for the buyers' loans during the construction of a property, which was seen as an incentive for speculation.The minimum price of property that may be purchased by foreigners was also doubled by Putrajaya from RM500,000 to RM1 million.In addition, Malaysia will finally implement the long-delayed Goods and Services Tax (GST) at 6 per cent beginning April 2015, which will also apply to commercial properties transactions but not residential units.Stay up-to-date by following Daily Express’s Telegram channel.
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