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There is need to define “affordable, affordable houses, unaffordability
Published on: Saturday, July 25, 2020
By: Bernama, Prof Dr Ismail Omar
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Nowadays, in housing, the miracle words are “affordability and affordable houses”. Numerous and different terminologies are used by researchers in terms of the definitions and level of pricing of ‘affordable housing’.

Therefore, there is a need to define “affordable, affordable houses and unaffordability”. Of course, in an attempt to explain the ambiguity, we do need to have a bulk of real estate data for the purpose of analysis. To do that, we do need an integrated and well-coordinated housing network. Although we do have Property Information Center (NAPIC) at the Valuation and Property Services Department, Ministry of Finance (MOF), we do have to complement in terms of data on housing. Some say, the more the merrier.

Housing networking

Here, an accurate, reliable and up-to-date database is important to be able to analyse and decide upon. May be a big real estate data is what we are looking for. Remember - garbage in - garbage out. More importantly, to do that, we do need to coordinate and integrate the housing data in a proper way. Therefore, the year ahead is about housing networking.

Professor Patsy Healey, a property researcher from New Castle University, England, asserted that in the real estate industry, all the players need to establish a network to ensure their “housing interplay” is smooth and in a proper manner. The fact is that each of them is having their own role, strategy, motive and action to influence the housing industry in their own way. Geoff Keogh, a property researcher from Aberdeen University, Scotland added that with a smooth and integrated interplay between players within the “mature property market” or fully informative, housing can be delivered at the right price, right time and right location to housing the nation.

In comparison, every player in a football game will have their own capability and skills which must be coordinated to win the game. For sure, they have to know exactly “the rules of the game” and the way to use their “esprit de corps” in coordinating and go for the win. To do that they do need to know exactly what are the common goal - that is to score the winning goal and not only to play well.

In Australia, the Australian Property Institute (API) and some centers of excellence for housing had realised the importance and existence of “affordable housing stress”, the situation where the household income is far below the minimum affordability to take a housing loan. Many researches are being conducted to study the expected social and economic impact of post COVID-19.

Affordability and affordable houses

Again, data on “affordability” and “affordable houses” and the differences are a good proof of evidences. Not only data availability is of importance but the way the housing data is collected, assembled, analysed and coordinated are also vital. Therefore, players in the housing industry do need a housing network coordinated at local, regional and national levels and also at the international level. For sure, to do this, the governments at the Federal, States and Local authorities have to play their roles succinctly. In addition, all the other players such as land developers, planners, valuers, estate agents, land administrators and so on are also being called to offer contributions.

We have frequently heard and observed that developers are primarily building high-end or luxury houses. Land developers claim that they are usually making a 20 per cent to 25 per cent profit margin from high-end properties completed compared to about 18 per cent only for affordable houses. The basic principle of property valuation that we teach first-year real estate students is “an ant comes after the sugar”. Then, it goes to another level of neo-classical theory of supply and demand. Unfortunately, the property market is not as simple as the king of fruits, durian, in the market.

The Ministry of Housing and Local Government is talking about a RM150,000 to RM300,000 range of prices for affordable houses while property developers consider affordable houses as being within the range of RM400,000 to RM700,000. Which is which? A database is what we are looking for.

It was reported by the Valuation and Property Services Department (JPPH) that the average affordable house within the range of RM200,000 to RM300,000 comprised up to 18.19 per cent of the property overhang in 2019. Bank Negara Malaysia (BNM) was quoted as saying that based on the median income of households in the country, the average price of affordable houses is RM282,000 only. In fact, land developers are mentioning that the average price of newly-launched houses is RM417,262. The other proof is that the average price of affordable houses in the country is RM420,000 considering the average affordable income per capita is about RM41,730 per household. That’s why BNM came up with the scenario of “severely unaffordable” for the people to own affordable houses. Once again, it is not fair to make a “generalisability” of affordable houses without looking at housing sub-markets that provide a more accurate housing data.

In fact, there aren’t enough houses that ordinary people can afford to own because of the conflicting interest of the ranges of prices of affordable houses in the market. According to the World Bank, United Nations and Harvard University the “affordability” is about when the repayment of financing the affordable houses of below 30% of household income. Considering this principle, one might ask of course, what is affordable in the United States of America is different to Malaysia and this may vary from one state to another, from one district to another. Bearing in mind that property comes with “heterogeneity” and not “homogeneity”, that is houses are different from one to another, either vertically or horizontally, whether landed or high rise, whether in design, style or range of prices, etc.

This is a common lament in the tense debates over growth and development housing in Malaysia. Developers, yes, in business they are looking to make maximum profit, and difficult to convince and deviate from the target.

About the authors

Ismail Omar has been President of the Land Professionals Association of Malaysia (PERTAMA) since 2014 and is a lecturer in real estate management at Universiti Tun Hussein Onn Malaysia.

Masfaliza Mohsen is a registered valuer and a lecturer in real estate management at Universiti Tun Hussein Onn Malaysia.

* This article is the first of two parts. The views expressed in this article are those of the authors and do not reflect the official policy or position of BERNAMA and Daily Express.

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