Land only part of affordable homes solution, says REHDA

By Lee Wei Lian
May 06, 2011

KUALA LUMPUR, May 6 — The Real Estate and Developers Association (REHDA) was positive on the government’s announcement today that it would provide land at no cost for developers to build affordable homes, but said land makes up only a fifth of property value.

This follows the remarks by Datuk Seri Najib Razak this morning that his administration has come up with the “Affordable Quality Housing” programme, a public-private partnership with property developers whereby the federal government will provide land and developers will build homes using the industrial building system (IBS).

“Depending on building types, land generally constitutes only 20 per cent of the total gross development value, whilst construction, professional fees, utility contribution, interest cost and cross subsidies make up as much as 60 to 70 per cent,” said Datuk Seri Michael Yam, the president of REHDA, in a media statement.

“Although in this new programme, land costs are borne by the public sector, several more measures need to be taken to ensure that properties fall within the RM220,000  threshold, especially within Klang Valley and Penang.”

Yam said that the impact of IBS in bringing down costs may not be significant, as Malaysia’s current usage of IBS has not yet achieved economies of scale such as what Singapore is experiencing.

“Private developers may need to consider producing units of smaller build-up, and most of these would be high-rise units for scale,” he said.

Yam had earlier told The Malaysian Insider that it is difficult for developers to build larger numbers of smaller units over fewer large units due to existing density policies.

He also said developers had long lobbied against unpublicised costs that make homes less affordable, such as “indirect taxation” whereby they were charged for basic infrastructure like sewage based on the value of the house rather than the volume of sewage.

Yam said, however, that the affordable home scheme is a noble initiative and reflects the prime minister’s commitment in making affordable housing more available.
http://www.themalaysianinsider.com/malaysi...ion-says-rehda/

Patrick also said that if property prices absorb an increasingly large percentage of a person’s income, it will lead to a lower standard of living.

“People will have to keep eating at the mamak and more and more cannot survive on one income,” he said. “There will be a lot of anxiety and it’s very scary to think about.”

The Rehda chief noted the costs of social responsibility and cross-subsidies such as low cost housing requirements and Bumiputera discounts and “indirect taxation” such as cost of sewage infrastructure affected the prices of houses to the end consumer.

at 1st place, RM1500 income shdn't commit 200K loan,
I feel reasonable is 150K worth of property, if not dun buy, rent

This means that I no longer expect a hard crash in China in the short term (within 5 years or so). Consequently, I do not believe that property prices in Malaysia will drop either. I expect prices to either increase at a more moderate pace or to stagnate at worst.

A couple of links:

Financial Times article.

CNBC article.

The population in Kangbashi, one of the best known ghost towns that belongs to Inner Mongolia’s Ordos city, rose to 50,000 from 28,000 last year, after a number of manufacturers moved in with thousands of workers.

Roubini also underestimates wage growth. Minimum wages in Sichuan rose 44 percent last year, mirroring double-digit increases elsewhere.

May have something to do with loan % and tenure.
I agree it's not a healthy trend.
Especially if they bought it simply to flip, they will drop it the moment they realise they can't afford it.

Bro AV,
actually whats the thread trying to say ya??
not so understand
is it will affected malaysia property also??

BLR now 6.6%, it is going to increase in a vry short period,
really scared the BLR will make the speculator less holding power then burst.
Crisis is comming to Asia, once it happened, it will be vry tough might worst than 97/98...

That time I will throw all my money in FD and get 10% compounded interest and lock for 5 years. No need to look so hard for $ to cover inflation already 

Sorry, my finance knowledge isn't that strong, is there any difference if our currency depreciated 30% as we are still living and spending in Malaysia? 

Not to sound like a broken record, but only when we work through the vast inventory and shadow inventory of foreclosed properties, can home prices bottom and housing recover overall. Obviously certain markets are more burdened by the distress than others, but it's a universal truth.

In April, however, the percentage of investors and all-cash buyers in the market dropped a bit. Investors have been buying the lion's share of foreclosures, as first-time home buyers continue to play a very small role in housing's recovery. First-time buyers should be about 40 percent of the market, but realtors say they are now about 36 percent. They made up nearly half of the market last Spring, but that was all thanks to the home buyer tax credit.

In addition to a tough job and mortgage market, first-time buyers are also looking at a lot of work when buying a foreclosed property.

I found this survey from Campbell/Inside Mortgage Finance particularly interesting this month:

For the month of April, 45% of foreclosed properties were damaged and not inhabitable without renovation. Because mortgage financing is generally not available for foreclosed properties that need major repairs, investors often buy these properties for cash. Fifty-five percent of damaged foreclosed properties were bought by investors in the month of April, while only 27% were bought by first-time homebuyers.

That also tells me that barely 18 percent were bought by move-up buyers.

Investors want to rehab these places and flip them as soon as possible, but today they are being forced to put them up for rent as first-time buyer demand is still weak.

The share of first time buyers is there, but they are not in the distressed market as much as they need to be to absorb that inventory.
http://www.cnbc.com/id/43111762

Now this part is what I don't understand. Economy is bad, prices goes sky-rocketing. Now economy is good, share market all time high, yet prices are still sky-rocketing. So, what gives?

Rental rate is not going up as same pace with properties price. Rental rate is going up at a tortoise pace, while properties price is sprinting like a rabbit.

Prices of properties in Malaysia have dropped in Q1 2011 vs Q4 2010.
Malaysian house price index dropped from 146.9 to 145.7.
So looks like market reacted very fast to the increase in LTV and BLR.

Malaysian House Price Index Data

Prices of landed in KL are still going up.
Prices of high rise in KL have stagnated already.

KUALA LUMPUR, May 24 — The pump price of RON95 petrol could go up by as much as 20 sen next month to RM2.10 per litre as the cost of subsidising the fuel has tripled following unrest in the Middle East and North Africa, AmResearch has said.

The investment research firm estimated Putrajaya is now subsidising at least 90 sen per litre of RON95 versus the intended 30 sen per litre after global crude oil prices surged to US$99 per barrel from US$79 per barrel last year, matching the US$100 per barrel recorded in 2008. But it said the possible hike is still below the RM2.15 level that would have happened if a subsidiy rationalisation programme was carried out and below the actual RM2.80 a litre without any subsidies.

my version of build then sell:
1. developer take full risk first hand. cannot sell during construction. higher cost of project especially financing cost
2. upon completion, calculate actual cost per unit
3. start selling with price up mechanism
4. once hit break-even point, completely stop selling
5. reanalyse to either sell remaining units at whatsoever price (since oledi break-even mah) or if rental is good mah rent out all the units lor
6. keeping units means recurring profit AND majority votes during AGM for JMB

if the above materialise, might even be worse for property market since we are even more dependant and at the mercy of developers.

not sure about countries that practises build then sell. maybe experts can share how they do it overseas. but overseas practise might not be applicable in m'sia bcos too many corrupted people here??

PS: would be extremely dangerous too if developer starts disposing remaining units at prices below initial buyers price if developers are in need of funding. it could well decide the fate of a development entirely by their decisions. purchasers lose eventually.

Yeah.. now new launch is so easy to sell mainly because overpriced subsale..

Government cannot hold petrol price and GST for long. It has limited power now given the changing global economic climate. Government cannot call GE after coz that will be akin to suicide for them given their unpopularity. So they will have to call GE first then only introduce the so-called reforms.

I still dun understand...
What is the relationship between US and Malaysia?
Different mkt, different housing anad monetary policy (subprime), different social structure, different lifestyle etc

Same apply to, when US housing sector is booming....how would it affect Malaysia? US mkt boomed fr 1999-2006, but we experienced the stagnant and dieing mkt
Perhaps monitor Asia mkt is more relevance lah

Extract an articles from The Edge dated 23/5/11 by Azam Aris, titled : No end yet to rising house prices

-- many developers and investors in the market dun think bubble burst will happen soon. They believes prices to rise further. Maybe we need to reminded of the work of economic historians Hyman Minsky - who wrote Can it Happen Again ? And Charles Kindleberger, author of Manias, Panics and Crashes : A History of Financial Crisis.

Brad Jones, an investment strategist with Deutsche Bank says the framework created by Kindleberger and Minsky defines financial market bubbles as occurring in seven cycles :

1) displacement ( birth of a boom )
2) expansion ( growth of the boom )
3) easy credit ( fuels asset price inflation )
4) euphoria ( over optimism and over confidence )
5) insider profit taking ( liquidation of position by lead investors )
6) panic ( chaos as investors try to sell but are hindered by illiquidity and leverage )
7) revulsion ( investors stop participating in the market )

All major financial market bubbles in 20th and 21st centuries have followed this seven cycles of this framework according to Jones. "Notably today, it appears some Asian assets are in the third (stocks) and fourth (property, credit, loan and small cap) stages of the cycles , Jones says --

I wonder if the 100 storey mega tower is going to take place? No updated news on the PNB project already.

That 100 storey tower completion date can serve as a good guideline on when the next bust would be.