Cheaper homes Vs cheaper cars

In one of the desperate effort to be popular amongst the voters especially the young and now restless lot in the last round before the 13GE, Opposition Leader Anwar Ibrahim threw the notion if they win, no import taxes and AP’s for cars. Cars would be cheaper and more affordable to many more Malaysians.

The retail prices of cars keep rising. Its due to steady rising cost of imported cars and shrinking of value of exchange rates. In the quick snapshot, that notion makes a lot of sense for individuals especially the young people. They are more vibrant, energetic and dynamic in their everyday lifestyle. Disparaged by the hassle of public transportation and the peer pressure of an upcoming lifestyle of a metropolitan dweller, wheels are one of the deemed essential in maintaining their ‘reputation’.

Anwar maximized the popular notion in the last salvo of making his politics still relevant, especially when a lot of him and his fraudulent political antics are being uncovered and exposed straight in his face.

However, the more growing concern for the more matured and strategic-minded Malaysians should be the notion of ‘cheaper homes’ versus ‘cheaper cars’.

Over 2,000 new residential property launches in Klang Valley and Penang

Everywhere in Malaysia, retail price of new homes and value of existing properties have been on the upbeat trend. The average house price increase for 2011 is recorded at 6.1% per annum. A survey conducted shown that 62% of respondent believe that house price index would increase within the next six months of 2012. Around metropolitan and suburban of cities such as Kuala Lumpur, Penang, Johor Bahru and Seremban, the steady increase of value of new and existing properties does not commensurate the increase in average household income.

Around many new property developments launched within Petaling Jaya or Johor Bahru for example, retail price of a new two story linked house is doubled within seven or eight years ago. It is an across the board phenomena. Even true for matured neighbourhoods. Yours Truly bought into a 25 years old township ten years ago, which was ten times what the retail price was when it was first occupied in 1977. Today, the same property is being valued for a ‘forced sale’ rate by the bank at more than double to what Yours Truly paid in 2002.

A typical campaign for a newly launched two story house outside Kajang

After reaching a certain level in their professional career or narrowing within any organizational pyramid structure, it is unlikely for many to be earning three times as a full time employee compared to what they earned ten years ago. The Valuation and Property Services Department (JPPH) found at the end of 2011, the average house price now is calculated at RM 220,000.00.

That is about 11 times more than the GDP per capita which is RM 20, 552.00 and almost 5 times average salary for a Malaysian worker, which is at RM 48,000.00 per annum. For someone or a couple to buy a RM 220,000.00 property, the average mortgage is RM 1,800.00 per month or RM 21,600.00. That is 45% of an average Malaysian gross salary.

In simple terms, an average worker in Malaysia cannot afford to buy a home. Especially if they are cari makan in one the metropolitan cities. As Malaysians, they are trapped in the middle class dilemma. They cannot benefit from government subsidized low and lower middle cost housing projects. However, they cannot afford the houses in the open market.

Typical yet to be occupied house for sale

No doubt part of Prime Minister Dato’ Seri Mohd. Najib Tun Razak administration’s Economic Transformation Plan is to provide affordable homes. Hence, schemes are being introduced such as under Syarikat Perumahan Negara Bhd (SPNB) and Perumahan 1 Malaysia Sdn Bhd (PR1MA) to look into ways to address the demand for affordable homes. However, this effort is inadequate.

Some State Government Economic Development  Corporations (SEDC) get lands from the State Government and develop for massive affordable housing schemes, which include homes for the under privileged and poor. It is effective in some states but in some states where land is very valuable such as DAP controlled Penang and PKR controlled Selangor, this effort is no longer active and they are more interested to pander to lucrative property development proposals. State Government Agencies in these states are more interested to privatise or hive off  lands to private property developers for lucrative and high end luxury projects.

Average of 60% price increase index on building materials, across the board

All of these are not withstanding the fact that the Federal Government must do more to ensure that building and construction materials remain cheap enough so that the effort to translate the ‘affordable housing’ for Malaysians is achieved. An uptrend growth of an average of 60% price increase index on building materials, across the board within eight years is a push fact0r for cost of home building.

However, the most important factor in determining the value of any property development project or proposal is the land. Unchecked, land could be a commodity that is being abused especially by market speculators.

The disparity of housing prices in very stiff and unadaptive to the market demands. IT is simply because, they are interested to sell and fair value

Opposition such as Anwar Ibrahim and his band-of-economists should make this ‘home ownership in-affordability’ as agenda. It is more meaningful than trying to canvass for votes from younger or first time Malaysian voters. Especially in Selangor, the average house price increase index is the highest in the country, standing at 8.9%.

They should combat all elements that make homeownership an expensive feat. Particularly, in Selangor where the house speculators market is very rampant. This is the single most destructive element in why houses are getting more and more expensive through a short space of time.

Transactions for home ownership for Malaysia is estimated in the neighbourhood of 350,000. This strongly suggest that home speculators market is very much strong. As Gordon Gekko described it in the second Wall Street, “Speculators are mother of all evil!”.

RPGT from 2011 onwards

Opposition should be constructive in demanding Federal Government on initiatives. In the last Bajet 2012 presented on 7 October 2011, Real Property Gains Tax (RPGT) was increased. However, it is hardly an effective tool in combatting the house speculator practices. If Selangor Pakatan Rakyat Government could make those who benefitted the Bumiputra discount to pay  back the difference when they dispose their property in Selangor, then they should demand for stiffer RPGT rates should be introduced for the first five years of home ownership.

As a measure against property speculators especially the much needed homes for all walks of the society across the board, RPGT should be capped up to 50% in the five years of disposal of the asset. Especially for second, third and so forth homes where the family unit already occupying a particular home and the disposal is not about the family upgrading to a better dwelling.

They should also demand that any second onwards of properties acquired which mortgage have not been settled to only be allowed a maximum of 60% housing loan. It automatically means that the second or more home buyers would have to fork the initial 40% in cash. Any properties that is acquired before the property developer surrendered to the buyer should be disallowed for any sub-sales or transfer to third party.

Housing price index according to categories

Affordable house ownership is something young Malaysians need to be aspired and look forward to, more than  a cheaper car. Anwar as the ‘One Ringgit Economic Adviser’ for Selangor should be sincere to tell the newly graduates and young people in the workforce that unlike cars which depreciate through time, property gains value.

Unless the Opposition under former Finance Minister (1991-1998) is insincere in their champion for the plight of average Malaysians under the ‘Buku Jingga’. Then again, when Anwar Ibrahim was the Finance Minister, negligently allowed with knowledge that the property market was at its epitome of speculative boom to a point of seriously affecting the banking industry. Some of these bankers and property developers were his cronies.

Needless to say, Opposition must do ‘constructive politicking’ to ensure that the Malaysian consumers all own affordable homes.

*Updated 1000pm

Published in: on August 28, 2012 at 16:52  Comments (17)  

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17 CommentsLeave a comment

  1. The best analysis of Malaysia political situation by an American radio station :-

  2. A wonderful article in the high time of property madness. The problem with the high price of property is not only the fault of speculator, but the developer as well.

    Developers are capitalizing on the high price to push up the price of new projects, whereas the cost of building new houses does not change much. Ask anyone in the construction about the cost of material and man power. I believe they will tell you that the price is the same (with probably some increase).

    So the developers ought to be blame as well. In one of the project at Damansara Perdana, a popular developer in the area was launching new block of a condo call block C. It is price at 500++ psq. One of the sales agent told me that they will launch the last and final block which will be price at 700++ psq. On what basis is their increase? Developer simply add up the numbers for new project whereas they are building it on the same land which they could have aquire at the initial stage of the project.

    I believe the government should also look into the control of these greedy developers.

  3. Would rather see more comfortable, cheaperand available public transportation than cheaper car. Cheaper car will flood the highway and end up the Government using more land for roads used by private vehicle.

    It is people driving expensive Merc and BMWs that yearns to buy more expensive Merc and BMWs that want cheaper cars. Not public transport me. If have extra money, rather spend on a driver to drive my proton iswara than buy those expensive cars.

    Najib ob right track with those LRTs.

    Anwar prefer his crony Ingress -Balfour Beatty win at a more expensive price for LRT Ampang contract and slander the winner on accusation of cronyism.

  4. I think the government should really look into this matter seriously, before things get out of control. Residential is getting more expensive than commercial in some places. KWASA should take lead in pulling the brakes. So too other GLC developers like Sime Darby, I&P, TH to stir up the market. Why not build cheap and affordable homes for eligible young buyers, with attractive prices but gazetted not to be sold or transferred ownership. Some kind of lease agreement with financing with outright transfer after say 10 or 15 years. RM 300k terrace house at the RRI. It can be done with prefab technology or IBS to keep the cost down. The whole idea is to cool the market down with other developers jumping on the bandwagon. Honestly, the housing sale market is not so good above 700k. Something for Najib to think about for upcoming election.

    And for cars? drop it 5% every six months and within 3 years, it will be 30% cheaper without affecting too much on the market and financing.

  5. What did anwar do when he was DPM and finance minister?

  6. Biggie,

    PM Najib’s ETP will probably increase the workforce’s pay across the board. But seriously doubt Malaysia’s high income society or workforce is substantiative enough.

    The living cost of living & even escalating cost of owning homes will only disparage between the ‘haves’ against the ‘have nots’. Look at the present economy. How many civil servants could afford to buy home within Klang Valley? They are lucky many benefitted from the subsidized housing, esp in Putrajaya.

    The more important question, how much could Govt increase civil servants pay & propel them as ‘high income workforce’? We’re talking about 1.2 million civil servants here!

    At the moment, Fed Govt already spending 27.7% of annual budget on emoluments and pensions, which is actually RM 64 billion. To make hv a higher income, thus give civil servants double pay? That’s RM 128 billion p.a., which will be 42% on the grossly bloated annual Fed Govt budget!

    Even with double pay, average civil servants still can’t afford decent house for them when they retire.

    My parents were civil servants from the 60s. They retired in the mid 90s. They could afford to buy two link houses within Petaling Jaya, just with the meagre civil servants’ pay. I doubt it civil servants today, at my parents’ grade (adjusted to their SSB civil service pay) could afford a decent place 10 km radius where my parents were in mid 90s. Mind you, my dad’s post then was only equivalent to N54 today. Now, its JUSA C.

    This escalated-running house price is a bloody serious issue!

  7. It’s a vicious circle.

    Radical economic restructuring, more foreign investments, going up the “value chain”, improving the “employability” of our school leavers and vocational, polytechnic and university graduates would result in more and better-paying jobs, be it in the public or private sectors.

    Whose fault is it that fresh grads, middle-career employees and professionals are paid less than their counterparts in more developed countries?

    Land is a scarce and valuable commodity, especially in urban areas and cities that aspire to compete in the “international league”. In a free market, land has to be priced appropriately, based on supply and demand.

    Are you suggesting that the government embark on yet another round of subsidies for ensuring “affordable” land and houses?

    Where will this regime of subsidies end?

    • “regime of subsidies”?? – that is a greedy capitalist psyche. The other side of the coin is purely welfare and concern for the needy rakyat.

      Get out of the profiteering mindset. Not everything is valued on a monetary basis.

      Oh I forgot. The island you so revered is super-skilled when it comes to financial rewards ONLY. Even to the extent of encouraging more babies, it is simply baby bonus, more money!

      The perennial problem of getting technocrats to become leaders to make all “wise” decisions…..

  8. Really, Ray? I would have thought that you’d know better.

    What, exactly, are the benefits of subsidies, if they are available on a shotgun all and sundry basis, instead of being targeted at those who most need them?

    Where is the “equity” in HNWIs (High Net Worth Individuals in private banker-speak) receiving the exact same subsidies as, say, a struggling pensioner or a low-skilled single parent?

    I have no problems with subsidies for education and public health care, but on a strict means testing basis.

    And why on earth should fuel prices, water and electricity tariffs be subsidised? Are Malaysians even cognisant of how much it costs to produce fuel, supply natural gas and produce electricity and treated water?

    Scarce or diminishing resources need to be priced accordingly.

    Ditto for land. Where is it written that “affordable” housing in city centres and urban areas is an inalienable right of all Malaysians, HNWIs and plebeians alike?

    That is coming perilously close to the diktats of communism and socialism that have been well and truly discredited, Keynesian theories notwithstanding.

    And the island that you refer to (why not refer to it as Singapore, instead of resorting to euphemisms) has leaders and citizens who appreciate that there’s no such thing as a free lunch in our uber-competitive world. It seems to me that they are doing a reasonably good job, judged by the tenets of capitalism and the benchmarks of competitiveness.

  9. High income is not as important as creating sustainable disposable income among Malaysians. We already know that high income is just like cliche especially when faced with spiralling cost of living across the board. In Malaysia income disparity is apparent. The rich are getting richer, while the rest are struggling to survive within their own income groups. Malaysia is very much driven by the economic neoliberalist policies. Globalisation is served as a constant benchmark but without really defining what aspect of globalisation that serves Malaysia well and which doesnt.

  10. It is much better to create a very large middle income group that can power savings and consumptions. That is more sustainable to the continued growth of Malaysia’s economy.

    • The creation of “a very large middle income group” is predicated on the ready availability of well-paying jobs now and well into the future.

      Who is going to create these jobs? The government? Unlikely, because there is an optimum size for the civil service, beyond which diminishing returns set in.

      The private sector? Foreign investors have a plethora of choices, not only in ASEAN, but also within the wider Asia-Pacific region. Malaysia has to offer a compelling value proposition and a skilled and well-trained workforce before foreign investors move up the value chain here.

      Malaysian companies, including GLCs, have to choose between “national service” and profits and return on equity.

      Theories are fine, but, as they say, the devil is in the details.

      • If you think Malaysia can’t create a large middle income group, what make you think that Malaysia can achieve a high income economy by 2020. The govt.can and should think of policies that could create a large middle income group that spurs domestic consumption, production and economic growth. And who says the civil service is the provider of middle income. Civil service job structure is a pyramid. Majority of civil servants are those below the middle income group.

        By the way, the economic neoliberal policies employed by the govt all originate from the neoliberalist theories that unfettered free market and the use of currency for non-production purposes i.e for purposes of currency trading, are encouraged. The neoliberalist theories subtefuged the Keynes and neo Keynesian theories. Theories underpin many economic approaches and policies adopted by govts.around the world.

  11. […] ‘Affordable Housing’ is really interesting. Not that they actually heeded what we discussed here in BigDogDotCom a month ago. It an attempt to excite the rakyat again, PR introduced a concept of ‘shared […]

  12. […] again, Prime Minister Najib who is also the Finance Minister did not address the mitigating issues that made property more and more out of the range of affordability, especially to the Bumiputera. Artificial demand due to speculative trading is one of the […]

  13. […] is not as stiff as how we proposed it about a year ago. Never the less, RPGT would definitely curb a lot of the property punters who worked on getting rid […]

  14. […] is not as stiff as how we proposed it about a year ago. Never the less, RPGT would definitely curb a lot of the property punters who worked on getting rid […]

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