City & Country: Penang Property Summit 2015: A challenging year ahead

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THE inaugural Penang Property Summit 2015, which was held at the Subterranean Penang International Convention and Exhibition Centre from Jan 9 to 11, featured two key events, namely the Penang International Property Expo 2015 and the Penang International Property Conference 2015.

According to the organisers, 20,000 people visited the expo that featured about 20 exhibitors — developers showcasing their properties that range from the affordable to the high-end, an auction house, a bank and the State Housing Department. There were also public talks during the expo.

The conference, themed “Managing Future Trends and Challenges”, saw 250 attendees listen to presentations and panel discussions about investing in Penang, affordable housing, the state’s property market outlook and greening the built environment, on Jan 9 and 10.

Below are excerpts from some of the presentations:

1) The Malaysian property scene — Issues and challenges

Chairman of the Penang chapter of the Real Estate and Housing Developers’ Association (Rehda) Datuk Jerry Chan painted a bleak picture of the real estate sector going forward.

The continuing credit crunch, ostensibly to curb household debt, has resulted in fewer property transactions, he said. “Household debt is very high, but are we focusing on what is causing it? Is it because we are paying high prices for cars when they are beyond our incomes?

chan_cc8_1050“We have to do innovative financing. Can it not be that for the first two or three years, interest rates be lower? Pay a little more for the repayment to reduce interest payment?

“After all, when a person sets up his household, he gets married, he moves in, he needs money, he has a young family, he needs to be able to survive.

“When banks lend you money, it’s based on your current salary. But how many of us are going to be happy with a salary that’s stagnant for the next 3 or 15 or 30 years?

“Banks are quick to increase instalments when the interest rate goes up, but let the repayment rate be lower for the first couple of years so that young families can hope to own a home,” he said.

The Goods and Services Tax (GST), which will be implemented in April, remains a source of confusion for developers, Chan said. “In Singapore, the list of items subject to the GST is on one sheet of paper. [Here,] there’s a lot of confusion, and when that happens, what do people do? Charge first and calculate later. That’s not a good situation for the poor.”

However, the challenge that Penang property developers will continue to face is the higher cost of real estate development.

“The state government knows the situation we are in, but it wants us to build fewer units … lower density. For instance, what can you build with [a requirement of] six units per acre on the mainland? It’s too expensive,” Chan said.

“All that cost is passed on [to buyers]. But there will come a time when we cannot pass it on anymore.”

2) Affordable housing — Meeting growing demand

The Penang government has allocated RM500 million for the construction of 22,545 units of low-cost, low-medium-cost and affordable housing. The unit sizes range from 750 to 900 sq ft and prices are from RM200,000 to RM400,000 on the island. Prices of affordable housing on the mainland range from RM150,000 to RM250,000.

According to State Executive Councillor for Housing and Town and Country Planning Jagdeep Singh Deo, there are 22,000 people on the waiting list for low-cost homes and 23,000 on the waiting list for low-medium-cost units. More striking, however, was the need to create a category called “affordable housing”, he said.

When the state introduced this category and issued the application forms in December 2013, 200,000 forms were snapped up, showing the great interest in this category, he added. The state is vetting the applicants, and so far, 5,000 people have qualified for affordable housing.


Jagdeep_cc8_1050.png  According to Jagdeep, those seeking affordable housing experience a loan rejection rate of 50% to 70%. “I think Rehda has already alerted the industry that this could spell grave danger for developers. This category of people (lower income group) must be given preferential packages where there should be “positive discrimination”, he said.

Rehda’s Chan suggested that the state government subsidise loans for affordable housing. “The Indonesian government subsidises such loans, which is something that’s not happening here [in Malaysia] … where Malaysia is concerned, we see little affordable housing coming from the federal government. They have not given up, but we have yet to see those plans become a reality,” he said.

Chan also proposed that the eligibility for affordable housing be eased for less popular areas. “I think, if given a choice, everyone would want to buy in prime locations. So, those who qualify for affordable housing will always choose the best areas, but we all know that there is only a set number of units. So, one thing the state could do is to ease the requirements for people who will buy homes in less prime areas.”

Prices and sizes of units should also be adjusted according to locations, he said. For instance, the difference in price between a 750 sq ft and 850 sq ft unit on the island is RM100,000, or RM10,000 psf, he added. “This is already luxury housing price.

“Differentiate the locations and differentiate in terms of the people who are allowed to buy the units,” said Chan.

Aspen Group CEO and co-founder Datuk M Murly said popular locations should have higher densities. “The main issue here is, for many people, RM200,000, RM300,000 and RM400,000 is a once-in-a-lifetime investment. Based on what we hear in the market, people want to know where and what are they buying. The real affordability comes from the right location and the right density. If we don’t have enough units, [if collection rates are poor,] we don’t have enough money to maintain the buildings. So, density is key.

“From another perspective, when we have houses or affordable homes in the wrong location, it’s no longer about affordability. People deserve to know where and what they are buying when they submit their forms. I’m sure if all this information can be provided, people are more than willing to buy those units.

“The key issue here is, can we change the application process we have now? Can we tell the buyers what and where they are buying?”

Penang Development Corporation general manager Datuk Rosli Jaafar said rules are important to create good environments and communities. “We believe that only a good community set-up will support itself. No individual can do wonders [to his own unit].”

3) Penang property outlook

Penang Institute’s head of urban studies and fellow Stuart MacDonald, in his presentation, said Penang’s population growth is increasingly driven by migration from other states, as well as people living longer. For instance, the institute’s survey shows that migration into Penang averages over 10,000 per annum.

Meanwhile, the number of households is expected to reach 610,000 by 2030. This represents an increase of 220,000 from 2010, he said. Moreover, in Penang, households are slowly moving away from the extended family model, leading to greater demand for homes.

There is also a growing number of people attaining higher levels of education, and more women are joining the workforce, leading to more dual-income households and thus a growing middle class.

However, he noted that after taking into account the net income of the middle-income group against the maximum price of affordable housing of RM400,000, this group will still find the price high. To qualify for affordable homes in that range, the buyer’s household income must not exceed RM10,000.

“So, to buy a RM400,000 home in Penang, you need to be in the high-income group. We are actually building affordable homes for people who are from the high-income group. So, the middle-income group, using the rule of thumb [of committing no more than a third of their salary to buy a property], is now looking at about RM250,000, which in today’s terms is the difference between living on the island and living on the mainland,” he said.

Based on existing housing supply projections, he noted that there is an “unmet need” for 60,000 units each for the low and middle-income groups but an oversupply of 90,000 units for the high-income group.

“So, by 2030, we need 230,000 units. We need about 90,000 units for the low-income group, plus the bottom 20%, and we’ll need about 140,000 units for the middle-income group,” MacDonald said.


This article first appeared in City & Country, The Edge Malaysia Weekly, on January 19 - 25 , 2015.