TO address spiralling home prices, the Government had introduced several cooling off measures during Budget 2014. Though the speculative activities have dampened, grouses are heard almost everywhere that home price is still beyond reach. Owning a home remains a dream. Why and what can be done to boost home ownership?
Supply of affordable home
It was announced in Budget 2014 that 223,000 units of affordable houses will be built this year. The Government had allocated RM1bil to provide 80,000 PR1MA homes. Private Affordable Ownership Housing Scheme (MyHome) was introduced where a subsidy of RM30,000 is given for each unit built by the developers participating in the scheme with a total allocation of RM300mil.
While focus is being sharpened to increase affordable home supply, much more are needed. To date, 700,000 people are registered for PR1MA homes, and demand has grossly outweighed supply. Undoubtedly, the state and federal governments remain the prime providers of affordable housing. In Singapore, more than 80% of its population live in public housing, 90% of them are owners.
As Malaysia is blessed with abundant land, hopefully we will see more land and fund allocated for affordable housing in Budget 2015.
To benefit from economies of scale, contracts should be awarded to fewer contractors than what exist at present, taking full advantage of new technology such as Industry Building Systems (IBS) to produce houses at lowest cost.
Several states have set unrealistically high bumiputra quota of 70% on developers, well knowing this is not achievable. The cash flow of developers is tied up unnecessarily for up to 18 months. A more pragmatic approach is to seek cash compensation from developers that do not meet the quota and channel the fund towards building more affordable homes.
Resource distribution
Due to the heated property market in recent times, developers having paid hefty price for land acquisition would invariably optimise their returns by focusing on developing high end lifestyle properties targeted at high income earners and foreigners. Citing for example, almost all the major local developers are in Iskandar Johor, competing with some foreign giants, offering high end products to a small group of buyers. In their quest to build, labour and material costs were driven up due to supply shortage.
As a result, cost of development including medium and lower range housing shot up as well.
Interventions from the authorities and engagements with the developers are required to sequence new launches and to have a better mix of high end, mid-range and affordable homes to cater to the needs of all income groups. Can the people expect some effective measures to be proposed in the coming budget to address this?
Impending Goods and Services Tax (GST)
There were estimations the impending 6% GST will cause home price to hike by 3%-4%. Some developers have factored GST into their costing, causing a price increase. It is worth noting that land meant for housing and financing cost are GST exempt. Further, the 10% sales tax levied on some of the building materials like tiles, sanitary ware and fittings will be repealed. While the home price is likely to go up, to what extent GST cost translates into home price hike remains to be seen as price is often dictated by market force. Where a majority of home buyers act rationally without rushing into forward purchase to “beat” GST, home prices may not surge. Indeed when Australia introduced GST in 2000, house buyers having bought forward deserted the property market for six months after GST came in, resulted in home price decrease.
The Australian government did provide the first home owners grant of A$7,000 to A$12,500 with the purpose of offsetting the impact of GST. Our government may consider introducing such assistance, the quantum of which may depend on the home price increase post GST. There were requests to treat houses below RM400,000 as zero rated supply, allowing developers to claim back input tax incurred. If favourably considered by the authorities, GST impact on affordable homes would be eliminated.
Tax and fiscal assistance
The abolishment of DIBS has made home ownership more difficult. The Government should respond positively to calls made by various parties to re-instate DIBS for first time buyers. In August 2014, China’s Central Bank has urged its commercial banks to quicken loan approval process for first home purchasers.
From 23 February 2013, Hong Kong, while doubling its stamp duty on properties to 8.5%, has provided full exemption to its permanent residents who purchased their first home. In Malaysia, 50% stamp duty exemption is granted to the first time buyers for purchase of house costing not more than RM400,000. Also, loan agreement executed on a PR1MA home is given 100% exemption. These exemptions, which will expire in 2014 and 2016 respectively, should be extended.
The authorities were contemplating to increase the stamp duty rate for transfer of property. If proposed in the coming budget, for a transaction that exceeds RM1.5mil in value, the portion in excess of RM1.5mil would be levied with 4% duty as opposed to 3% currently. This would again add burden to owning home. With the GST introduction, it is hoped that the existing rates be maintained.
As home ownership remains on top of the Rakyat’s wish list, we look forward to more favourable proposals on housing in the coming 2015 Budget.
> Yee Wing Peng is the country tax leader of Deloitte Malaysia. - The Star
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