Virtuous cycle or downward spiral?

Food for Thought

Government should make more land available for affordable housing.

AT a recent gathering of my peers, much of the conversation centred on the relatively quiet property market. There appears to be the “wait-and-see” sentiment looming in the air arising from the cooling off measures, bank credit tightening and rising inflation.

In a recent newspaper article, Michael Geh, a property consultant who has been in the industry for more than two decades, highlighted that the secondary market in Penang has declined 15% in the first quarter of 2014 compared with last year, when he presented the “1Q2014 Penang Housing Property Monitor”.

At the same time, new property launches shrank dramatically by almost 50%! This is indeed alarming statistics. Imagine if this trend is similarly observed nationwide, what a catastrophy it would be.

Just imagine, what would be the impact on any business if sales were to drop by 50%? Companies would have no choice but to lay off people or forced to shut down.

Businesses in the property industry are not spared from this situation, nor are those directly or indirectly dependent on this industry such as construction, banking and legal services. As a sector that impacts 140 other industries, a significant drop in property launches and property-related transactions have a chain effect that would dampen the overall economy.

The goal of imposing cooling measures was meant to have the good intention of making housing more affordable. However, with these measures in place, the current market sentiment has become sluggish, and contractors and suppliers in the construction industry may now be faced with rising costs because of the lack of economies of scale. As a result, house prices may end up rising in the long run, instead of falling.

Furthermore, fewer transactions in the market lead to less job opportunities for both employees and contractors. As mentioned earlier, it could also result in job cuts and higher unemployment rate. People in general will become more cautious when purchasing any item of high value or with longer repayment period. This was probably not the original intention of the authorities when introducing the various cooling off measures.

The original goals of the cooling off measures and credit tightening policies came with good intentions to house the nation and encourage prudent spending. Yet, it is timely to review the effectiveness of these measures and policies to ensure they do not create a downward spiral in the economy by choking off genuine demand and supply in the market.

Instead of a potential downward spiral in the property market, the Government is in a position to create more affordable homes through the release of government land. Like any other industries, lower cost can be achieved with economies of scale. When the Government makes more land available for affordable housing, it reduces the input costs, offers more jobs to other industries and creates more employment opportunities for the people.

This dynamic economic situation will then increase people’s confidence and purchasing ability. This, in turn, creates a virtuous cycle and generates positive impact on the entire economy.

As shared in my earlier articles, producing more homes has always been the essential element in making housing more affordable, more so for a developing country with growing population like Malaysia. For many, many years, the Government was spending about RM1bil on sugar subsidies. It is prudent that this subsidy is removed this year as we are encouraging the rise of obesity and associated health risks with our unsustainable sugar consumption. This RM1bil yearly subsidy should instead be channelled into the creation of affordable housing for the people on a yearly basis.

So, should the nation continue to spiral downward with the limitations faced in the existing housing environment or move forward with a conducive policy to create a virtuous economic cycle? While the choice is obvious, the Government needs to take the bold lead of reviewing the policies for a sustainable long-term plan to make housing affordable for the people.

FIABCI Asia-Pacific Regional Secretariat chairman Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com. - The Star