Look East, only closer

The Sabah solution is to specifically address the inability of paying the 10 downpayment and the reluctance of financiers to offer housing loan to individuals who could not even afford the 10 downpayment.

ONE can’t help but to feel the déjà-vu sensation upon every year’s budget speech made by our Prime Minister. 

For the last three years, Datuk Seri Najib Tun Razak has introduced PR1MA to drive housing with an allocation from the initial RM500mil to the recent RM1.3bil of Budget 2015. Since Budget 2011, housing the nation has always been a key agenda and the Government has started off by introducing My First Home Scheme through the establishment of Cagamas Bhd that will provide a guarantee to banks for the financing of 10% downpayment for houses below RM220,000. Aiming at the low to middle income groups, this is a new governmental home widely known today as “affordable housing”.

As a legal practitioner, one should always start with the definition of “affordable” before dwelling further into the details. 

The official website of 1Malaysia People’s Housing Programme (PR1MA) seems to suggest a definition of property price range of between RM100,000 and RM400,000 while the target group comprises applicants whose household income are between RM2,500 and RM10,000 per month. 

Comparison can be made to Rumah Mesra Rakyat Scheme by Syarikat Perumahan Negara Bhd (SPNB) which offers homes priced around RM65,000 which targets the lower income category as the requisite household income is below RM3,000. Thus, officially at the federal level we have two definitions. Of course, we are not discounting the effort by the respective state governments in introducing their unique scheme for affordable housing. 

PR1MA was established under the Perumahan Rakyat 1 Malaysia Act 2012 and has been the sole agency to develop and maintain affordable housing specifically for the middle-income category. PR1MA will be the developer for projects on government land and will also collaborate with private sector to develop similar affordable housing projects. 

More than 700,000 Malaysians have expressed interest in PR1MA thus far. So, how does PR1MA assist the middle-income earners in securing a roof over their heads?

Despite the price ceiling for affordable homes, it was mentioned that the sales price of PR1MA houses are 20% lower than market prices which probably explains why a hefty sum has been allocated for PR1MA in the budget. This 20% is viewed as an incentive for the developer to lower the sales price. The motivation for the developer is clear as the subsidy paid directly to the developer would reduce construction cost while the qualified and ready PR1MA home-buyers would save a huge sum of marketing dollars from the developer’s coffer as sales is a certainty. These savings would then translate into benefits in favour of homebuyers. It makes perfect logic. 

Sabah has proposed a different approach to this 20% savings which makes even more sense. The Sabah solution is to specifically address the inability of paying the 10% downpayment and the reluctance of financiers to offer housing loan to individuals who could not even afford the 10% downpayment. 

Skim Rumah Pertamaku and PR1MA do not make sense when you put one and one together. 

Try to imagine this. For a RM300,000 property (20% lower than market price), the applicant with household income of RM6,000 would have to foot a downpayment of RM30,000 upon successful application. The applicant may need to withdraw all his lifetime savings for a down payment of a future house which is to be delivered in three years. 

Thereafter, he will need to service the interest of loan upon the first drawdown on the progressive payment. This may eventually cause financial constraint to the applicants. 

Pay the 20% to successful applicants

Sabah Housing and Real Estate Developers Association (Shareda) has proposed and in fact executed that instead of funding 20% of the sales price, it is more effective to pay the 20% to the successful PR1MA applicant to aid in the settlement of the 10% downpayment. The remainder sum may assist the applicant servicing the house loan and lessen the financial burden of the applicant. 

Of course, a buy-in from the financiers are also crucial towards this proposal as the applicant definitely needs a housing loan for the 90% of the sales price. This will ensure a win-win to all parties involved and at least return the decision-making back to the aspiring homeowner. The question now is whether or not the rest of the country would soon follow the Sabahan way and make affordable housing real. 

The year 2015 will be a challenging one for all Malaysians with the introduction of the goods and services tax (GST). While speculation suggests that property prices are on the rise (it has never drop), there are further uncertainties on the GST impact in the property market. GST will inevitably widen the gap between affordability and price. 

We all know that residential properties are an exempt supply under the Goods and Services Act 2014, and we can only hope that it will not further increase the margin of affordable housing and make it “unaffordable” to the low and middle income rakyat. Perhaps, affordable housing can be “zero-rated” once an official definition can be firmly in place. 

In the 1980s, the nation has been taught to “Look East” to learn from the industrious land of the rising sun and now in the need to house the young nation, we should look no further than the land below the wind. Look east, but only closer to home!

Chris Tan is the founder and managing partner of Chur Associates - The Star