WANT to dump your money and not sure what business to undertake? Try housing development, and I will tell you why.

Come March, there will be a National Homeownership Campaign to rid of some 22,000 properties worth RM22.5 billion.

There is news that developers will entice prospective buyers with a 10% discount, something uncommon for many years, with a few exceptions.

Of the 22,000 properties for sale in the campaign, about 15% are priced RM150,000 and below, and 9% priced between RM150,000 and RM300,000. Assuming these 24% affordable homes are priced an average RM200,000 each, they are worth RM1.056 billion, and the balance would be 16,720 units valued at RM21.444 billion, or an average price of RM1.282 million.

If we look at all the incentives and measures introduced to help prospective buyers of affordable homes – from stamp duty exemption to the RM1 billion fund at very attractive rates – it seems all are meant to help developers, not buyers.

After the campaign, developers will clear the overhang and get the cash to develop other areas and make more money. Buyers, on the other hand, will have to carry the loan for the next 20 to 30 years. This will obviously increase the ratio of household debt to gross domestic product.

The latest World Economic Outlook update from the International Monetary Fund showed that global expansion has weakened. The global growth forecast for 2019 and 2020 has already been revised downward.

This scenario spells more risks for house buyers, and banks, too, may see increases in non-performing loans.

Seriously, land, and by extension, housing, is under state jurisdiction. It becomes complicated when the federal government keeps issuing policies and guidelines, and states do not give full cooperation. A good example is affordable housing.

The Cambridge dictionary defines “affordable” as “not expensive”. If the house itself is expensive, one can abolish stamp duty and legal fees, provide free fittings and what have you, and the item for sale is still expensive. To put it bluntly, and borrowing the words of James Caville, campaign strategist of Bill Clinton the economy, “It’s the economy, stupid” – in this case, the cost of the house.

It is said that the affordable housing issue is largely due to the supply-demand mismatch and slower income growth. The mismatch has been consistent for many years. In addition, structural and cyclical factors have led to the market’s failure to provide an adequate supply of affordable housing.

Blame is also placed on the low level of financial literacy among a majority of Malaysians, and the cultural preference for home ownership instead of renting. In the meantime, financing is always available for eligible and qualified buyers.

While we scream and shout about the shortage of affordable housing, there is an overhang of 30,115 properties worth close to RM20 billion as at the end of the third quarter of last year.

The National Property Information Centre’s 3Q18 updates showed that the total number of unsold properties grew by about 50% year-on-year. In value terms, it leapfrogged to 56% from the 20,304 unsold properties worth RM12.49 billion in 3Q17.

In terms of overall average price, the unsold units are approximately RM650,000 each. Compared with 1Q16, less than three years ago, the average price of unsold units has increased by 31%! Did Malaysians’ income increase that much in the same period?

According to Bank Negara Malaysia, the median property price in Malaysia is severely unaffordable, out of reach for the majority of the ordinary rakyat.

Take the supply side. Developers and contractors are squeezing building-materials suppliers for rebates, employing cheap imported labour, and unwilling to implement the latest and more cost-effective construction methods. But, the prices of houses are increasing, as proven above, unabated.

Blame is also accorded to high development costs. To assist in decreasing house prices, I do hope that before any approval is given, the authorities comb through development costs.

Taking the example of the controversial development project in Taman Rimba Kiara, a 4.9ha park rezoned from open space to mixed development, the land was alienated to Yayasan Wilayah Persekutuan (YWP).

The Federal Territories minister quoted a sum of RM155 million (including land premium) if the developer, a subsidiary of Malton Bhd, were to give up the project. The strange thing is, he said the Federal Territories Ministry had to pay the land premium of RM60 million. Shouldn’t it be YWP paying the premium?

After deducting the land premium, the development costs would presumably be RM95 million. Is this figure realistic for an area of only 4.9ha in a mature township with little to no work carried out at the site?

Further, seasoned developers know the market very well, but they continue to build houses that are expensive and beyond the means of the majority of Malaysians. Why? Maybe the new government will come forward with more incentives to help them sell these houses!

The bigger ones are said to be hoarding large land banks. The authorities should look at this perceived activity by setting a time limit for them to be developed. Separately, there have been reports that Rumawip, the most successful of the affordable housing schemes, contains unhealthy elements, where only developers seem to be profiting.

In the early 1970s and 1980s, state governments had low-cost housing programmes where developers were required to have 20% low-cost housing (costing between RM25,000 and RM50,000) as a condition. Even then, developers asked for exclusions, which were granted by the state and federal governments. Notice the big jump in the maximum price of affordable houses (now at RM300,000) compared to salary increases in the last 40 years!

Now tell me, isn’t housing development the best business in Malaysia?

What say you… – February 11, 2019.

* Saleh Mohammed reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.