One Million Affordable Homes by 2029?

The short answer is “Tall Order” or “Fat Chance”! The previous Government only met 20% of its target. But the new Government has an election manifesto target of one million affordable homes within 10 years. So it aims to build 100,000 units a year beginning 2019.

For quality housing with facilities, connectivity and a minimum of 850 sq.ft. in space, it is difficult for prices to be below RM280,000 in the Klang Valley. Why?

Construction cost alone accounts for 48% of total costs. Land cost is roughly 15%, soft costs about 13% and the balance of 24% for sales, marketing and gross profit.

There are constraints to lowering the cost of houses

So lowering land cost (15%) has only a small effect on selling prices. And it is difficult to build high-rises below RM130 psf.

Then the next solution is to loosen financing and allow people to borrow more or lengthen their mortgages. Lowering credit risk requirements is irresponsible. Lengthening period may help to a degree. Then there is speculative activity. Nevertheless total household debt has expanded from 48.5% of GDP in 2000 to 84.3% in 2017.

So that leaves prospective owners with little solution but to rent.

To overcome bankers’ reticence, one may consider a National Housing Loan Corporation focused on financing developers in good locations and providing end-financing of up to 50 years, on subsidized interest rates of 3-4% p.a. Unless, income levels improve substantially it is difficult for the average prospective buyer to purchase a house unless Government intervenes with a national scheme.

References:

1.         Special Report: The State of Housing in Malaysia, Tong Kooi Ong, The Edge Markets (2 October 2018)

2.         One Million Affordable Homes a “Tall Order” for Malaysia, Syahirah Syed Jaafar, The Edge Financial Daily