Making housing affordable, avoiding a property bubble and ensuring there is no over or under development are some key issues.
FOR the vast majority of people property means getting a respectable roof over their heads with proper amenities in a decent neighbourhood, and getting it affordably.
For others, it is about getting a second or third property or more for the sake of investment – a good return eventually for the price they paid and as a hedge against inflation because property prices mostly continue to rise in the long term much faster than inflation.
The most sophisticated of them don’t just restrict their investments to the residential market but dabble as well in commercial and industrial space such as shops, offices and factories, wherever they may be located.
Socially, there has to be regulation of property development not only to ensure that it is done up to certain standards but to ensure a proper mix between the various kinds of development such as residential, commercial and industrial and the various segments within these broad sectors.
It would be a mistake to micromanage however and within broad guidelines, it is often best to leave it to the market place to adjust things. But it does take a long time for things to adjust in property because of the gestation period before a property can be brought to market.
Ideally, property development should take place under the aegis of a broad master plan which has been formulated after intense study and research, taking into account projected population growth and other demographics. It should be dynamic to take into account changes.
Unfortunately we don’t stick to a plan in terms of development and even when there is a master plan it is often overruled by those in authority for other reasons which are often not compelling from an economic viewpoint.
In residential development, the greatest challenge is, of course, providing decent housing at affordable cost to the vast majority of the population. Unfortunately that is also a function of income – if people are poor, they won’t be able to afford nice houses no matter what.
But we are a middle-income country and we can do some things to keep prices of properties within reasonable levels. The best gauge of that is in relation to our own income level instead of making comparisons with countries with much higher incomes (eg Singapore) or those where special situations make property expensive (eg Mumbai).
Prices are always a function of demand and supply. Some moves simply increase demand, often without a fundamental increase in demand for actual occupation. Opening up property purchases to foreigners often result in a spurt in demand at the time of sale but properties may not get occupied. Look at some high-end properties in Mont’Kiara and around the twin towers area in Kuala Lumpur for illustration.
Also, making a leveraged property purchase easy encourages property speculation. If you pay 5% down and if your next payment is two years later and if the property appreciates just 10%, you have made 100% (before transaction costs) in two years or 50% a year roughly. That is powerful incentive for speculation, creating an artificial demand that can collapse two years out.
To curb such kinds of speculation which lead to temporary surges in house prices and a potential bursting of the bubble in future, it will be necessary to curb foreign property purchases and easy financing schemes.
Meantime, the state and federal governments and their agencies must be more circumspect about handing out their landed assets to developers at very low cost to develop. Developers naturally want to maximise their returns and high-end, high-density properties offer the best returns.
Instead governments and their agencies should develop a master plan for the land they have and allocate the areas meant for low-cost, medium and high-end residential as well as commercial and industrial. Then they can invite the developers to bid for the parcels they will develop.
All that would take a lot of work, yes, but nothing worthwhile comes without proper effort. Examples to emulate for low-cost to medium-cost housing might be the Singapore Housing Development Board which has strict criteria for purchase of property, resale and standards.
Examples not to emulate would be Singapore again which has adopted a free and unfettered stance as far as sale of property to foreigners is concerned which has priced high-end property beyond the vast majority of Singaporeans to become the domain of multi-millionaires.
Incidentally, this is one of the major complaints of Singaporeans who otherwise have little to complain about in terms of economic development and living standards given their tiny space and resources. That has been reflected in voting trends too, leading the government to descend from its mighty perch of “I know it all” to re-examine its policies.
In commercial development, the trend in Malaysia has been to cramp it all in as little space as possible to maximise development profits. Abetment comes from authorities who give approvals with little or no thought of proper planning considerations such as availability of parking, public transport and whether it will cause congestion.
Many developers are willing to take the plunge into commercial development because of high profits. The danger of over-development is the greatest here, especially with plans to set up a new financial district called the Tun Razak Exchange, which will result in plenty of commercial space coming on stream in Kuala Lumpur city. Developers in this area have been granted tax exemption which will cause market distortions by giving them an advantage over others.
Under the circumstances, authorities have to be extra-vigilant to ensure that there are no untoward pressures on the property market, both in terms of a boom or a bust.
Speculation and ill-considered development can cause a volatile, mercurial mix which if it explodes can cause years of agony. Better a sensible, more stable brew that stands the test of time and ages gracefully.
P Gunasegaram (firstname.lastname@example.org) is an independent consultant and writer. He believes strongly in the old adage that prevention is better than cure.