HOC Should Only Be for Affordable Properties
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Malaysia faces a unique housing problem. On one hand, the median property prices are too high and are beyond the median population's affordability. As a result, the median population especially lower-income groups and even middle-income groups find it almost impossible to buy their first home. But on the other hand, Malaysia also has huge unsold completed properties or overhang properties totalling 27,746 units valued at RM18.42 billion at end the end of 2022. This is an improvement compared to the end of 2021 which recorded total overhang units of 36,863 units valued at RM22.79 billion.
Overhang Properties – Brunt of Reckless and Overzealous Risk
So how can a country where the median population are struggling to buy their first home also have a problem with overhanging properties totalling RM18 billion? The short answer is due to those acquisitive and grasping classes of property developers.
A quick breakdown of the overhang properties as at the end of 2022 are as follows:
Under the Housing Ministry guidelines, the criteria for affordable properties which are deemed affordable to the majority of the Rakyat are as follows:
- Priced RM300,000 or below.
- Minimum build-up of 900 sq ft (excluding balcony) with 3 + 1 rooms.
- Located in areas with good public transport or connectivity.
From the above table, properties priced below RM300,000 only make up a very small portion of the overhang property stock of 23.5% of the total number of units and only 7.3% of the value of overhang properties. The overhang properties costing below RM300,000 is probably due to the properties, although sold at the right price, are just built in the wrong location.
However, the balance of 76.5% of total overhang property units or 92.7% of the value of overhang property value is due to those acquisitive housing developers continuing their misguided building what most of the Rakyat cannot afford.
Overhang properties are mainly due to unmet housing demand related to varying economic climates, housing preferences, market sentiment, housing affordability, credit accessibility, as well as demographics and lifestyle changes. It can only be addressed through a collaborative measure that involves all industry stakeholders. If the government aims to resolve the overhang problem holistically, a detailed study on the overhang situation is necessary - independent market viability and feasibility studies to be done before any project is embarked on.
Home Ownership Campaign (HOC) is Like a Panadol
As the property sector is deemed an important sector to the Malaysian economy, the Government launched various incentives under the Home Ownership Campaign (HOC) in January 2019, with several extensions until 2021 to help property developers sell their overhang properties such as:
- Full stamp duty exemption on the transfer of overhang properties up to RM1 million. Under the scheme, successful applicants enjoy 100% stamp duty exemption on the Instrument of Transfer for any residential home purchase up to the value of RM1 million.
- Partial stamp duty exemption on the transfer of overhang property up to RM2.5 million. For properties worth more than RM1 million up to RM2.5 million, you only pay 3% (instead of 4%) stamp duty on the Instrument of Transfer in the amount of more than RM1 million.
- Stamp duty exemption on loan agreement for overhang properties. All properties within the scheme enjoy a further stamp duty exemption on the loan agreement.
- 10% house discount. As well as the stamp duty exemption, housing developers offer a minimum 10% reduction in the purchasing price of properties listed under the scheme.
As the issue of overhang properties continues to adversely impact the bottom line of housing developers, the housing developers are again asking for another HOC with the usual incentives to help them off load the stock of overhang properties.
It is to be noted that the incentives under (1) to (3) above result in lower revenues for the Government and is an indirect subsidy to those ‘get rich quick’ housing developers to sell their expensive overhang properties. Do you not know that the stamp duty aka tax revenues forgone by the Government under HOC are as follows:
As we can see, the stamp duty forgone by the Government for property priced below RM300,000 is reasonable at only RM4,500 or about 1.50% of the property price. However, for properties priced up to RM1 mil, the stamp duty forgone increases exponentially to RM29,000 or 2.90% of the property value and for properties priced up to RM2.5 mil, the stamp duty forgone is RM81,500 or 3.26% of the property price. Indirectly, these are tax revenue forgone which could have been used by the Government to help the Rakyat such as building more schools or hospitals. So why is the Government giving incentives for overpriced properties?
HBA had previously stated that incentives under HOC should only be for affordable properties priced below RM300,000 and also should be extended to secondary properties, i.e. completed properties that are currently owned by end-buyers to really assist aspiring house buyers to purchase their first home.
In addition, by offering incentives under HOC to properties priced up to RM2.50 million, the Government is in fact encouraging housing developers to build more expensive properties that the majority of the Rakyat cannot afford. As land is a scarce resource, this will worsen the issue of housing affordability and even result in more of the Rakyat being unable to buy their first home.
So, how are housing developers going to offload their unsold expensive overhang properties? The solution is very simple. Housing developers just need to give huge discounts to the selling price or the housing developers themselves absorb all the stamp duty that is payable under the HOC instead of the Government giving an exemption.
Housing developers are profit-maximising organisations, and it is in their best interest to build what the market can afford. As part of its noble vision that every Malaysian family should be able to buy their own home, the Government can encourage and offer incentives to housing developers to build more affordable properties. However, for properties costing more than RM300,000, it should be a free market with minimal government intervention. The Government is sending the wrong message by giving HOC for properties priced above RM300,000 that the Government will ‘bail out’ (in that sense) housing developers with huge expensive overhang properties.
HOC is like a patient taking a Panadol tablet for the pain caused by terminal cancer without treating the underlying cause. The Panadol tablet temporarily relieves the symptoms of periodic pain but does not cure the disease. The Government should actually identify the root causes of the continued overhang.
Overhang property is due to misguided housing developers, both private as well as government economic agencies, applying the wrong pricing strategy to market their properties and can only be corrected by applying the right strategy which is to build what the Rakyat can afford. In the meantime, housing developers must own up to their past mistakes by giving the appropriate discounts or other freebies to clear off their expensive overhang properties.
Why are Secondary Properties Not Included?
On another note, the HOC, should it be reinstated, should be extended to secondary properties, i.e. completed properties that are currently owned by end-buyers. The secondary market or sub-sales too have been severely affected by the Covid-19 pandemic and its consequent Movement Control Orders.
If the intention of the government is to reactivate the property market, being the ‘economy driver’ as alleged, then the incentives offered under HOC should be extended to first-time homebuyers looking to buy from the secondary market as well.
According to the National Property Information Centre, the secondary market accounted for 80% of all property transactions in 2019. We wonder whether this percentage has increased or decreased in the subsequent years. Nevertheless, the percentage seems pretty significant, don’t you think so?
Note:
List of incentives under HOC was derived from:
https://www.propertyguru.com.my/property-guides/home-ownership-campaign-hoc-2020-all-you-need-to-know-15274
This article is written by Datuk Chang Kim Loong, the Honorary Secretary-General of the National House Buyers Association: www.hba.org.my, a non-profit, non-governmental organisation (NGO) manned by volunteers. He was also a Councillor with the then Subang Jaya Municipality Council (now conferred Subang Jaya City Council status) from year 2008 – 2018.
Disclaimer: Any opinions expressed are entirely the author’s own and do not necessarily reflect the views of PropertyGuru and its entities.
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