News and Views

80% of Low & Medium Cost Homeowners Unable Or Unwilling To Upgrade To Private Housing

March 24, 2024
MALAYSIA

Low and Medium Cost (LMC) housing projectshave been a part of Malaysia’s public housing policies since pre-independenceand can be said to have successfully averted inner-city slums.

However, an analysis by PropertyGuruDataSense of residential property transactions identified as LMC housingschemes highlighted challenges this segment of homeowners face in making theupgrade private housing.

The analysis revealed only 1 in 5 of thosewho purchase LMC housing move on to buy private housing (housing built bydevelopers/private sector).

The remaining 4 out of 5 homeowners areeither unable or unwilling to leave their LMC housing unit owing to a lack ofoptions or lack of access to financial resources.

“From our database, we examinedapproximately 7,900 LMC projects within Kuala Lumpur and Selangor, analysingabout 139,500 sales transactions from the 1970s,” said Joe Hock Thor, generalmanager of PropertyGuru DataSense.

The price range of LMC housing examined wasfrom RM 25,000 to RM 350,000.

“Although LMC housing comprises just 10% ofthe total number of housing projects in those locations, they made up 18% oftotal sales transactions which already indicates a demand for these types ofhomes,” he added.

He believes the main reason for peoplemoving out of LMC housing is the need for more space and privacy as familiesgrow.

“LMC housing should ideally be a transitionalstep in one's property journey – we saw that the average period from when itwas first bought till the time one exits is 7 years. Unfortunately, this is notthe case for 4 out 5 LMC owners,” he said.

Based on 2013 estimates, public housingresidents numbered more than 1.7 million Malaysians in KL and Selangor acrossmore than 3,000 public housing projects.

Hence, the issue would affect a substantialnumber of Malaysians with wider repercussions in the real estate market as thecountry grapples with a property overhang.

“If you were to sell your flat in KualaLumpur, the next available location which has diversity in housing type (i.e.where you can easily match the price of a terrace home for example) would be inlocations like Klang and Hulu Selangor,” said Joe Thor.

The analysis showed it is difficult totransition from one housing type (flats) to another housing type (such asterrace house) in districts like Hulu Langat, Petaling and KL for severalreasons.

Besides financial woes and loan eligibilityissues, a key reason would be that median per square foot price growth inprivate housing increased 50% more than LMC housing especially LMC housingbuilt between 2000 and 2010.

“The problem is that there is a growing pricegap between LMC homes and private housing – no matter how fast LMC house pricesincreased, they didn’t intersect with the rising prices of private housing,” headded.

Consequently, an LMC resident wanting toupgrade in KL would be limited in their options or be forced to move to anotherdistrict further away in order to meet aspirations for a landed property.

Opting to move to further away districts isnot without consequences – from increased expenses, higher vehicle maintenance,longer transportation times, higher infrastructure costs and so forth.

On a similar note, those unwilling to leavemay feel that way because their current home could be in a strategic locationclose to public transportation, key employment zones or amenities such asschools such as etc.

7 years was the median period between thepurchase from public to private housing and the median age when these buyerswere able to make the switch was only at 41 years old.

Of the 1 in 5 LMC homeowners able to buyinto private housing, 79% go on to buy a landed home – most often single storeyterrace houses followed by apartments or condominiums.

Strong aspirations for landed homes drivethe majority (68.72%) of these homeowners to different districts where terracehouses are available and more affordable.

On moving forward, believes data isimportant in determining how our housing policy progresses but sees the currentLMC model as unsustainable in the long-term save for a specific need ofproviding shelter.

This is because it creates a disincentiveto leave due to the disproportionate price growth and affordability issuesoutside the LMC.

“Naturally, the government will continue tobuild LMC homes for more people further and further away as land prices andconstruction costs increase

“But as we have shown, the capitalappreciation of homes in districts like Hulu Selangor, Sabak Bernam and Klangdoes not appreciate as fast as those in Petaling, Hulu Langat or KL”, Joe Thorsaid.

Instead, he advocates that the design,maintenance and overall quality of life afforded to residents of LMC housingwill become more important.

Given the overhang of private housing, healso believes a public-private partnership should be an alternative optionwhere the government provides rental assistance to the B40 group to rent fromthe private market. A shared equity Rent-To-Own (RTO) model would also work inthis instance.

“If the goal is to provide shelter, then abuild-to-rent model could work with part of the rental going into a fund. Thismoney is invested and, in the future, can be used as a down payment for aproperty of their choice,” he said.

This could work towards resolving theexcess housing stock while consolidating the market as opposed to its currentfragmented state.

In the long term, he believes increased demandand reduced supply of ‘other’ property market segments may lead to betteryields to drive the overall market forward.

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