Is giving away taxpayer’s money sustainable?
Is giving away taxpayer’s money sustainable?
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Ministry to introduce new public housing model, says Nga
HONG KONG: The Housing and Local Government Ministry is coming up with a new model of public housing named "Program Residensi Rakyat (PRR)", says its minister, Nga Kor Ming.
He said the PRR would be well-integrated, sustainable, and liveable, accommodating quality commercial viability, green spaces, a community centre, and other features.
He also mentioned that the construction cost of each PRR unit would be increased to RM300,000, offering quality homes to the low-income group at a piecemeal price.
Under the new PRR, a unit costing RM300,000 would be sold at RM60,000.
Out of the RM60,000, approximately RM10,000 to RM15,000 will be set aside for maintenance and sinking funds.
"There will also be a moratorium whereby for 10 years, you cannot sell the PRR unit, as we do not want irresponsible parties to take advantage of our social housing because this is a privilege for you to be afforded a heavy subsidy,”
The National House Buyers Association (HBA) views with concern the reports of a new public housing scheme by the Ministry of Housing and Local Government (KPKT) named “Program Residensi Rakyat (PRR), where it was reported that the construction cost of each PRR unit would amount to up to RM300,000 but will only be sold at RM60,000. Furthermore, out of the RM60,000, approximately RM10,000 to RM15,000 will be set aside for maintenance and sinking funds. The PRR unit comes with a moratorium period of 10 years, during which owners of these PRR units are prohibited from selling the unit.
HBA can understand why the Madani government is undertaking such an initiative, as property prices have risen too rapidly in recent years. To quote from Bank Negara Malaysia’s (BNM) 2016 Annual Report: “Since 2012, the increase in house prices in Malaysia has outstripped the rise in income levels. Consequently, prevailing median house prices are beyond the reach of most Malaysians.” Currently, there are many Malaysians who cannot afford to buy their first home, and HBA has been raising alarm bells on rising property prices for the past decade.
Firstly, we need to categorise housing in Malaysia into broad price ranges as follows:
- Social Housing: Broadly defined as low- to medium-cost housing with a built-up area of less than 800 sq. ft (excluding balconies) and/or costing less than RM150,000.
- Affordable Housing: Defined as housing with a built-up area of at least 800 sq. ft, costing between RM150,000 and RM300,000, and located in areas with good connectivity and amenities.
- Other forms of housing: Defined as properties costing more than RM300,000.
HBA has been advocating for the government to provide more incentives to housing developers to construct additional Affordable Housing and to exempt them from the requirement to build Social Housing. This is because developers are experiencing financial losses in constructing/selling Social Housing. Consequently, developers are compelled to raise the prices of Affordable Housing and other housing types to offset the cross-subsidy against the losses incurred from constructing Social Housing. In fact, Social Housing should be constructed by the government or government agencies, whether at the federal or state level.
In a way, HBA is pleased that KPKT is taking the initiative to construct more Social Housing in the form of these PRR units. However, selling the PRR units at a discounted price is not the right approach and is more detrimental to both future homeowners and the government for the following reasons:
- The Government will record a loss of RM240,000 for every unit.
With a reported construction cost of up to RM300,000 and a reported selling price of only RM60,000, the Government will incur an unacceptable loss of RM240,000 for every unit of PRR sold. There has been no news regarding the number of PRR units to be constructed, but considering an average high-rise development of, say, 300 units, the Government would face a staggering loss of RM72.0 million. At a time when the Madani Government is discussing the rationalisation of fuel subsidies, this Program Residensi Rakyat makes no financial sense and is beyond comprehension.
- Likely to be abused by profiteers from buying and later re-selling these PRR units.
With the Government incurring a loss of RM240,000 for every unit of PRR sold, as highlighted above, the successful buyers of such PRR units would be reaping handsome profits. Although there is a moratorium period of 10 years, these successful buyers will be reaping significant profits at the expense of taxpayers who subsidised such PRR units at the end of the moratorium period. Invariably, a taxpayer who cannot afford to buy a house is essentially paying for others to own one.
Assuming a compounded annual growth rate of only 3.5% per annum, after 10 years, the PRR unit, which cost RM300,000 to build, would be valued at RM423,180. After deducting the original purchase cost of RM60,000, the PRR owner would be looking at a profit of RM363,180 or a profit of more than 500%. With such high profits at stake, it is very likely that syndicates would emerge and try to take advantage of the system by using proxies to buy as many units as possible.
Then, the issue of selection criteria arises and is debated regarding who constitutes the ‘low-income group’ and ‘deserving persons’.
- Does not encourage maintenance culture amongst PRR residents.
It was reported that out of the RM60,000 selling price, a portion of RM10,000 to RM15,000 will be set aside for maintenance and sinking funds for these PRR units. This implies that the Government is taking responsibility for the maintenance of privately owned properties. To HBA, this appears to be an irresponsible use of public funds for the maintenance and upkeep of private property. We wonder how long this figure of RM10,000 to RM15,000 will sustain?
Furthermore, the Government is not promoting a culture of proper maintenance to the residents of PRR units by assuming responsibility for their upkeep. Currently, many Program Perumahan Rakyat (PPR) units, a form of Social Housing, suffer from poor maintenance as residents neglect to contribute towards the necessary maintenance and sinking fund for the upkeep of the units.
The Government should not convey the message to Social Housing residents that if they neglect the upkeep and maintenance of their private housing units, the Government will intervene and cover the costs at no charge.
- Does not resolve the issue of lack of Social Housing for the lower income groups in the long run.
Although it may seem that the Government is assisting the current lower-income group in purchasing their dream home at a fraction of the actual cost (RM60,000 vs RM300,000) the Government is merely postponing the issue. There will always be people in the lower-income groups who cannot afford to buy their dream home, and let's be honest, how long can the Government sustain the loss of RM240,000 for every unit sold?
When the Government eventually exhausts its funds, it will be the future low-income groups who cannot afford to buy their dream homes that will suffer, while the current owners of such PRR units patiently wait for the moratorium to expire before cashing in on their handsome profits. This so-called 10-year moratorium typically begins from the date of the Sale & Purchase contract; the construction period for stratified property is 36 to 48 months. Hence, the waiting period to ‘cash out’ is a mere 6 to 7 years. It would indeed be a worthwhile venture for the targeted groups.
HBA commends KPKT for taking the lead in building more Social Housing through these PRR units. However, such PRR units should not be sold; instead, they should only be rented to deserving applicants. The aim of these PRR units should be to serve as a form of “transit home” where lower-income groups can reside comfortably and pay low rents while they work towards improving their economic livelihood.
In fact, KPKT, in cooperation with other ministries, should provide skills training or re-training at the PRR units to teach marketable skills to the residents and their family members, enabling them to find better job opportunities. Various other government ministries and agencies can also assist in job placements to help residents and their family members secure better employment.
KPKT must also conduct a rental review of the residents at least once every 5 years to ensure that only deserving applicants continue to stay. Residents who have improved their economic livelihood should move out to make way for more deserving applicants. During the residents' induction, the Ministry should emphasise that the PRR units are meant as a “transit home” until they can afford to purchase their own property. Of course, residents who have not managed to improve their economic livelihood can continue to stay.
HBA urges KPKT and the Madini Government to rethink the implementation of this PRR scheme. While the intention of assisting lower-income groups to buy their dream home is noble, the implementation can be improved to ensure that the Government does not face financial ruin and jeopardise its ability to assist future generations of low-income groups in having a roof over their heads.
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