Low property sales and construction
slowdown have caused some developers
to brace for hard times.


RECENTLY, the Malaysian government announced a few major decisions that have been positive and I hope that there are more to come.

On the economic front, the decision to scrap the 30-per-cent bumiputera equity requirement for the 27 services subs-sectors and also to allow a higher foreign equity participation for insurers and investment banks would augur well to attract more investment.

Even though some may argue that these are only "baby steps", they are steps in the right direction to raise Malaysia's competitiveness in the global business front.

In view of the gloomy economic climate, the government should also consider liberalising or relaxing the property sector. Given its link to the other 160 industry subsectors, the property industry plays a pivotal role to breathe more life and activities in the local economy with its multiplier effect.

This is evident from the government's allocation of funds in the first stimulus package to build more low-cost houses through Syarikat Perumahan Negara Berhad.

With lower property sales, construction slowdown and deferment of new launches and huge inventory built up, some developers are facing difficulties and bracing for more hard times.

The few major areas relating to the national housing policy that may require some amendments or improvement are the applicability of the bumiputera discount, varying range of quota needed to be reserved and the mechanism for automatic release from bumiputera to non-bumiputera.

In Parliament, I have raised the need to review and abolish the discount for the purchase of luxury properties by bumiputera.

Typically the bumiputera discount for property ranges from 5 to 15 per cent. The discount is intended to make property affordable to bumiputeras. However, discounts provided for luxury property is not equitable to the rest of the buyers as it may result in non-bumiputera buyers having to purchase property at inflated price.

Example, for a RM1 million ($419,743) condominium in Klang Valley, a 5-percent discount would cost the developer RM50,000, equivalent to a low cost house. If there are 1,000 units being launched and 30 per cent are reserved for the bumiputera quota, thus the discounts on 300 units cost the developer RM15 million. The cost would be higher if it is a massive township development or if the discount is 15 per cent.

Providing discounts to some buyers would decrease the margin of the developer and hence the developer would think of other ways to compensate for the margin loss or pass the cost to the other customers. This results in inflated purchase price.

On Nov 25 last year, the Minister of the Housing and Local Government announced that they are in discussion on a proposal to scrap discounts for bumiputera who buy luxury property valued at RM500,000 and above. Hopefully the discussion is still in process and any amendments would be announced in due course.

There are also contradictions between the federal government's initiatives to attract foreign investors and state rules.

The abolition of Foreign Investment committee approval for foreigners purchasing properties costing more than RM250,000 and the exemption of property gain tax would create foreigner interest in the local property market.

However, state governments still impose their own rules on foreign property sales and purchase, resulting in conflicting signals to investors.

Even though opening the property market to foreigners would spur the growth of the Malaysian property market, the minimum price for eligibility should be raised to at least RM1million, depending on the state.

This is to ensure that we attract quality investors and avoid forcing Malaysians to compete with foreigners to buy a house for themselves as the amount of RM250,000 is too low for certain areas like the Klang Valley.

In summary, a bumiputera discount for property at a certain value should be maintained to ensure affordability of home ownership but a better policy is to not confine the discount to one race or religion.

This is an edited excerpt of an opinion piece that appeared in The Malaysian Insider on May 4. The writer, Mr Chua Tee Yong, is an MCA MP for Labis.

From TODAY, Property – Thursday, 07-May-2009

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