Home Ownership Campaign – Who Really Benefits?

 Thean Lee Cheng - September 11, 2021, 8:00 AM

PETALING JAYA: Should the government extend the Home Ownership Campaign (HOC) which ends on Dec 31?

No, said Khazanah Research Institute (KRI) and the National House Buyers Association (HBA).

KRI researchers Gregory Ho Wai Son and Puteri Marjan Megat Muzafar told a webinar the government should not step in to intervene in the developers’ primary housing market.

KRI is the research arm of sovereign wealth fund Khazanah Nasional Bhd.

The HOC has been running since Jan 1, 2019, except for a short break in 2020. It was to help developers sell their units, especially their unsold completed ones.

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It was brought back in June 2020 as part of the Covid-19 stimulus package. That means, over a period of 36 months, it ran for 30 months.

Various freebies, stamp duty waivers on loan agreement and instrument of transfer and a minimum 10% rebate are given to Malaysian house buyers during the campaign period.

Ho said the overhang units are, in the first place, “unaffordable”, which explains why they were left on the shelf.

He said developers are essentially building too many units for people who do not exist. They are not building for real people who can only afford houses priced at RM300,000 and below.

In a capitalist world, he said, an entrepreneur will reduce prices if he cannot sell his goods. “Why are developers not reducing prices? And why should the government step in (to help)?”

Ho said that in any business venture, the entrepreneur takes a risk and he does so with the aim of getting a profit.

“So, if he has mispriced the units, he should drop prices in order to clear his stock of inventory. It would be odd if the government is expected to step in to solve the problem of mispricing,” he said.

Malaysian Institute of Estate Agents president Chan Ai Ching said that in a survey commissioned by the institute, real estate agents ranked the HOC as number four in order of importance after interest rate, Covid-19 recovery and the economy to foster sales.

The HOC is limited to the developers’ units and does not benefit the entire housing market, Chan said.

The HBA concurs that rebates can be destructive “over the long term” as they create “a vicious cycle” of price increases.

In his video titled “Why should house buyers be wary of discounts and rebates?” released on Sept 4, HBA’s honorary secretary-general, Chang Kim Loong, said developers “artfully” inflate prices in order to give a rebate.

The house may cost RM450,000. If the developer offers a 10% rebate (as stipulated under HOC rules) the developer inflates the price to RM500,000 and then gives a 10% rebate, Chang said.

The rebate is not noted in the sale and purchase agreement (SPA) and when the buyer seeks financing, the loan he applies for is based on the inflated price of RM500,000 and not RM450,000.

The buyer will get a higher loan based on the inflated price but he also ends up paying more interest and having to service a longer loan tenure. It creates “a vicious cycle” of artificially inflating prices because house owners will price their units higher in tandem with the developers’ inflated pricing.

A developer who declined to be named said a rebate was different from a discount. Using that same RM450,000 house as an example, if a 10% discount is given, RM405,000 would be stated in the SPA, she said.

The loan is then based on that price.

A rebate, like free furniture and everything “free”, is not noted in the SPA. So, lending and financing institutions have difficulty discovering what the real net price is, the developer said.

Puteri Marjan said the pandemic has resulted in many losing their jobs or suffering pay cuts. But the overhang has been there even before the pandemic.

She said because of Malaysia’s sell-then-build system, developers use buyers’ progressive payments to build the properties.

Developers build more than the demand because it is the buyers who finance the construction process. Developers need not take out so much working capital, she said.

The problem is exacerbated when developers do not conduct independently commissioned market and feasibility studies which will show the income levels of the people in that location, among other information, Puteri Marjan said.

In view of the challenges and issues facing the housing market today, the pandemic has further exposed the fact that “we do not have an effective housing market”, she said.