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Saturday, October 20, 2007

Housing developers squeezed at both ends

By New Straits Times

THE Sarawak housing industry is in a crisis, of sorts.

The top end of the market has remained soft for some time, and housing developers, big and small, are all now competing ferociously for the mass market of housing units in the price range of RM200,000 and below.

If developers are burdened by government social policy to provide houses to low-income buyers, then the costs will be borne by buyers of other categories of houses which will be pegged at higher prices.

To add to the woes of developers, the cost of building materials is skyrocketing while the government insists on holding in check what developers can charge for low- and medium-cost houses.

Utility providers are also insisting on increasing their charges for connecting electricity, water and telecommunications services to newly-developed housing estates.

It is all very well for state Minister of Housing Datuk Seri Abang Johari Tun Openg to stress affordability of housing to buyers. But nobody can defy the forces of economics.
If affordability is the be-all and end-all, many small developers in the state, who are already greatly squeezed by the prevailing economic conditions, may soon simply fold from the inability to pass on higher costs to buyers.

It will be in the state’s long-term interest to help hard-pressed developers not go under now, as that would impact future supply of housing to the market and end up with the state facing exactly the situation it wants to avoid: a scarcity of new housing units jacking up prices, particularly in the secondary housing market.

The state government will clearly have to do more than merely ask housing developers to hold on to current prices for houses in the face of a strong spurt in building costs. It can intervene to force down the prices of building materials, for example, by liberalising the supply of cement and steel. Opening the market to imports of these materials may have to be considered if local suppliers cannot meet demand at reasonable prices.

The best policy, as always, will be to let free and open market forces dictate supply and demand — and hence prices — all along the housing industry supply chain.

It is nonsensical to insist on keeping imports out when faced with a situation where supplies of basic building materials are short and dear.

The state government also has an odd policy of enforcing corporate social responsibility on housing developers which, in effect, means buyers of middle to high-end houses are indirectly subsidising low-cost house buyers.

This policy takes the shape of having rules that require housing developers to also build a certain percentage of low-cost houses. Housing developers are in the business to make profits, which the government will also tax.

If developers are burdened by government social policy to provide houses to low-income buyers, clearly the costs will be borne by buyers of other categories of houses, which will be pegged at higher prices than if developers were not saddled with socialised housing requirements that rightly should be the responsibility of governments, funded through tax receipts or the sale of state land at market prices.

There is another area where the government can easily assist an industry on the ropes. The project approval process in the state is notorious for being slow. The state authorities will argue that this is in the best interest of ensuring building projects meet overall planning requirements.

Meeting planning requirements can be speeded up if project proponents are let in on long-term master plans for towns and cities in the state.

As things stand, lengthy approval times can only mean one thing: added costs as developers have to calibrate lengthy holding costs. This again flies in the face of the oft-repeated cherished dream of the government: ensuring affordable housing for all buyers.

Housing developers are currently in the most unenviable position of being squeezed at both ends in Sarawak. The housing market at the profitable end is shrinking, while the government insists developers hold steady on prices for the low-cost units they are required to build in the face of rising costs.

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