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Thursday, March 26, 2009

The ‘sell then build’ system has seen the market safely through more than one recession

It was on Feb 21 that I was delighted to discover that the Malaysian motor industry had heartily embraced the “sell then build” concept. That was the day I took the family to buy a Proton Exora.

We all eagerly anticipated the hunt for the showroom, the brochures, the test drive, the fight over the colour, the wayang over the price, the special deal on the delivery date, and the satay and bottled water that combine to make the purchase of any big ticket item the family sport it has become today.

Imagine our bitter disappointment on discovering that none of these was on the agenda. Not only that, but a whole new set of rules had been introduced.

The rather strange press ads were not a launch, sir, we were told. No, no, no, they were a soft launch. Aha. And would it be too unreasonable to request a few details, such as the size of the vehicle? Sorry, no info.

And, we asked our hapless salesman, with a sense that we might be pushing our luck, had anyone ever seen an Exora? Why yes, he beamed, every day, it could be spotted on a test run on the old road up to Genting Highlands.

The irony of that destination was not lost on us. Armed only with an ad showing the seats and a steering wheel, our salesman was remarkably on the ball when it came to the booking arrangements.

Price: RM76,000. Booking fee: RM1,000, payable now. Delivery, “after the launch.”

At this stage, I have to confess to being a little overcome with emotion. Here I was buying something the price of two low-cost houses, and treated to a marketing strategy that left the housing industry in the dust.

Those developers will just have to buck up. This is the way of the future. Imagine the possibilities of unveiling a new housing estate with a photo showing a couple of bits of plumbing and the wiring diagram.

Show house? Certainly sir, just nip up to Teluk Intan and you could well find a couple of houses quite similar.

I personally believe that it would only take a few structural changes in the Housing Developers Act to enable developers to pick up on this new marketing technique and be almost certain of not going to jail.

Don’t misunderstand me. I’m a big supporter of the “sell then build” system. It is in fact the great safety valve sitting on top of the pressure cooker that is the housing industry. It has seen the market safely through more than one recession.

To build houses without having customers in the bag would be courting disaster. This is a market where hard data is scarce and where the players are prone to periods of over-exuberance.

Building only when the product is sold can save, and has saved, an enormous quantity of potentially mis-allocated resources.

While on the subject of allocation of resources, the RM60bil stimulus package makes mention of RM1.2bil to build low- and medium-cost houses.

According to the Housing Ministry, there are still some 500,000 low-cost applicants on the waiting list.

It is possible that much of this demand is outside the Klang Valley. There are 4.2 million residential dwelling units in the whole country.

For a population of 27.7 million, that makes an average of 6.6 people per house. However, in the Klang Valley there are only 4.2 people per house, hardly what one might call overcrowding.

These statistics highlight the fantastic achievements Malaysia has made in the provision of housing. The Klang Valley has 362,000 low-cost houses, about 23% of its total housing stock. This number is increasing by over 10% annually.

About 70% of the supply of low-cost comes from the private sector. Government agencies do a good job, but I hope the private sector can be persuaded to maintain its leading role, particularly when it comes to fast-tracking several thousand new units under the stimulus package.

The idea of this being carried out solely by the state smacks of the kind of central control and brutalist architecture that made Leningrad the garden city it is today.

In fact, all this may have been on the mind of the Housing Minister recently when he mooted the idea of providing subsidies to developers as a reward for building better low-cost properties.

It’s hard to fault this clever plan to combine private sector skills and public sector resources. I hope it works out.

In addition to the construction programme, there is another heart-warming proposal to be found in the stimulus package.

This is a specific provision to give a one-year deferment of housing loan repayments to unfortunate individuals who have been retrenched.

In my line of business, I’ve witnessed the foreclosure of many low-cost properties and it’s a sad affair. It is good to see that there is a workable solution already being offered to what may become an increasing social problem this year.

I doubt that even a global recession can reduce the number of cars on our roads. I have to confess, I booked my Exora. Like most people I had a bootleg photo of the vehicle in my back pocket.

I know it’s going to be great. As my American friend remarked: “You people in Malaysia haven’t lost your faith in the future yet.” May it ever be thus.

·Christopher Boyd is Regroup Associates Sdn Bhd executive chairman. We welcome your feedback. Please write to

By The Star (by Christopher Boyd)

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