AP771 Urban Development and Management - Urban Housing Project
-
Upload
anwar-suran -
Category
Documents
-
view
17 -
download
1
description
Transcript of AP771 Urban Development and Management - Urban Housing Project
-
UDM715: Urban Housing Urban Housing Problems
1
UDM 715
URBAN HOUSING
ASSIGNMENT
25 JUN 2013
PREPARED BY:
ANWAR BIN SURAN
2012977513
CHECKED BY:
ASSOC. PROFESSOR. DR. MAT ZAIN MAT HASSAN
UDM 771: MSC URBAN DEVELOPMENT AND MANAGEMENT
UNIVERSITI TEKNOLOGI MARA
-
UDM715: Urban Housing Urban Housing Problems
2
House prices in major towns of Malaysia have surpassed beyond the affordability of
the population masses (approximately 95%). Despite the attempts made by the Bank
Negara in the last three years, the house prices are still spiralling. All of these
situations have their own dynamic reason and depending on the country itself.
Keywords: Urban Housing, Property
Abstract
-
UDM715: Urban Housing Urban Housing Problems
3
Preface
We would like to start with a word of thanks for the people who have made it possible to write
this assignment. Firstly we would like to thank Assoc. Prof.Dr Mat Zain Mat Hassan for getting
me in touch with useful contacts and giving me suggestions and advices during the writing-
process. Im also would like to say thanks to my entire friend that have teach me during writing
this assignment.
Anwar Bin Suran
-
UDM715: Urban Housing Urban Housing Problems
4
Table of Contents Page
Abstract 1
Preface 2
Question 1 - Modus Operandi Bank Negara 5
a. Based Lending Rate (BLR) 5
b. Real Property Gain Tax 7
c. Loan to Value (LTV) Ratio 8
d. Housing Interest Rate 9
e. Use Disposal Income 11
Question 2 - Problems of Urban Housing Spiralling 13
a. Housing Bubble and Burst 13
b. Generate Homeless Generation 14
c. Increasing Household Debt 15
d. Increasing Number of Squatter House/Slump 17
e. Oppression Rich People to Poor People 18
Question 3 Reason of Urban Housing are still Raising 20
a. Status People via the type of House 20
b. A lot of Unemployment and Low Income People 21
d. Inflation Effect 22
e. Development in Construction Technology 23
List of References 24
Appendix 25
-
UDM715: Urban Housing Urban Housing Problems
5
Question 1:
What is modus operandi established by the Bank Negara to curb the problem of housing price
spiralling?
Answer:
In Malaysia, the house price is exceeded further than the affordability of the citizens. With the
aim to overcome these problems, Bank Negara took some scheme to control that issue. There
are several modus operandi that was established by Bank Negara to curb the housing price
spiralling problems which are:
a. Base Lending Rate (BLR)
According to iproperty online 2013, define that Base Lending Rate (BLR) is a minimum
interest rate calculated by financial institutions based on a certain formula. This formula
takes into account the institutions cost of funds and other administrative costs. The BLR
is adjusted by banks, but the rate actually is determined by Bank Negara Malaysia
(BNM) during Monetary Policy Meeting.
When people are seeking for home loans in Malaysia, it is common to see banks BLR
offering followed by the percentage (example: BLR-2.4%). Though it looks like some
kind of complicated formula, it simply indicates the interest rate that they are offering to
people based on the BLR as defined by Bank Negara.
BLR in Malaysia now is 6.60%, but every bank in Malaysia might offer different package.
For examples:
Example:
BLR as defined by Bank Negara : 6.6%
BLR offered by the Bank : BLR-2.4%
Actual Interest for your Home Loan : 6.6% 2.4% = 4.2%
Example 1:
Bank Rakyat offers a package of BLR-1.8% for 30 years. (BLR = 6.6%)
Means 6.6 % 1.8 % = 4.8 %.
If buyers borrow RM 300,000
Buyer will be paying about RM 1,574 per month
-
UDM715: Urban Housing Urban Housing Problems
6
For home buyers, it is always beneficial to have their BLR as low as possible. As an
example: for a home loan of RM500,000 over a period of 30 years, the difference in
interest between a BLR of 4.2% and 4.15% (i.e. a mere 0.05%) could be well over
RM5000. Additionally, BLR is constantly undergoing adjustments depending on the
economy. Generally, it rises when the money market is on an uptrend and correlates
downward when the opposite happens. In Malaysia, the highest BLR recorded is 12.27%
in 1998, while the lowest is 5.55% in 2009.
Consequence, when Bank Negara Malaysia (BNM) increase the base lending rate this
will usually cause commercial bank to increase their interest. The higher interest rate in
economy will:
i. Surge the incentive to save. Higher interest rates cause the people concern to
saving rather than borrowing. This also encourages consumer to hold the money
rather than spending it.
Example 2
Bank Islam offers a package of BLR- 2.0% for 30 years. (BLR = 6.6%)
Means 6.6 % 2.0 % = 4.6 %.
If buyers borrow RM 300,000, buyer will be paying about RM 1,537 per
month.
-
UDM715: Urban Housing Urban Housing Problems
7
ii. Higher borrowing cost. Higher interest rates make the cost of borrowing higher.
This will encourage consumers and firms to more concern avoiding take loan.
iii. Higher mortgage interest payments. When interest payment increase
consequence affect the monthly cost of mortgage repayment. This cause less
consumer tends to borrow loan from bank.
iv. The asset price drop. Higher interest rate makes it less attractive to buy asset
such as housing. This will cause drop in house prices and therefore lees people
tend to have property or encourage people to have a house as shelter not as
asset.
b. Real Property Gain Tax
Azizi Ali, 2012 define that the Real Property Gains Tax (RPGT) is the tax we pay after
selling our properties for a profit (In the unlikely case that people do not make money,
there is no tax due). By the way, it is paid by the seller. The tax will be charged upon him
at 30% for the first year and 25% for the second year. This method will reduce the
number of transaction as they will charge for the tax when selling their house.
According to Malaysia Budget 2012, effective from 1 January 2012 gains from the
disposal of residential and commercial properties are taxed between 0% and 10%
depending on the holding period of real properties as follows:
Holding Period
RPGT Rates
Companies Individual (Citizen & PR)
Individual (Non-Citizen)
Up to 2 years 10% 10% 10%
Exceeding 2 until 5 years 5% 5% 5%
Exceeding 5 years 0% 0% 0%
Table: Holding Period and RPGT Rates. Sources: Malaysia Investment Development Authority
Example:
Bought Unit 1 year ago with RM500, 000.00 and sell within 2 years with selling Price RM600, 000.00
Since it fall within 2 years period so the RPGT will be 15%
Gross Earning: RM600K RM500K = RM100000
RPGT = 15% x RM100K = RM15000
-
UDM715: Urban Housing Urban Housing Problems
8
The RPGT rates will not burden genuine property owners as they are given exemption
and the payment of RPGT is based on net gains as follows:
i. RPGT exemption on net gains from the disposal of one unit residential property
once in a lifetime by an individual who is a citizen or a permanent resident of
Malaysia;
ii. RPGT exemption on gains from disposal of property between parents and
children, husband and wife, grandparents and grandchildren;
iii. RPGT is charged only on net gains after deducting all related costs such as
purchase price, renovation costs and incidental cost example legal fees
iv. Exemption up to RM10000 or 10% of the net gains, whichever is higher, is given
to an individual.
c. Loan to Value (LTV) Ratio
According to Investopedia online, 2013 the loan-to-value (LTV) ratio is a financial term
used by lenders to express the ratio of a loan to the value of an asset purchased. Loan
to value is one of the key risk factors that lenders assess when qualifying borrowers for a
mortgage.
Formula:
The risk of default is always at the forefront of lending decisions, and the likelihood of a
lender absorbing a loss increases as the amount of equity decreases. Therefore, as the
LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs
become much stricter. Lenders can require borrowers of high LTV loans to buy
mortgage insurance to protect the lender from the buyer default, which increases the
costs of the mortgage.
According to Bank Negara Website 2013, with immediate effect from 3 November 2010,
Bank Negara Malaysia announced the implementation of a maximum loan-to-value
(LTV) ratio of 70%, which will be applicable to the third house financing facility taken out
by a borrower.
-
UDM715: Urban Housing Urban Housing Problems
9
Example
Example LTV Percentage
Genuine buyer of 1st house 90%
2nd buyer 80%
3rd buyer 70%
4th buyer 60%
5th buyer and above 50%
Financing facilities for purchase of the first and second homes are not affected and
borrowers will continue to be able to obtain financing for these purchases at the present
prevailing LTV level applied by individual banks based on their internal credit policies.
The measure aims to support a stable and sustainable property market, and promote the
continued affordability of homes for the general public.
At the national level, residential property prices have increased steadily in tandem with
economic development and the rise in income levels. This aggregate growth trend
remains largely manageable and has not deviated from the long term trend in residential
property prices. In the more recent period, however, specific locations, particularly in
and around urban centers, have experienced faster growth, both in the number of
transactions and in house prices. This is further supported by an increase in financing
provided for multiple unit purchases by a single borrower, suggesting increasing
investment activity that is of a speculative nature.
d. Housing Interest Rate
According to iproperty online (2013), Interest is a fee charged by banks for lending
people money. Besides, home loan is a loan used to purchase property (Investopedia
Online, 2013). Essentially, interest is like rent on money. In Malaysia, housing loan
interest rates are usually quoted as a percentage above or below the Base Lending Rate
(BLR). For example, if the current BLR is 6.6%, the interest rate on a BLR 2.1% loan
would be 4.5%.
Table: Example of LTV Percentage for Buyers
-
UDM715: Urban Housing Urban Housing Problems
10
There are different types of Housing Interest Rate which are Fixed and Variable Interest
Rate. A housing loan with variable (or floating) interest rate is a type of loan where the
interest rate could change at some point in the future. In contrast, a housing loan with
fixed interest rate will not experience any changes to its interest rate throughout the
entire loan period.
Most housing loans in Malaysia today have variable interest rates (all banks that quote
their housing loan interest rates as BLR XX% are variable interest rate loans). Banks
charge interest on the unpaid loan amount of people home loan (also known as the loan
principal or outstanding loan balance). Typically, home loan interest rates are calculated
and charged on a monthly basis.
Depending on the loan agreement, interest may be calculated either on a daily rest or
monthly rest basis. The diagram at the next page provides an illustration of the
difference between daily rest and monthly rest interest calculation.
Example,
Lets assume people borrow a RM500000 home loan from a bank
Bank interest rate of BLR 2.1%. Lets further assume that the BLR is 6.6%.
In the first month:
The total amount of interest charged by the bank is:
RM500000 x (6.6% 2.1%) / 12 = RM1875.
The interest charges may be less in subsequent months.
Assuming the monthly repayment is RM3000.
In your second month:
Previous months interest charges = RM1875 (see above)
Amount allocated to reducing outstanding loan:
RM3000 (previous months repayment) RM1875 (first months interest) = RM1125
Outstanding Balance in Month 2:
RM500000 (initial loan amount) RM1125 (amount used to reduce outstanding loan in month 1)
= RM498875
The total amount of interest charged by the bank in Month 2:
RM498875 x (6.6% 2.1%) / 12 = RM1871.
-
UDM715: Urban Housing Urban Housing Problems
11
A home loan with daily rest calculation is almost always better than one with monthly rest
calculation. The obvious advantage is that people can save some interest charges if
people make a large repayment towards their home loan mid-way through the month
(before their loan repayment is due).
e. Use Disposal Income
According to Azizi Ali, 2012, disposable income person (DIP) is the amount of money
that household available for spending and saving after income taxes have been
accounted for. Disposable income is determine by (Gross income deduct outgoing) will
be use when determine the amount of loan of each person should take.
Formula:
This is because the Bank Negara wants to endorse tighter lending condition towards the
lender. At the same time Bank Negara avoid use gross income as they want to select
the person who has the ability to pay or in other way has fixed and flexible income also
without any hesitation of paying in future. This method will ensure the lenders are in
stable economic condition and have no issues when paying the loan in return.
Flow Chart: Difference between daily rest and monthly rest interest calculation
-
UDM715: Urban Housing Urban Housing Problems
12
According to Bank Negaras Annual Report 2010, Malaysias household debt at end of
2010 was RM 581 billion or 76 per cent of GDP (Gross Domestic Product). The Bank
claimed that the household debt is still manageable because of income growth, high
levels of savings and favourable employment opportunities.
BNM maintains that Malaysian household debt is still at a manageable level due to a
corresponding expansion in household financial assets, of which high proportions are
liquid assets such as cash savings. However, the ratio of household financial assets to
household debt has declined from 274.3% in 2008 to 229.6% in 2012, while the liquid
financial assets to household debt ratio declined from 175.3% to 148% over the
corresponding period. BNMs stance is also supported by the decrease in household
NPL ratio from just 4.1% in 2008 to 1.5% in 2012.
Example:
Salary RM3, 000
Monthly car payment: RM600
The first house monthly payments: $ 400
Monthly fee for loan-be made (2nd home): RM1200
So, (600 + 400 + 1200) / 3000 = 73%
Figure of Household Debts by Composition (2011), Source CIMB Research
-
UDM715: Urban Housing Urban Housing Problems
13
Question 2:
What are the possible dangers if the problem spiralling housing price is unchecked?
Answer:
When the housing spiralling problem in Malaysia is unchecked, it will produce a lot of possible
dangers in term of physical, economic and social. There are several effects when housing
spiralling is unimpeded which are:
a. Housing Bubble and Burst
According to Business Dictionary Online, 2013 defined that, housing bubble and burst is
a temporary condition caused by unjustified speculation in the housing market that leads
to a rapid increase in real estate prices. As with most economic bubbles, it eventually
bursts, resulting in a quick decline in prices. The end of a housing bubble is hard to
predict given the fact that economic conditions can change without warning. If a housing
bubble swells to an extremely high level, the aftermath of a burst may set the housing
market back years.
Based on the article by Tan Sri Jeffry Cheah in News Strait Times 2012, stated that
Property prices in Malaysia are still affordable compared with some of our neighboring
cities in the region. But when we look at housing bubble burst in Asia perspective, the
result has been an explosion in heavily leveraged consumption as well as in residential
real estate activity, even in economies where wage incomes have not increased that
much, such as the Republic of Korea. And the impact has been most strongly felt in the
housing market. From early 2009, as Charts 1 and 2 shows, residential prices in several
Asian economies soared dramatically for at least two years.
-
UDM715: Urban Housing Urban Housing Problems
14
This has been most evident in Hong Kong, where house prices have more than doubled
since early 2009. In 2012, when global residential real estate prices increased by around
4 per cent, prices in Hong Kong rose by 24 per cent. It is now the most expensive place
on earth, with property prices significantly higher than in New York, London or Shanghai.
In some other countries in East Asia, house prices have tapered off or even started
declining, independent of any policy nudging, but simply because the bubble has finally
burst. This is clearly evident for Taipei China and Malaysia (Chart 2), but even in South
Korea and Indonesia, the rate of increase has come down significantly.
b. Generate Homeless Generation
According to the National Property Information Centre (NAPIC), average prices of
residential property in Malaysia rose by about 12 percent in 2010 to about RM 220000
compared with the year before for example housing cost in the Klang Valley as well
RM100000 more than in 2009.
International consultant company Robert Walters found that on top of stagnant wages,
bonuses in 2010 were also lower than in 2009. In 2009, professionals with less than five
years of working experience could expect to earn under RM5000 a month on average,
depending on the industry.
g
And so was born the sandwich class - a generation of Malaysians who, despite
receiving better education, training and opportunities than their predecessors - are taking
home salaries insufficient to open them to the property market.
Tables of Average House Price, Source: National Property Information
Centre (NAPIC)
-
UDM715: Urban Housing Urban Housing Problems
15
While the property price hike in 2010 represented a big jump, NAPIC data show that
prices have been on a steady rise since 2000, when average house prices were about
40 percent lower nationwide.
According to National House Buyers' Association (NHBA) 2010, the hike in residential
property prices has been due to speculative buying. When the government waived the
real property gains tax (RPGT) following the economic crisis, it sparked speculative
activities that increased house prices higher and higher.
c. Increasing Household Debt
Household debt is defined as the amount of money that all adults in the household owe
financial institutions. It includes consumer debt and mortgage loans (iproperty online,
2013). Household debt of Malaysians has become an increasing concern for Bank
Negara Malaysia (BNM). Malaysia's equally risky to be struggling in the credit crisis in
the economy where it arising rapidly developing Asian countries, according to several
reports today. This remains the case even though the Bank Negara Malaysia (BNM) is
working hard to maintain the country's household debt at a manageable level, after a
ratio of gross domestic product (GDP) increased by 80 per cent last year.
Graph of House Prices in Malaysia, Source: Valuation & Property
Services Department of Malaysia
-
UDM715: Urban Housing Urban Housing Problems
16
The household debt ratios in 2010 are 47.8%, almost half of their income. This means
that their household income goes to paying debt such as housing. Then, the other half is
used for the expenses such as cloth, education, foods and other. When this happens,
the spending to the medicine will be kept beside because there are many needed needs
to fulfill. As the result, most of these people will not care about their health because more
focusing on other things.
House Prices and Household in Malaysia, Source: The Star News, 2012
Graph of Household compared with other Countries. Source: Edges, 2013
-
UDM715: Urban Housing Urban Housing Problems
17
d. Increasing Number of Squatter Houses/Slump
A slum, as defined by the United Nations agency UN-HABITAT, is informal settlements
within cities that have inadequate housing and squalid, miserable living conditions. They
are often overcrowded, with many people crammed into very small living spaces.
According to Ron Keith, 2013 the population growth or Urbanization in Malaysia
constantly increases over the year as shown in graph below:
Malaysia today has a population of 29.2M making it the 43rd most populous country in
the world and the 30th largest economy. With a relatively high degree of urbanization
relative to its peers in Southeast Asia (72% of the people live in the cities vs. just 30%
for Vietnam), Malaysia currently runs a very low unemployment rate with the official
number reported at 3.2%.
Graph of Urbanization with Annual Rate of Malaysia with other Countries. Source: Ron Keith, 2013
The image of Shanty Town due to the increase in housing prices. Source: Google Images, 2013
-
UDM715: Urban Housing Urban Housing Problems
18
When the housing spiraling problem in Malaysia is unchecked, it will produce a lot of
possible of urbanized people to build squatter house in urban area such under the
flyover, interstitial building, railway reserve, riverfront and also graveyard. Once the total
numbers of squatter house is increase it will create the shanty town that give bad impact
to the city in term of image and traffic problems. To eliminate the squatter house is really
complicated because the local authority should be replacing them to the new house.
e. Oppression of High Class People to Low Class People
In Malaysia, the population of high income peoples was 10% and low income people
were 90% (Jabatan Perangkaan Malaysia, 2013). In the current day, capitalist system
causing to high class peoples will become more richness and low class peoples will
become poverty (Kiyosaki R.T, 2012). There more low cost rental house was billed by
government for settling up the numbers of resident with low income but sadly, that
houses was purchased first by high class people and rented to low class people in
strongly affordable prices rate (Utusan Online, 2013).
Most of the high-income group in Malaysia is dominated by Chinese race. They were
buy a variety of properties in the urban area and rented to low income peoples especially
for Chinese. They will differentiate out the house prices according to the type of race for
Graph percentage of household follow by area. Source: Jabatan Perangkaan Negara, 2002
-
UDM715: Urban Housing Urban Housing Problems
19
example, they will sell or rent at a low rate house price for Chinese and in contrast,
Malays are to be sold at a higher price. This will cause the Malay race once oppressed
and 'driven out' of that urban living. If this situation is continues to happen, then the
Malay population in the urban area will steadily diminished.
Based on Sinar Harian Online (2013), the richest people in Malaysia controlling most of
the Malaysia economy. The data showed that 38.4% of the income economy dominated
by the high income people 10%. While the Low income people 10% accounted for only
1.7% of economic income. This will cause the income gap between the rich and the poor
people thus disturbing the socio-economic growth.
Graph of rate of income in Malaysia with race. Source: Jabatan Perangkaan Negara, 2007
-
UDM715: Urban Housing Urban Housing Problems
20
Question 3:
Why the housing prices are still raising despite the level is already beyond the affordability of
95% of the urban population such as in Shah Alam?
Answer:
In Malaysia, every day we see more and more expensive the price of homes, land, houses and
factory stores, especially in urban and suburban areas. This is because
a. Status People via Type of House
In Malaysia, via the type of house will be able to determine the status of the person
whether they as high income, medium income or low income people especially in urban
areas such as in Shah Alam, Kuantan, Putrajaya etc. According to Rohaizan (2012),
stated that, most of the high income people might stayed in house like bungalow,
condominium, or semi detached house. Besides, medium income people was stayed in
medium cost terrace house and high or medium cost apartment and lastly, the low
income people was live in low cost apartment and low cost terrace house.
From that situation, the developers will take possibility to build a lot of high cost
residential in order to take more profit from the high income buyers such in Bukit
Jelutong in Shah Alam. Sime Darby Property was develop Bukit Jelutong as high cost
residential zone. According to Malaysia Kini Online (2013), the prices of Bukit Jelutong
house are really expensive compared with the actual cost. Because of that zone is high
residential cost category, the buyers willing to buy that house in order to show their
status and positions. Therefore, because of that reason, the land property always rises.
Photo: Bungalow House
Source: Google Images
Photo: Terrace House
Source: Google Images
Photo: Apartment
Source: Google Images
-
UDM715: Urban Housing Urban Housing Problems
21
b. A lot of Unemployed and Low Income Peoples
Demand for housing is dependent upon income. With higher economic growth and rising
incomes people will be able to spend more on houses; this will increase demand and
push up prices. In fact, demand for housing is often noted to be income elastic (luxury
good); rising incomes leading to a bigger % of income being spent on houses. Similarly
in a recession, falling incomes will mean people cant afford to buy and those who lose
their job may fall behind in their mortgage payments and end up with their home
repossess.
Refer to the graph above; there are many unemployment people in Malaysia especially
from 2001 until 2008. According to Jabatan Perangkaan Malaysia 2012, the total of low
income people in Malaysia is range 80% and its quite high. Related to economic growth
is unemployment. Clearly when unemployment is rising, less people will be able to afford
a house. But, even the fear of unemployment may discourage people from entering the
property market.
Graph of Total unemployment in Malaysia from 1988 to 2008. Source: Jabatan Perangkaan Negara, 2008
-
UDM715: Urban Housing Urban Housing Problems
22
c. Inflation Effects
Next, inflation also has an impact on property values in Malaysia. At its most basic level,
inflation is simply a rise in prices and a fall in the purchasing value of money. The
example such as again using Penang where there is latest news announced that "the
selling price of properties in Penang will soon surge by 5%-10% following the recent
move by Lafarge Malayan Cement to raise cement prices by about 6%", according to the
Penang house developers.
A hike in cement price simply means the price of concrete roof tiles, cement sand bricks
and all the other cement-related products will rise. On average, 50% of building
materials used in property development comprises cement and cement related products.
Therefore, such inflation will leads to an increase in construction costs and the buyers
are the one who ultimately bears the cost. Besides, the inflation also has been caused
by the transportation and labor costs that are increased nationwide. The rise in cost of
labor is particularly due to the labor shortage as many Indonesian have gone back to
Indonesia and are facing with stricter laws and standards when they wish to come back
to Malaysia.
Graph of Malaysia Inflation Rate from year 2000 until 2011. Source: Universiti Malaya, 2008
-
UDM715: Urban Housing Urban Housing Problems
23
d. Development in Construction Technology
Nowadays, the construction technology is highly developed in much country including
Malaysia. House prices are also much influenced by the methods used in its
construction. This situation caused developers to choose the appropriate type of system
construction to begin construction of the house. A more systematic method should be
used to create more number of houses in line with the increase in population is
happening at present. It was already stated by Ahmad (2001) and they also say that the
conventional construction systems are not suitable for affordable housing development
by the population.
Besides, this situation is due to the construction of the system requiring a long time. This
situation has also been described by Wales, et.al. (1997) in and say that in this
conventional system, an employee can only complete home within a year. In addition to
the long term, the use of this system will also require the developer to produce high
expenditure for the construction materials. In addition to the cost of labor will rise to be
one of the influences on house prices.
The developed construction technology that influenced the construction cost in Malaysia. Source: Google Images 2012