Rehda Institute highlights intricacies, key suggestions to reduce compliance costs

• In a report unveiled at the roundtable, Rehda Institute highlighted compliance costs as a major challenge in the industry, with continued hikes leading to higher prices and hence, reduces affordability, project feasibility, profits, and future supply.
• Rehda Institute cited that compliance costs will form part of the total development costs of the project and will be translated into house prices. The higher the cost of compliance, the higher development costs will be — hence higher house prices.

KUALA LUMPUR (Jan 12): Rehda Institute — the research, education and training arm of the Real Estate and Housing Developers’ Association (Rehda) — is seeking ways to mitigate high compliance costs as discussed at a roundtable session titled Rehda Institute Housing Forward Roundtable: Cost of Doing Business 2023 on Thursday (Jan 12).

Moderated by Rehda Institute chairman Datuk Jeffrey Ng Tiong Lip and Rehda Malaysia president Datuk NK Tong, the roundtable participants included government bodies and ministries such as the Ministry of Works, Ministry of Development and Local Government, Rehda members, developers, as well as key associations, boards, and authorities such as Malaysian Investment Development Authority, Construction Industry Development Board, Royal Institution of Surveyors Malaysia, Malaysian Institute of Planners, Pertubuhan Akitek Malaysia, Masters Builders Association Malaysia and Valuation and Property Management Department.

In a report unveiled at the roundtable, Rehda Institute highlighted compliance costs as a major challenge in the industry, with continued hikes leading to higher prices and hence, reduces affordability, project feasibility, profits, and future supply.

According to the institute, compliance costs are incurred to comply with various policies, guidelines, standards and regulations.

These can be either be capital based (which translates to land conversion premiums, contribution charges, levies, fees, and other monetary contributions including infrastructure service fund, development charges, sewerage capital contributions, contributions towards road upgrades), or in the form of reduction of net saleable land due to planning requirements (that include land surrender for public facilities, infrastructure, utilities infrastructure, open space, etc).

During the session, participants concurred that they have witnessed increased land surrender requirements in recent years. For example, in the 1990s, land surrender for public amenities and facilities was around 40% of the total development area, and now it is close to 60%.

Compliance costs can also be the result of time-based matters, with delays and uncertainty of approvals, including pre-, during and post-development stages, resulting in increased risks and holding costs. This also include holding costs involved for approvals and unsold Bumiputera quota release.

Rehda Institute cited that compliance costs will form part of the total development costs of the project and will be translated into house prices. The higher the cost of compliance, the higher development costs will be — hence higher house prices.

Key suggestions

During the press conference for the roundtable, Tong commented: “Several questions were raised on the subject of compliance costs: Are they real? Are they really impacting us?”

This led to Rehda Institute doing the research, where developers provided detailed accounts of how compliance costs come together. The report has also been disseminated among the national councils and branch chairmen as well.

“The Ministry of Housing has a clear idea with robust regulations, but sometimes they get lost in translation with the different authorities and utilities [of each state] that add things to the entire process … which inevitably would cause higher house prices for the rakyat,” Tong added.

Ng noted that it is important to review the feedback from various stakeholders, and to do research to supplement its existing report, in hope for a more balanced views, suggestions for the authorities.

Some of the suggestions by Rehda to alleviate compliance costs include to have transformation in transparency, to improve speed of approval and to streamline its processes.

It also bids to reduce unproductive costs, minimise cross subsidies and optimise land and gross floor area. To achieve this, Rehda Institute proposes a full digital property development system incorporating pre-consultation, submission, approval and payment systems; local plans to be expedited and gazetted to reduce approval timelines; self-regulation whereby conditional approvals based on professionals’ submissions.

The institute also proposes payments whereby deposits, charges and fees be made payable to an online payment; and a gateway in which fees and charges for the whole process are calculated upfront and paid online progressively at the relevant stages.

Ng said any efficiencies that can be achieved, or costs that can be mitigated will put compliance costs at a lower scale and hence, cost of doing business will be more sustainable.

During the session, it was also highlighted that the industry needs an efficient Bumiputera quota release mechanism where there is less uncertainties and repetitive applications. For this, the institute suggested to introduce online submission and approval for the release of unsold Bumiputera units, and an automatic and transparent release mechanism of how the Bumiputera quota should be applied.

Rehda Institute added that holding costs on unsold Bumiputera quota can be substantial and unproductive, and that it is important that if there is no demand, the units are offered to the open market the soonest so that developers are not tied with the latter.

The report was first launched by Rehda Institute in March 2022, considering the lack of industry reports that focus on the supply and costs side of housing delivery. The report delves into pertinent issues and promotes clarity of compliance costs, and their impact on price sustainability.

Rehda general manager of research Rusnani Abdul Rahman revealed that the research was started in 2019, adding that potentially new updates will be included from the feedback during the roundtable session with the stakeholders.

Rehda deputy president Datuk Ho Hon Sang added: “Each time there is a new policy, we engage with all the stakeholders to do a cost benefit analysis. Whenever there is a new requirement imposed, it is always good to review the impact and the costs of doing business…. at the end of the day, it is about the community and those who are producing the goods and services for the community.”