PRR — Is giving away taxpayers’ money sustainable?

• In a way, HBA is glad that KPKT is taking the lead to build more Social Housing in the form of these PRR units. However, selling the PRR units at a discounted price is not the right approach and is more harmful to both future house owners and the Government.

The National House Buyers Association (HBA) views with concern the reports of a new public housing scheme by the Ministry of Housing and Local Government (KPKT) named Program Residensi Rakyat (PRR), where it was reported that the construction cost of each PRR unit will be raised to RM300,000, but will be sold only at RM60,000. Furthermore, out of the RM60,000, about RM10,000 to RM15,000 will be set aside for maintenance and sinking funds. The moratorium period, where owners are prohibited from selling these units, is set at 10 years.

HBA can understand why the Madani government is taking such an initiative, as property prices have risen too rapidly in recent years. To quote from Bank Negara Malaysia’s 2016 annual report: “Since 2012, the increase in house prices in Malaysia has outstripped the rise in income levels. Consequently, prevailing median house prices are beyond the reach of most Malaysians”.

At present, many Malaysians cannot afford to buy their first homes and HBA has been raising alarm bells on rising property prices for the past decade.

Exempt developers from building social housing

Firstly, we need to set out the broad category of housing in Malaysia based on price range as follows:

1. Social Housing: Broadly defined as low-cost to medium-cost housing with built-ups of less than 800 sq ft (excluding balcony) and/or costing less than RM150,000

2. Affordable Housing: Defined as housing with built-ups of at least 800 sq ft and costing between RM150,000 and RM300,000, and located in areas with good connectivity and amenities

3. Other forms of housing: Defined as properties costing more than RM300,000

HBA has been calling for the Government to give more incentives to housing developers to build more Affordable Housing and exempt them from having to build Social Housing as they are losing money building and selling the latter. As a result, developers have to increase the prices of Affordable Housing and other forms of housing to recover the cross subsidy against the losses from building Social Housing. In fact, Social Housing should be built by the Government or its agencies at the federal or the state level.

More harm than good

In a way, HBA is glad that KPKT is taking the lead to build more Social Housing in the form of these PRR units. However, selling the PRR units at a discounted price is not the right approach and is more harmful to both future house owners and the Government for the following reasons:

1. Loss of RM240,000 for every unit

With a reported construction cost of up to RM300,000 and a reported selling price of only RM60,000, the Government will record an unacceptable loss of RM240,000 for every unit of PRR sold! There has not been any news on how many PRR units will be constructed but taking an average high-rise development of, say, 300 units, the Government will record a whopping loss of RM72 million! At a time when the Madani Government is talking about rationalising fuel subsidies, this PRR does not make any financial sense and is beyond comprehension.

2. Likely to be abused by profiteers

With a ready profit margin of RM240,000 for every unit of PRR, the successful buyers of such PRR units would be reaping handsome profits on the back of taxpayers, whose hard-earned money has been used to subsidise such PRR units. Ironically, a taxpayer who is unable to afford a house will be paying for others (to own and earn big bucks from a house).

Moreover, this so-called 10-year moratorium normally starts from the date of the sale and purchase contract, and with the construction period for stratified properties being 36-48 months, the waiting period to “cash out” is a mere six to seven years’ wait.

Assuming a compounded annual growth rate of only 3.5% per annum, after the moratorium of 10 years is lifted, the PRR unit which cost RM300,000 to build would be valued at RM423,180. After deducting the original purchase cost of RM60,000, the PRR owner would be looking at a profit of RM363,180 or more than 500%! With such high profits for the taking, syndicates would very likely emerge and try to take advantage of the system and use proxies to buy as many units as possible.

Then, the issue of selection criteria will also creep in and be debated as to who the “low-income group” and “deserving persons” are.

3. Wrong inculcation of maintenance culture

On the RM10,000-RM15,000 set aside for maintenance and sinking funds of these PRR units, does this mean the Government is taking responsibility for the maintenance of what is already privately-owned properties? To HBA, it is irresponsible to use public funds for the maintenance and upkeep of private property. Moreover, how long will this sum of RM10,000-RM15,000 sustain?

The Government is also not teaching the correct maintenance culture to the residents of PRR units by taking over the maintenance and upkeep of their homes. At present, many Program Perumahan Rakyat (PPR) units, which is a form of Social Housing, suffer from poor upkeep as residents don’t bother to pay towards the maintenance and sinking fund required for the upkeep of the building.

The Government cannot and should not send the wrong message to residents of Social Housing that if you do not take care of upkeep and maintenance of your private housing units, the Government will do it for you at no cost.

(Read: Preventive enforcement and proactive scheme needed to help rakyat own homes)

4. Enriching this generation but depriving the next

Although it may seem that the Government is helping the current lower-income group to buy their dream homes at a fraction of the actual cost (RM60,000 for RM300,000 value), in reality, the Government is just kicking the can down the road. There will always be people in the lower-income groups who cannot afford to buy their dream homes, and let's be honest, how long can the Government sustain the loss of RM240,000 for every unit sold?

When the Government finally runs out of money, it is the future low-income groups who will suffer while the current owners of such PRR units just need to wait for the moratorium to expire before cashing in on their handsome profits. In short, the next generation’s low-income group will be deprived at the expense of enriching this generation’s low-income group.

Should only be rented out as transit homes

HBA commends KPKT for taking the lead to build more Social Housing in the form of these PRR units. However, such PRR units should not be sold. Instead, these PRR units should only be rented to deserving applicants as a form of “transit home” where the lower-income group can stay in relative comfort and pay low rents while they work towards improving their economic livelihood.

In fact, KPKT, in cooperation with other ministries, should run skills training or re-training at the PRR units to teach marketable skills to the residents and the family members of the PRR units so that they can be equipped to find better jobs. Various other Government ministries and agencies can also assist in job placements to assist the residents and their family members in finding better jobs.

KPKT must also conduct a rental review of the residents at least once every five years to ensure that only deserving applicants continue to stay. Residents who have already improved on their economic livelihood should move out and make way for more deserving applicants.

In fact, on the induction for the residents, the Ministry should emphasise that the PRR units are meant as “transit homes” until they can graduate to buying their own properties. 

HBA urges KPKT and the Madani Government to rethink how to implement this PRR scheme. Although the intention is noble, the implementation can be improved to ensure that the Government does not end up in financial ruin and jeopardise its ability to assist future generations of low-income groups to have roofs over their heads.

Datuk Chang Kim Loong is the Hon Secretary-general of the National House Buyers Association (HBA). 
HBA can be contacted at: 
Email: [email protected]
Website: www.hba.org.my 
Tel: +6012 334 5676

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