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INTRODUCTION

Housing is the main agenda for every country in the world. This is because housing is

not just a physical structure that provides shelter to its inhabitants but is also related to

socio-economic, political, neighborhood and environment. Housing is very important to

the economy of a country as housing is consumer goods and shows 15 to 30 percent of

household spending in EU countries in relation to housing. Apart from that, it is also an

important investment item, of which 5 percent of national income is invested in housing.

The importance of housing to the national economy can be measured in the form of

employment, production, investment and consumer spending and is reflected in its

contribution to the Gross National Product (GNP) in terms of value of investment as well

as contribution to sector services. Housing investments in emerging economies range

from 2 to 8 percent of GNP and contribute 10 to 30 percent of the gross capital

formation in these countries. In terms of service flow, housing accounts for 5 to 10

percent of GNP. Investment in housing will make changes to GNP and the changes will

involve changes in the non-housing sector. Therefore investment in housing will double

the investment in other sectors and thus stimulate the economy of a country. Based on

the importance of housing in the economy and the development of a country, housing-

related issues are still the subject of ongoing discussions for academics as well as

policymakers policies.

HOUSING MARKET

The housing market is basically subject to market mechanisms as well as other goods

and services where house ownership plays a major role. The balance will be achieved

in the event of interaction between demand and supply at a certain price. However, the
balance in the housing market is difficult to achieve as housing demand and supply is

not only affected by price alone but also by other factors such as economic, social,

political, legal and technological change.

The housing market is essentially an economic market that is subject to a political

framework in a country. Hence the housing market can be defined as a set of

institutions and procedures in allocating limited resources ie housing services to meet

the demand and supply of housing. The mechanisms linking supply and demand are the

exchange processes that take place in the market namely home stocks to households.

The process of conversion takes place due to factors of economic growth, exchange of

policies, expectations of demand, income increase, financing facilities and changes in

population demographics.

From the economic aspect, housing is not elastic in the short term. Housing supply can

not be produced within a short period of time despite high demand. The process of

housing development takes time to implement and generally can not expect what is

going to happen in the future. In this case developers can not wait until there is a real

demand in deciding to develop a housing project but the decision to build is based on

the expectation of demand. If expectations are made on the basis of economic

conditions, the developers will build more housing units. If uncontrolled supply surpluses

occur in the event of a recession during the spike and the market will be filled with

houses that can not be sold.

In 2011 to 2015 the housing market in Malaysia was in surging. The situation was due

to good economic performance and further encouraging other economic activities.

During that period, its GNP has increased by more than 20%. In addition, the number of
mortgages also increased, interest rates declined, the unemployment rate also declined

and gave more spending power. The economic activity caused home ownership to rise

and consequently caused inflationary situation to occur. To curb the situation, the

Government has taken steps to slow economic activity by raising interest rates. In the

early 1990s the GNP has decreased, the loan amount also decreased and

subsequently the fall in house prices.

The housing market is constantly changing that occurs in the market volatility. This

change will affect the economy, the market and the parties involved. Changes that

occur dramatically will lead to losses rather than profits to the parties involved. There

are various factors that cause instability in the housing market apart from economic

factors such as psychological factors, speculation, migration factors, financing and

government policies that can cause instability in the housing market.

Remedies in overcoming fluctuating problems or instability in the housing market are

through government intervention. The government needs to intervene to achieve the

objectives of the housing itself. The government is a 'key player' in making the housing

market function more efficient if the housing policy is feasible.

HOUSING IN MALAYSIA

The national housing policy is to provide adequate, quality and affordable housing for all

people from all walks of life especially for those with low incomes. Thus, the government

has formed certain policies and programs to achieve the national housing policy goals.

Regulations and guidelines for the housing industry include the Control and Licensing

Housing Developers Act 1966, 1988 and 1989, the allocation of 30 percent quota of
low-cost houses, 30 percent quota for Bumiputra, Housing Developers Account 1990,

the establishment of relevant committees and housing councils as well as the

establishment Construction Industry Development Board in 1994.

The authorities responsible for housing development are the Ministry of Housing and

Local Government. The Ministry plays a key role in implementing Government policies,

particularly on the development of low-cost houses and low-medium cost houses to

ensure low-income and low-income groups have the opportunity and affordability. At the

state level, the State and Local Authorities are responsible for implementing the

Government's policies and also acting as the governing body of the housing industry. In

terms of housing program implementation, not only involve the involvement of the public

sector but also the private sector. The public sector plays a role in implementing

housing programs especially for the lower income group while the private sector is more

on housing development for the entire market, especially for medium and high-class

households. To achieve the country's housing goals, the government has allocated

various incentives besides control to homeowners, especially private developers.

Among the incentives that have been given are the incentives for upgrading the home

ownership system, facilitating home financing sources, reviewing relevant housing

regulations, promoting quality research, building techniques and building costs,

identifying and privatizing appropriate housing projects and promoting and conducting

home ownership campaigns .

The Government has introduced several incentives that are basically promoting home

ownership: -
i. Stamp Duty Incentives

Stamp duty was introduced on 5 December 1949 and was the tax imposed upon the

transfer. This incentive involves the exemption of stamp duty payments and the

reduction of ceiling rates upon the transfer of real estate. This incentive was introduced

in stages starting in 1996, but only involving low-cost houses. Later on Jan 1, 2002 to

June 2, 2002, stamp duty was abolished and subsequently extended to the Economic

Stimulus Package which was announced on 21st May 2003.

ii. Treasury Housing Loan Eligibility is increased.

The Government has announced the increase in lending credibility for civil servants

through the 2002 budget presentation. The incentives can increase the ability of home

buyers among civil servants. In addition, the Government through its Circular No. 12 of

2002 has announced the financing of mortgages for second property. The incentives

are seen as attracting civil servants to invest in housing and can overcome the problem

of excess supply.

iii. EPF Withdraw For Second House Purchase

The withdrawal of EPF savings is necessary to reduce the cost of home purchase

especially in prepayment and other payment. On Jan 1, 2001 the expenditure for the

purpose of purchase of a second home was allowed.

iv. Leasing of Real Estate Ownership Requirement by Foreign Citizens.


Property ownership by a foreigner valued at less than RM10 million does not need to be

approved by the Foreign Investment Committee (FIC). The parties involved only need to

inform the FIC.

Foreigners are allowed to own all types of residential units, shops, office space and

business space worth RM 250,000 or above without local equity participation.

Purchases can be financed by local financial loans and should be 50 percent

completed. Further relaxation is under the Siver Haired Program (the elderly) which

allows foreigners to buy a residential unit priced above RM150,000.

v. Housing allowance

All civil servants are given housing allowances and these incentives can be used to

purchase a home.

vi. Increase in Gross Income

The Government has taken steps to increase the gross income of civil servants or the

private sector by reducing the income tax rate and also reducing the EPF deduction rate

from 11 percent to 9 percent. With the reduction of these rates, disposable income will

increase every month.

vii. Real Estate Gain Tax Exemption

Real Estate gains tax on property disposed off within one year from 1 January 2003 is

exempted.
The Government's move to introduce such incentives is to achieve the goal of the

country's housing that every citizen can have the right home and thus stimulate

economic growth.

HOUSEHOLD PRICING FACTOR

Lately, the rapid economic development has led to rising demand for residential housing

between urban areas in Malaysia. When looking at housing prices in Malaysia, housing

prices have risen dramatically either in big cities or small towns and dependent on

certain locations. More than ten years ago, the property market in Malaysia has

experienced significant price developments throughout Malaysia. So far, the price of

housing almost reached the sky. Although the real factor behind the non-logical

increase is still a question, there are several possible reasons why housing prices rise.

i. Growth of population

The first factor that can be seen is population growth. Today, Malaysians are

increasingly growing and need more homes to live, but housing production is relatively

slow as there are many laws, rules and procedures in relation to construction. In a study

by Tze San Ong (2013), he found Vermeulen and Van Ommeran (2006) states that

"people will move to areas where houses are built, but houses are not necessarily built

in areas where people want to settle ". This may be due to workplace transfers. Usually,

people will buy a house in a certain area because they work in the nearby area or the

rental fees are the same as their monthly housing costs. Knowing that, developers will
take the opportunity to profit by raising the price of housing due to demand. People will

definitely buy the house because it is a necessity for their careers. In Malaysia, the lack

of affordable pricing options has forced many Malaysians to enter the rental market and

informal settlements, which drastically increased due to population growth and

urbanization. In real economy, there may be more factors affecting prices

housing. But we can not deny the fact that one of the important factors is the growing

population.

ii. Interest rates

In addition, the second factor affecting the rise in housing prices is high interest rates.

Bank loans can affect housing prices in various ways. The price of housing is the same

as the price of any asset. The interest rates can be determined by the future flows of

discounted cash flows. If financial banks increase credit availability, it means that the

bank will provide lower lending rates and promote current and future economic

activities.

Basically, better availability of credit will result in increased demand for housing when

borrowed households are constrained (Barakova, 2003). Growth in demand will make

higher housing prices. The relationship between housing prices and household loans is

two-way, ie real estate prices can affect household loans through various wealth effects.

When housing finance interest rates are low, people will be able to make some

investments, such as buying more homes. The bank's capital value will also affect the

movement of housing prices on credit supply. That is, housing estimates increase the

value of residential properties owned by banks. In addition, the value of the loan is
secured by mortgage lending. Therefore, fluctuations in housing prices will affect the

ability of banks to take risks in investment. So, banks are willing to lend more to the

public. In conclusion, for homeowners, they are focusing on changing interest rates as

they have a direct influence on property prices. However, interest rates also affect

capital availability and demand for investment. Capital flows affect supply and demand

for real estate and, as a result, they affect property and housing prices

iii. Increase Cost of raw materials

The third factor is the rising cost of raw materials. It is one of the most well-known

reasons often used by housing developers. Nowadays, all the prices of goods are

getting higher because of one of the factors that cause it is the rise in petrol prices. This

is because most of our daily activities are related to the use of gasoline. Related to

construction, production of materials used, packaging, and delivery, all involve the use

of petrol. That is why the price of the goods varies depending on the price of petrol. This

situation will be worsening during inflation, most societies working in the economy will

increase their prices. So, in order to reduce this cost burden, developers take into

account the increase in housing prices for which the burden will be handed over to the

buyer. For high-income people it is not a big problem, but for medium and low income

people it will definitely reduce their purchasing power and also cause them to suffer

from poverty.

iv. Labor
Other factors affecting the rise in housing prices are labor. In a research study by Tze

San Ong (2013), if large numbers of workforce are involved in construction, the cost of

housing will increase. Additionally, construction involves many professional workers with

high levels of education, such as engineers and architects other than less educated

workers. This will cause housing prices to rise due to the cost of building a home unit

will increase. Developers without hesitation, will charge a high cost to the buyer.

Therefore, buyers are forced to buy at a higher price. Additionally, the new Malaysian

labor policy on the recruitment of foreign workers has changed which states that wages

for recruitment of foreign workers for construction work is a minimum of RM900. For

example, labor from Indonesia. As we can see, developers are sure to take foreign

workers rather than locals as they are more experts and better in carrying out their

duties than local workers.

HOUSING ISSUES IN MALAYSIA

Housing is a sector heavily influenced by the state's economy. The achievement of the

housing program is also dependent on economic conditions. There were three levels of

real estate market surpluses ie from 1963 to 1964 to 1972 and 1980 to 1981. Then it fell

into the recession period from 1982 to early 1987. The recession not only has

dampened housing has even caused some serious problems in the housing industry

such as bidding does not meet target needs, too high prices, squatter growth in major

cities and abandoned housing projects.

In the early 1990s the country once again experienced a surge in real estate market.

Many housing projects emerge as mushrooms, especially in major cities such as Kuala

Lumpur, Shah Alam and Johor Bahru. At that time, there was an increase in residential
property ownership substantially at 165,272 in 1990 to 270,538 in 1997, an increase of

63 per cent, involving a value of RM 16.6 billion to RM 53.13 billion. This high point is

due to the rapid growth of the economy over the period from 1990 to 1997. During that

period, Malaysia has been deficient in GDP per year by 8 per cent consecutively. The

economic situation has led to an increase in the construction industry in the real estate

sector and residential housing. The number of medium and high cost houses

constructed by the private sector in the Seventh Malaysia plan far exceeds the target

where the medium cost housing category reached 187.5 per cent while the high cost

houses were 435.3 per cent of the proposed proposals.

However, the country once again experienced an economic crisis in 1997 as a result of

the Asian financial crisis. The impact of this economic crisis has led to a large surplus in

the housing market. The excess of supply was referred to unsold residential properties

within nine months from the date it was completed. The total number of residential

properties that can not be sold is estimated at 93,600 units at the end of June 1999.

Beginning in 1998, the government and Real Estate Developers Association of Malaysia

(REHDA) launched several home ownership campaigns to reduce the amount of stocks

that can not be sold. The first home ownership campaign was launched on 12

December 1998 for one month and second campaign from 29 October to 7 December

1999. Various incentives were offered during the campaign including stamp duty

exemption and a minimum five percent discount on houses priced at RM 100,000 and

10 percent for over RM100,000. The Financial Institutions also offer various incentives

such as financing up to 95 percent, the processing fee waiver and the repayment term

of the loan is extended up to 30 years. Legal fees for sale and purchase agreements
are reduced. Changes were also made to the Guidelines on Foreign Investment

Appointments by loosening the terms against the purchase of houses for foreigners. On

21 May 2003 the Government once again launched a new package to stimulate the

economy and some more interesting incentives have been announced in relation to

housing. The attractive incentive introduced was the stamp duty exemption on

instruments for the purchase of residential property not exceeding RM 180,000 for

residential properties purchased within 1 hb. June 2003 to 30 th. May 2004. In addition,

income tax relief on first-ever housing loan interest rates ranging from RM 100,000 to

RM180,000 was also provided for completed homes purchased during the period.

All the Government's incentives are aimed at promoting the housing market and thereby

reducing the unsold properties. According to the Real Estate Market Report 2002, the

real estate market was active and stable following the achievement of the Malaysian

economy as a result of the measures in the 2002 Budget. Increased salaries to the

public sector, benefits from tax cuts, low interest rates, attractive loan packages and

incentives from developers are encouraging more buyers to buy residential real estate.

especially in the residential real estate sector. However it is unclear whether these

incentives affect buyers in buying a home. Hence the question of what effect of

government intervention through the incentives that have been launched into the

housing market. Will these incentives revitalize the housing market? Does the incentive

affect home ownership? Are consumers buying a home because they are interested in

the incentives offered?.

GOVERNMENT STRATEGY SOLUTION TO PROBLEM:

i. PR1MA
PR1MA stands for 1Malaysia People's Housing or in the English Bahamas it is known

as (1Malaysia People's Housing Program). The objective of PR1MA is to develop

affordable housing for middle-income households in Malaysia's major urban centers.

For the purposes of PR1MA, the middle income group is defined as a community with a

monthly income of between RM2, 500 and RM7, 500. It has been established by the

Government as a way to help certain groups to manage the cost living in urban areas, in

particular, in increasing their chances of having a home during a rise in property prices

in Malaysia. PR1MA is one of many good efforts by the government to help people

manage the cost of living in urban areas. PR1MA will be the leader who is targeting the

middle income group by offering houses ranging from RM100, 000 to RM400, 000

which have been developed in sustainable community development.

ii. My First Home Scheme

This scheme is one of the steps announced by the Government in Budget 2011 to help

young people to own homes. The scheme allows home buyers to secure 100%

financing from financial institutions, this scheme also allows them to own homes without

having to pay 10% down payment. Cagamas SRP Berhad will guarantee the bank's

financing, ie at 90% if the borrower receives full funding, Cagamas SRP will guarantee

10% (from 90% to 100%) of the financing. This Scheme is open to all Malaysians aged

35 years and below (the age of the next birthday is 36 years or less) with gross income

not exceeding RM5, 000 per month for single borrowers and gross income not

exceeding RM10, 000 per month for joint borrowers (based on a maximum gross

income of RM5, 000 per month for each borrower).

iii. PPA1M
PPA1M is a 1Malaysia Public Employee Housing Program that allows civil servants with

household income of RM8000 and below to be able to buy quality affordable homes in

Putrajaya launched by Datuk Seri Najib Razak on April 18, 2013. A total of 10,336 units

of apartments will be built on land government, priced at 20 to 30 percent lower than

market rates under the PPA1M program. The PPA1M launch initiative is aimed at

helping to overcome the burden of civil servants to buy homes in major cities. The price

of cheap houses offered will be in the range of RM150, 000 to RM300, 000, with built-up

areas of between 1,000 and 1,500 square feet, as well as other basic amenities

including surau and multipurpose hall.

CONCLUSION

In conclusion, prices and housing ownership are now too high, especially for the lower

income group. It is a heavy burden for them financially. Therefore, in the effort to tackle

this problem, the federal and state governments, developers, the National Bank and all

the communities should work together to implement improvements as there are many

ways to reduce high housing prices to help the people affordability to buy homes and

improve the standard of living Malaysia.

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