Penang house prices becoming more unaffordable

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The median house price to median household income ratio (a common indicator of housing affordability) for Penang Island has risen to 8.1, high by any standards, from 6.8 five years ago.

Graph: Stuart MacDonald, Penang Institute

The current average housing price on the island is RM429440 while the median household income on the island is RM52844. House prices on the island have risen by 50 per cent over the last five years. (Even on the mainland, prices have risen by 25-30 per in the same period.)

For Penang state as a whole, the ratio is 5 (RM265010/RM52844) – up from 4 in 2006. House prices in the state have soared by 90 per cent over the last seven years.

In comparison, the house price-to-income ratio for the USA was 3 until 2000, and then it rose to 5.8 by 2006, before the housing boom ended in an almighty bust. In the UK the ratio reached 11 in 2008, just before the credit crunch set in.

All the more reason for us to tread cautiously. The above figures are from an October 2011 research paper on ‘Supply and Demand in the Penang housing market: Assessing Affordability‘ published by Penang Institute.

Written by Stuart MacDonald, it makes for sobering reading and notes that house prices are becoming more and more unaffordable for more and more people.

Stuart has also come up with several recommendation on what can be done, including noteworthy recommendations to rebalance planning powers in favour of the state.

These are among the recommendations in another research paper of his, ‘Drivers of house price inflation in Penang, Malaysia – planning a more sustainable future’:

Recommendation 3 – Reform planning powers to rebalance in favour of the state.

  • Policies can be easily developed to rebalance power in favour of the state, for example by requiring developers to fund the cost of independent consultants hired by local authorities, rather than directly funding them themselves, would remove the potential for conflicts of interest, promote truly “independent” studies, benefit the most professional consultancy firms and force the local authorities to develop the capacity to understand and scrutinise the studies presented, allowing a more strategic and holistic view to be taken.
  • A policy to regulate the process of “soft” launches can prevent developers selling properties to favoured purchasers, prior to general release, which forces up the price of property. The state can request the details of intended unit prices early in the development process and compare these with sales prices post launch to highlight developers that are restricting public access to units through their practices.
  • The state should publicly develop clear policies on issues such as land reclamation and hill cutting, with the public benefits of such policies clearly articulated. The state should also halt the process of converting leasehold land into freehold land (emphasis mine) (with exceptions where it may harm investment or economic development), until a clear policy has been developed which considers the long term benefits and risks to the state.
  • The amendment of regulations that prevent mixed commercial and residential development need urgent attention, as this is resulting in developments classifying its residential property as serviced apartments, which is also exempt of a requirement to provide a low-cost housing quota.
  • Greater clarity over the location of state land and assets (along with local authority owned land and assets) and communal lands is also required so that these may be managed for the benefit of the state with a longer term view.

Recommendation 4 – Review existing mechanisms for promoting affordable housing.

The state government, having developed the housing board, should initiate a review of all existing mechanisms for affecting the housing market in a way which would either raise revenue or reduce home ownership costs for those in middle to lower income groups or encourage developers and land owners to build housing appropriate to the needs of the people. Existing mechanisms, from density controls, to assessment rates should be reviewed, measured and evaluated in their total sum, understanding how one impacts upon another and assessing how progressive they are as forms of control or taxation, how feasible it may be to revise these mechanisms, taking into account the local context, cultural or historical and the political sensitivity of such reforms.

Touching on low-cost housing, Stuart notes in his paper:

Low cost housing must be provided in the same district as any developments led by the private sector, which should help to sustain property mix at the district level, but to what degree this is enforced in unclear. The low cost housing market is argued to have operated inefficiently, with developers being able to transfer and sell quotas, and the state allocation process also argued to be inefficient. Low cost housing developments are over represented in abandoned projects. Outsourcing the role of “social‟ housing provider to the private sector without sufficient controls from the public sector has resulted in an inefficient condition on private sector development. Conflicts of interest arise and private developers are driven to minimise their costs on low cost housing to protect their bottom line. The low cost housing market needs detailed examination.

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wira

If properties on the island has become prohibitively expensive, just move to the mainland.
There are more factory jobs in the mainland today than on the island.

It is not as if potential house buyers do not have an alternative.
Moreover, service is cheaper over at the mainland.
So is hawker food.

Jacqueline

The Penang state government should set appropriate quotas on hard core poor housing, low cost and low-medium cost housing to be built by developers to meet the housing needs of deprived groups in society.

Jacqueline

Sptay

The measures suggested by the writer can only slightly mitigate the raise of these prices.

People with liquidity will continuously look to “places” to invest their liquid funds because the monetary policies of the big developed countries will continue the QE policies which will steadily devalue whatever cash holdings and savings you have.Therefore you see many scrambling for properties and commodities….so that they can protect their assets.

Add this with the predicted slow down in our export markets….no way Govts all any persuasion will deliberately slow down the housing sector

tunglang

In the event of global economic meltdown, assets in properties anywhere will also ‘meltdown’ in value. People with little cash will not invest or borrow to invest further in properties than to keep cash in pillows for any eventualities like food & water scarcity (watch this one in near future of global/regional conflicts). The rule of survival is how to generate ready cash in hand for daily needs. Or to keep some gold for fast exchange when the ATMs don’t work. The worst of property asset investment will be the high priced ones crawling for ‘saviour’ buyers, but there will… Read more »

Sptay

The focus is on the high end properties, not the ones that you would rent out to the Bangla or migrant workers. That is why all the developers on developing properties for the upper middle income earners of foreign countries. Our Msia my 2nd home is very popular with retirees with stable income streams of the developed countries. Check expat blogs. Compared with Thailand and Philippines…Malaysia comes on top.

tunglang

Desperate measures see no condo status or ‘Phai Seh’ (losing face) when anything goes just to pay the banks. It used to be at gomen low cost flats that locals rented out to Bangla & Indon workers. Now we are seeing medium to upper medium cost apartments renting out to hordes of these foreigners, the latest waves being the Chinese, Cambodians and Vietnamese. Check it out yourself in Paya Terubong and Bukit Jambul. Some of the super-high end condos in Tanjung Tokong are also favorites of the Chinese and Russians women of the ‘oldest professions’. Welcome to global-metropolitan Penang of… Read more »

wira

The government cannot afford, and will not allow where possible, any severe price erosion in the property market.

Imagine house mortgages being backed by values a fraction of what they are initially worth.

Surely we don’t want a sub-prime crisis at our door steps, right?

So please don’t hope for any quick reversal in property prices here. If that does happen, our banking and financial system can be in pretty bad shape.

tunglang

The greedy speculators including financing banks, developers and housing agents should have their fingers burnt, so what difference does any dire economic reasoning makes for any pitying concern for them greedy lots causing the problem for many in the first place. Bail them out? The genuine house buyers, many of whom are not savvy economic-educated but just want a decent home are the ones who will suffer at the faults of slickly others. The government of the day should have known otherwise they are not fit to run the state or country at their whims, fancies or bloated ego. Economic… Read more »

moo_t

Anil, can you check whether State government has the free hand implementing housing policies, e.g. impose tax or implement policies to groom medium size developer to build up the competition,etc?

Or it is just like the federal government … up sapu-semua tied up the state transportation policies?

wira

The powers of a state/municipal/local government in introducing the collection of new revenues is limited.

IIRC, they cannot introduce any new taxes without the approval of the Treasury.
They may, however, adjust the rates in which those taxes are collected.

MMC

anil, would increasing supplies help? say the govt releases more land for medium cos apartments with higher density. what say you although i respect your consistent stand on sustainable development and regular articles against over-building. state government must also regulate reclaim lands in that a large but fair portion must be returned to the state government for future development of affordable housing for the masses. it must be noted that rising house prices is not confined to Penang. In the Klang Valley, most landed properties in sub-urban Pealing Jaya is being priced out of middle class wage earners, who are… Read more »

tuakee

Housing developers are blowing the trumpets that housing prices will continue to escalate per feng tsui prediction (favouring earh matter this year) hence creating panic purchases. A lot of rich folks (local n oversea) have excess cash to park at houses fearing depreciation of ringgit (Anil can publish performances of ringgit vs regional currencies to show the public the dwindling purchasing power with ringgit !). A new condo easily RM380/square feet minimum these days. Penang is a metropolis soon with many vacant housing projects. More sickening is the congested traffic and worsening air pollution in Penang. My advice is to… Read more »

tunglang

Enterprising Penangites should form Fed-Up PenangLang Network (FPN) in mainland and start their lives anew. Buy cheap properties in SP, Jawi, etc and build new businesses and networks in major towns like BM for economic survival. The next wave of emigration may happen in the near future. Perak and Kedah, watch out for new wave of investment coming your way. Don’t say too conveniently Penang lacks needed talents due to poaching by other states or self-serving Penangites looking for self-enrichment. And have to look to Singland for expensive talents (and thus their investment in super-rich man properties). Belum rainforest is… Read more »

Yang

Tung Lang,
You do need to go that far. Bukit Minyak, Simpang Ampat Batu Kawan, Bertam, BM and in parts of Butteworth housing is still affordable. You need to act fast as these will rise soon

tunglang

Belum Rainforest is my life calling of purpose.
SP or Kulim are my ‘transmigrating’ targets for my family (unless they still prefer to stay put in expensive & too-soon to be richie’s metropolitan Penang Island).

Jusuf

I recommend retirees in penang to move to small town in Kedah like Sungai Petani or Alor Star where housing is much cheaper and the cost of living is very much lower. The plus point is you do not have to join the herd mentality of spending on unnecessary stuff to keep up with those Ali, Ah Beng and Muthus in Penang where the lure of commerlialization is very high.

Foo

It is not just in Penang but everywhere? Apart from the usual excuses like the rise in the price of building materials, land cost, labour cost ect…..the biggest culprit is the inaction the the part of the authority to check the speculators but worse when the govt becomes the speculator instead of using public land as buffer! Increase in the interest rates for 2nd and subsequent purchase of houses, reintroduction of property gain tax against short term speculators will go a long way to rein the spiral of house prices!

Ahmad Sobri

Malaysia has become a gambling society in every way, is it not?

tunglang

Cheaper Malaysian Ringgit makes it a dream comes true for richie Singaporean looking for Kia Su deals!
Who says speculating is Kia Su?
Not until the property bubble burst!

Adil Yunus

We should vote for Umno Penang to create a slum enclave in Penang. Hiduop Umno!

Yang

Yes, house prices in Penang will soon become unaffordable for Penangite. Sooner Penang houses will be for the rich only. I have written to all the PR MP and LGE and have ask them to buck up on this matter before the people start giving them bounce cheque in the next GE. The next GE 13 might be safe for them but if they don’t buck up they will soon find themselves in trouble come GE 14

tunglang

Not all Penangites (the poor and ‘soon to be poor’ middle class) are as fortunate as Kampung Buah Pala folks. If LGE can formulate policies and create broad range economic opportunities to help Penangites (workers, entrepreneurs) progress in higher income levels and thus a better lifestyle as much or more than he seems too anxious to progress the state in concrete, steel, stainless steel and green glass facade, the prospect of decent home ownership for the average folks is still a far cry from Gelakan’s era. I have worked for an accountant-minded (bean counter) boss and his management approach was… Read more »

tunglang

Housing unaffordability will be DAP’s Rocket Chance v2 Achilles heel. Unless it has the political will to stop the housing insanity goaded (behind doors) by greedy developers and fantasized by ‘Home Sweet Home Good News’ from rainy green horned property gurus and statistics-deceived by wildebeest speculator bookings (more than genuine buyers). Mid-2012 onwards will be the ‘lung bursting’ moments to hard-catch one’s breath. Who needs air pumps (for lung balloons) anyway in Penang’s Serengeti Property Circus like this! Once there was a Gelak-Gelakan clown in New World Park of the 60’s and 70’s. Now we are seeing a newly groomed… Read more »