By Gabriel Lihan & Noor Syahhira Hady
KUCHING: Sarawak Housing and Real Estate Developers’ Association (SHEDA) is banking on the State government to help elevate the property market in Sarawak.
The COVID-19 pandemic has caused disruptions to all sectors of the economy and the real estate and property market is no exception.
However, the State government’s Post COVID-19 Development Strategy (PCDS) 2030 plans to ensure the housing and real estate market improves by raising home ownership to 75 per cent.
This strategy recognises the crucial importance of home ownership in achieving Sarawak’s Sustainable Socio-Economic Development goals and gross-domestic product (GDP) targets as home ownership also encourages higher living standards.
Thus far, this will feed into the economy, acting as both anchor and catalyst to drive Sarawak towards realising high income status.
New Sarawak Tribune (NST) met with SHEDA President Augustine Wong, SHEDA Deputy President, Louis Ting and SHEDA Ex-Officio Council Member, Zaidi Ahmad to delve further into the housing and real estate market situation in Sarawak.
NST: The Overnight Policy Rate (OPR) recently increased by 25 basis points (bps), raising it to 2.25%. Bank Negara has also said that this could go up even more. Is there any positive outcome from this increase?
SHEDA: For almost two years since July 7, 2020, Bank Negara Malaysia (BNM) had maintained an OPR level of 1.75 per cent, the lowest OPR level Malaysia has experienced based on data recorded since 2004.
The lowering of the OPR was to help Malaysians pull through the disruption brought about by the COVID-19 pandemic. As the economy regains its foothold, it is only natural that the OPR level will increase.
It is not the raising of OPR level itself but the speed and rate at which the OPR level has recently been raised – a total of 50bps since May 11, 2022 – which is the main cause of uncertainty, compounded by the anticipation that the OPR level will be increased further still this year.
Various sectors and industries across Malaysia have already voiced similar apprehension with regards to the domino effect of OPR level on businesses and Malaysians alike, namely that the corresponding increase in supply and compliance costs will translate into higher cost of living and reduced disposable income.
The devastating economic fallout of COVID-19 saw over half a million Malaysian families drop out of the M40 income classification into B40. These are valid and pressing concerns that must be expeditiously addressed to prevent further social distress.
An increased OPR level impacts demand by placing restrictions on day-to-day business decisions or temporarily adversely impacts non-fixed term loan (variable rate) repayments. However, when you look at the big picture, it is necessary for the public to understand that OPR also elevates interest rates of fixed deposits and stimulates competitive lending interest rates by banks, whose respective Base Rates (BR) or Base Lending Rates (BLR) move in tandem with the OPR level set by BNM.
Higher interest rates of deposits have conventionally attracted both foreign investment, which over time increases the value of the Ringgit and therefore, redresses the balance of the purchasing power of Sarawakians.
How does the increased OPR level affect borrowers and potential house purchasers in Sarawak?
SHEDA: The moratorium notwithstanding, the amount of repayment fluctuates depending on the type of loan. Given that Sarawak together with the rest of the world had been struggling through and is still recovering from the anomalous COVID-19 pandemic, it is unlikely that the OPR will be lowered in the near future.
As a result of increased OPR levels, borrowers and purchasers are also having to face a decrease in disposable income. The combined effect of increased lending rates and reduced disposable income limits their options. The great irony of the property industry in Sarawak is that whilst choice of the types of property available in the market remains high, existing supply is still below actual demand.
This perceived abnormality exists because the number of potential purchasers able to afford properties within a particular price range keeps steadily increasing, from both ends of the income demographic, both bottom-up and top-down.
How does the escalating cost of building materials affect the supply of affordable property in Sarawak?
SHEDA: Affordability refers to the financial capacity of borrowers to purchase. Affordability therefore covers a wide range of property available for Sarawakians across the income classification. Regardless of the category of property and selling price, both the pandemic as well as post pandemic events in Europe have impacted the supply of commodities and labour.
Property developers are essential assemblers, a convergence point of over 100 different trades and as such are affected by any increase in any component along the supply chain. Rising shipping and transportation costs as well as other inflationary factors flowing through both global and domestic markets have led to an unmitigated and compounded effect on cost increase in building materials and cost of construction.
During normal economic times, internal adjustments could still be made for one or two variables. However, the standstill from the past two years has interfered with almost every component necessary to deliver property, from the cost of land and building materials to regulatory and compliance costs.
Since 2016, the cost of raw materials such as aluminium and copper have doubled (100 per cent increase) with many other essential components increasing by over 50 per cent (red brick, iron, roof trusses, upvc, etc). Accordingly, the cost of building houses in Kuching and Kota Samarahan have likewise increased by approximately 50 per cent over the said period.
Although future normalisation of the global supply chain may help certain cost factors to gradually plateau, the reality is that drastic measures are currently required to halt the exponential rate of increase witnessed in the industry.
What about the current obstacles regarding labour shortage?
SHEDA: During the pandemic lockdown, Malaysia experienced an unprecedented exodus of foreign labour. The cautious reopening of our borders and revised labour policies by source countries have delayed the restoration of our foreign labour workforce to pre-pandemic levels. In addition, with the construction of Nusantara on Kalimantan, Sarawak’s reliable source of labour from Indonesia is also greatly diminished.
SHEDA is confident that the Sarawak government will find a way to address this dilemma but in the meantime, the acute labour shortage is putting pressure on the housing and real estate industry in that it perpetuates uncertainty throughout project sites, creates disturbances, reduces productivity and increases the overall cost of doing business.
What is the existing state of the real estate market now and what do you think it will be like in the near foreseeable future? As the economy begins to reopen and recover, will the property prices improve in Sarawak?
SHEDA: The Malaysian House Price Index (MHPI) reported that the average selling price of residential properties in Sarawak was RM455,173 (2019), RM480,595.00 (2020) and preliminarily estimated at RM483,104 (2021). However, as at Q1 2022, the National Property Information Centre (NAPIC) reported that the average selling price of residential properties in Sarawak stood at RM365,712.00.
By all indications, the fundamentals of a growing market are intact. A healthy balance between the desire to build and the aspiration to purchase still exists. However, purchasers are simply unable to afford purchasing existing supply and are choosing to defer their borrowing in the hope that the economic situation will become more favourable. The catalyst for breaking the deadlock is dependent on the ability of purchasers to afford to buy property and their ability is affected by all the issues we have mentioned above.
SHEDA understands this public sentiment well. During the economic downturn in the late 1990s, SHEDA had initiated a property expo (then known as SARBEX) to stimulate interest in the property sector and encourage economic activity.
SHEDA sees the need to provide this platform for developers and members of the public to compare property options and we believe that the event will instil confidence in potential house buyers and investors to consider and commit to property options.
The improvement of property prices is another way to describe affordability. The reopening of our borders and gradual restoration of economic activity alone are not sufficient factors to regulate existing cost issues. In fact, the increase in economic activity highlights long standing systemic issues which were abruptly made dormant in 2020 and 2021.
Developers are dependent upon the government’s intervention and support to find resolutions to these critical issues. SHEDA has long been a proponent and supporter of the Sarawak government’s plans for a stable and prosperous Sarawak and we are ready to work together to formulate a viable and sustainable home ownership policy for the benefit of all Sarawakians.
Is there any assistance or support available to Sarawakians who aspire to become homeowners at the moment?
SHEDA: The Malaysian Prime Minister has announced that first time home buyers will be able to benefit from stamp duty exemption on certain instruments under the Keluarga Malaysia Home Ownership Initiative (i-MILKI). Houses valued at RM500,000 and below will enjoy a 100% exemption whereas houses valued over RM500,000 to RM1 million will receive a 50% per cent exemption. The exemption will apply to Sales and Purchase Agreements completed between June 1, 2022 to December 2023.
The Sarawak Government’s Housing Deposit Assistance Scheme (HDAS) programme offers first time home buyers RM10,000 towards the deposit of a Government Affordable Housing Development house. This initiative has opened doors to households otherwise unable to obtain financing for the purchase of property.
The Sarawak government also extended the benefits of HDAS to the Sri Pertiwi Affordable Housing, empowering many more Sarawakians with the opportunity to own a home.
