Friday, December 08, 2017

Why is the Cabinet adamant in ignoring Bank Negara's policy prescriptions on the property market imbalance?

Putrajaya’s constant u-turns over its announced luxury property ban are yet another example of the government’s absurd tendency to ignore expert policy advice in favour of ill thought out knee-jerk reactions.

Bank Negara (BNM) had reported last month on the substantial supply and demand imbalance within the country’s property market. The report found that new property launches were skewed towards the high-end sector of the market priced above RM250,000.

The government then immediately issued a poorly thought out directive halting approvals for all new high-end property developments priced above RM1 million per unit.

When the blanket freeze was first announced on November 17, I had already warned that the ban was not going to resolve any of the issues highlighted by Bank Negara. Sure enough, the government has now made a near-complete U-turn its ban in less than a month.

Based on the latest announcements by the Housing and Local Government Minister, Dato’ Seri Noh Omar and the Second Finance Minister, Dato' Seri Johari Abdul Ghani, earlier this week, property developers can now appeal to Ministers for high-end project approvals on a case-by-case basis.  Basically, the Ministers have now granted themselves full discretionary powers to approve projects for developers who can sweet talk way to win the hearts of the Ministers.

The arbitrary nature of this new policy with have serious consequences to short and longer term investments by both foreign and domestic investors in Malaysia.

The thing is, BNM’s report had outlined six different policy recommendations to dealing with specific issues in the property market.   Hence, why doesn’t the government just adopt the advice already given to them by BNM?

To address the high level of unsold residential properties, the report suggested increasing encouragement for the rental market. On affordable housing, it was recommended that the government increase its efficiency in providing and allocating affordable homes. These policies are targeted and are designed to address the specific issues in the residential market.

The government’s halting of new approvals for high-rise residential developments over RM1 million does nothing to address these issues. According to the Edge Weekly’s in-depth report published last weekend, units at that price point and high-rise residences only make up 12.06% and 11.48% of unsold properties respectively.

BNM also suggested better management to address the large incoming supply of commercial properties. This includes ensuring the commercial viability of the project is thoroughly assessed and for developers to be cognisant of demand conditions. However, the government’s blanket ban lacked any mechanism that would allow an objective assessment of each development.

In addition, to alleviate the problem of high office vacancy rates and low rental rates in existing buildings, the report recommended the repurposing of vacant commercial buildings as well as increasing demand for existing space through either rental rebates or greater efforts to attract foreign business.

Unlike these policies, the government’s knee-jerk ban would only halt the approvals for future high-end developments without managing the already severe level of oversupply. It is difficult to understand why the government has chosen to ignore Bank Negara’s relatively sound advice to address these problems.

We call upon the government to take heed of Bank Negara’s recommendations immediately.  It should also conduct a thorough study with all stakeholders and think-tanks to design and implement consistent, constructive and incentivised policies to ensure continued growth and sustainability for the property sector and correspondingly, our economy.
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