Khazanah Research Institute (KRI) says Build-and-Sell is better for home buyer protection. My say?

Khazanah Research Institute (KRI) says Build-and-Sell is better for home buyer protection. My say?

Here’s that article in nst.com.my Khazanah Research Institute (KRI) has suggested a migration to the ‘build-and-sell’ housing buying scheme in Malaysia, where housing developers must complete a housing project before selling the houses in order to protect the consumers.

Suraya also shared that according to the data from the National Property Information Centre, Department of Statistics Malaysia, and KRI calculations, the median house price rose at a compounded annual growth rate (CAGR) of 23 per cent from RM170,000 to RM270,000 between 2012 and 2014.

In contrast, median household incomes grew at a slower CAGR of 11.7 per cent, less than half the rate of increase in house prices.

She also added, “The longer the mortgage period, the more house prices will increase due to financing. Reducing mortgage periods will make house prices more affordable and create sustainable price increments in the market.” Do read here for more information: article in nst.com.my

Build-and-sell and my personal thoughts

Firstly I think if I am a buyer and the developer has fully completed my unit before I decide whether to buy, that’s going to be a huge plus for me. Build-and-sell may protect buyers in the sense that they will actually know what they are buying. However, this can also happen if the buyers buy from the secondary market too. These days, there are many secondary properties which could be purchased for around the same original price or sometimes even lower if the original price was overpriced to begin with.

Secondly, we need to also understand that it is highly unlikely that a new property will be priced lower than the secondary market especially after it is completed 3 years later. In other words, even if it’s buy-and-sell, it does not mean buyers will be able to enjoy a lower property price. If the property developer is pricing their projects, they have to also take into account the loss in borrowing interests since they will have to spend their own funds to complete the project. Do we believe they will not include these into the final selling price?

Third and even more importantly, build-and-sell may also mean only the property developers with deeper pockets will continue to build while the smaller ones with insufficient funds will move out of the industry ot build on a very small scale instead. Imagine if most of the developers in the whole industry are all building exceptionally small developments, do we believe there will be sufficient supply for the increasing demand? Perhaps the government would need to play a more active role if we truly believe in this Build-and-sell concept and wants to go ahead with it.

Conclusion, if I have my way?

Property price increase can also be limited with regulations. Perhaps the limit could be based on income growth? By the way, as a home owner, I would be worried if prices spiral out of control because it also meant that it could suddenly drop. I would prefer an orderly increase. Even 1-2 percent every year is perfectly fine for me! This is the actual increase even at 2 percent per year for a RM500,000 home.

RM500,000 x 2 percent up = RM10,000 per year. Most people could not get RM10,000 worth of total salary increment every year. Meanwhile, if we like to get RM10,000 via interest, we need to keep RM330,000 inside the bank for 12 months at 3 percent FD rate. I wonder how many Malaysians already have a ready RM330,000 cash which they can put into FD to get RM10,000 returns…

Happy anticipating and doing the action.

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