Saturday, May 14, 2011

Is Moderation of Profiteering The Answer?

KUALA LUMPUR, May 12 — The National House Buyers Association (HBA) says greedy developers are behind rising property prices that put housing out of the reach of many, dismissing a host of reasons given by industry to justify pricing levels.

Real Estate and Housing Developers Association (Rehda) president Datuk Michael Yam had denied developers were to blame for increasingly unaffordable property, attributing it to high land prices, social responsibility obligations and “indirect taxes”.

But HBA secretary-general Chang Kim Loong said the social responsibilities such as building low-cost houses and reserving Bumiputera quotas that Yam mentioned have been in existence for years and were nothing new.

“Our argument is about the current phenomena of unbridled escalation of house prices that bears serious adverse repercussions to the rakyat,” he said, responding to Yam’s remarks. “To justify the mad escalation of house prices by bringing in arguments about these decades-old social responsibilities is to be out of sync.”

Chang also cast doubt on the low profitability of developers as claimed by Yam, saying that developers were free to exit the industry if it was so difficult.

Yam had cited the example of property giant SP Setia which reported full financial year 2010 net profit of RM251.8 million, representing about 14 per cent of its revenue of RM1.7 billion, which he said was not a very attractive margin.

“We are in no position to comment on the accounting principles of SP Setia but taking Yam’s words, a net profit of 14 per cent is still a very attractive profit!” said Chang. “But then again, if the profit margin is low, they are at liberty to venture into greener pastures.”

He also tackled the issue of high land cost, saying that it was a question of chicken and egg.

“Landowners, of course, look at the prevailing prices of properties before they demand what they think should be the market price,” he said. “Property valuers’ role also comes into play, hence our statement about the unholy alliance. If existing property prices have not been pushed up so much, then landowners would similarly not demand such high prices for their land.”

Yam had told The Malaysian Insider that the issue of high property prices needed to be looked at holistically but Chang insisted that some “wayward” industry players acting within an “unholy alliance” were responsible for the situation due to the urge to lock in as much profit as possible.

“Whichever way one looks at it, holistically or otherwise, in a situation of a seller’s market, it is always the industry players who set the market mood,” he said. “This applies across the board of all trading activities. In the case of the property market, the main players are the ones mentioned in the article.

Each party has the common objective of cashing in on the prevailing situation to reap as much profit as possible within legal boundaries, and sometimes even beyond, if the likelihood of getting away with it is good.”

The HBA secretary-general said the border between greed and profit was often hazy and profitability often overlaps with greed in hot market situations.

“Again, we would put it that developers are more interested in huge profits rather than social responsibilities. Thus they stack upwards and build pigeon holes rather than conducive housing,” he said.

He admitted, however, that there were also some developers and bankers who were acting responsibly.

On Yam’s assertion that a re-introduction of the full real property gains tax (RPGT) after it was suspended would deter foreign investors and be taken as more government policy inconsistency, Chang said: “We like to see it as the prompt reaction of a responsible and caring government.”

He said, however, he sympathised with Rehda over “indirect taxation” which came in the form of developers having to build public utility infrastructure which added to the cost of residential property.

“We too have lobbied for such infrastructures to be carried by the respective public-listed utility companies because they are business ventures,” he said. “But having said that we are also apprehensive as to whether such savings would be passed to house buyers or simply go towards padding up developers’ profits!”

Property prices in urban areas such as Penang and Kuala Lumpur rose by up to 40 per cent last year fuelled by low interest rates and a surge in speculative buying.

The average price of a KL residential property is now about RM485,000, or roughly nine times the average urban household annual income of about RM54,000.

The Demographia International Housing Affordability Survey rates markets, whose property prices are 5.1 times median income or more, as “severely unaffordable”.

Chang said the rapid inflation of assets risks putting house ownership beyond the reach of a whole generation of young adults. - The Malaysian Insider - 12 May

The house buying row goes one more step further when the House Buyers Association continues to blame developers and banks for being "greedy"

Greed is of course the side effect as part of the capitalism system. In that system, a healthy margin of profit is targeted by each people who does business. With no cap and control over how much is permitted, the higher the margin the profit can be gained if the production cost is low, and the selling price is at the premium grade.

Hell, if there are many middle-income people who can't even get to buy houses, then the sales volume would solely rely on foreign-people buying or even speculators buying.
The one problem that people were never thought in school is about the economics and finances. We were used to be told of saving for the rainy day, planning expenses, that's it, but never beyond of wealth-making. And look where people are now. The middle-income span gap is getting bigger and bigger each day. 

Therefore, I was wondering whether if moderation of profiteering would be the answer? I was wondering if moderation profit should be imposed on corporations, while the balanced can be used to reduce the cost of buying a house. What's more it can be considered as a corporate social responsibility. 

If I am to cut down the gap of affordability, I would definitely go for the goal of increasing household income. To do that means of making mandatory of a minimum wage. However, at this present issue, the human resource ministry is very reluctant or is going slow on this issue largely of the big obstacle: opposition from the employers federation and those who demanded that wages are based on market rate. Of course this is opposite the 1Malaysia creed - of people first, right? Or is it now revealed to be more of a public relations exercise that was assisted by APCO?

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