Malaysia needs build-then-sell housing to protect buyers: Khazanah

Khazanah Research Institute (KRI) has recommended a build-then-sell (BTS) system for housing development to protect buyers.

Speaking at a KRI webinar today, its research director Suraya Ismail called for a shift from the current sell-then-build (STB) practice, noting that home buyers act as “investors” without protection.

“In an STB system, house buyers sign the sale and purchase agreement (SPA) without seeing the product. Essentially, you are buying a service to build a product, and the contract is not immediate.

“The reality is, when you sign the loan agreement, you’ve already signed a charge annexure. If the project is abandoned, you won’t get the house, but you still have to repay the loan,” she explained.

Suraya, who led KRI’s report “The Financialisation of Our Lives: Values and Trade-Offs,” highlighted that the STB practice is still prevalent in Malaysia but not in other countries.

The report also revealed a mismatch in Malaysia’s housing market between homeowner demand for new homes and supply.

Data from 2022 showed that Malaysia’s affordable median house price was RM228,168 - three times the median annual household income. However, newly launched housing units priced below RM200,000 made up only 10.7 percent of total new project launches in 2022.

It also cited sales and overhang units in 2023, where 70.6 percent of the 25,816 overhang units in the fourth quarter were priced above RM300,000, highlighting an issue with unsold units.

Property overhang is a term used to describe a gap between supply and demand in the property market.

‘Seriously unaffordable’ homes

Additionally, the report indicated that the housing market consistently scores above the affordability threshold, marking it as “seriously unaffordable”.

Besides the risks buyers face, the STB system has led to the government bailing out abandoned projects. The SPA provides no incentive for developers to build faster or modernise their construction methods.

During the same discussion, Real Estate and Housing Development Association (Rehda) president Ho Hon Sang pointed out that while the secondary market is always open for BTS, implementing such a system will have an impact.

“Currently, for a typical project to implement a build-and-sell scheme, bank financing needs to add 50 to 60 percent of the development cost. This is a huge sum of money, meaning the bank’s exposure to the developers will be much higher than with sell-and-build.

“So that impact will lead to higher costs, which will result in higher house prices. Additionally, the number of launches will decrease, as developers can now probably do only 10 launches under build-and-sell,” he said.

Therefore, Ho suggested a parallel system where the market can decide which option suits them better.

“Malaysia is a very democratic country. We leave it to democracy. That means we give democracy to the purchaser, the customer to decide.

“I think that’s the best way. Let the market decide how to move forward. Why not go for a parallel system? At the end of the day, the market will dictate what is good for them, BTS or STB,” he added.

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