The Real Estate and Housing Developers’ Association (REHDA) Institute released its latest research report titled “Housing Forward – Understanding Costs and Sustainable Prices” at its Regional Housing Conference 2022 held on 24 March 2022. REHDA Institute shares an overview of some of the key issues impacting the property industry relating to compliance costs in housing development, and the proposed practical measures on how these issues can be addressed effectively.
What are the components of compliance cost in housing development? How do they reflect the costs of housing?
Compliance costs are the costs incurred to comply with various policies, guidelines, standards and regulations. These can be capital-based costs, namely land conversion premiums, contribution charges, levies, fees and other monetary contributions. The reduction of net sellable land due to planning requirements also make up part of the compliance costs. Examples include land surrender for public facilities, infrastructure, utilities infrastructure, open space and more. There are also some time-based costs, such as delays and uncertainty of approvals in different development stages, resulting in increased risks and holding costs.
All of these will form part of the total development costs of the project and will be translated into housing prices. The higher the cost of compliance, the higher development costs and, hence, the higher housing prices will be.
Is it possible to reduce costs in housing development?
Land and other development costs such as building materials, labour, professional expertise, cost of funds and other operational costs will keep increasing in the years to come due to economic, market and inflationary factors. What’s more, given the existing construction standards, quality requirements and materials prices, there is hardly room to reduce construction costs. As such, there is an urgent need to keep compliance costs in check to cushion off the impact of high construction costs so that the rate of increase in housing prices would be more sustainable.
What are the key measures required to mitigate housing costs?
Three main thrusts are identified in the report. These include: reducing unproductive costs through transparent, speedy and streamlined approving process; minimising cross subsidies by providing affordable housing and enhancing the Bumiputera quota and discounts[i]; and optimising land/gross floor area by allowing more housing units.
From the developer’s viewpoint, what should the Government do to minimise the lengthy approval timelines in housing development?
Transformation in transparency, acceleration of approval and streamlining of process are of utmost importance. Some of the effective ways include full digital property development system incorporating pre-consultation, submission, approval and payment systems; local plans to be expedited and gazetted to reduce approval timelines; conditional approvals based on professionals’ submissions; and optimisation of online payment systems.
For Bumiputera quota issues, how can the Government assist the industry?
The industry needs an efficient and transparent Bumiputera quota release mechanism where there will be less uncertainties and repetitive applications. Holding costs on unsold Bumiputera quota could be substantial. It is important to release the units that are not in demand to the open market as soon as possible, so that developers will not be tied with unproductive resources and holding costs.
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Source: REHDA Institute[i] Under the New Economic Policy adopted in 1971, the Bumiputera Lot Quota Regulation was introduced and developers have had to allocate at least 30% of all property units, including both residential and commercial properties, to Bumiputeras with a minimum of 7% discount.