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M'sian developers getting caught on bumi quotas

 
10 August 07 | The Business Times
by Pauline Ng
In Kuala Lumpur
 

MALAYSIA'S drive for better service in the property sector seems to have backfired on some developers - the speedier issue of strata titles has made it easier for the authorities to track those that have not met bumiputra housing quotas.

This has been most evident in sales of condominiums and apartments and in the state of Selangor, which boasts a third of the 1,000-plus developers registered with the Real Estate Housing Developers Association (Rehda).

Because land is a state matter, regulations differ in the various states. In general, most states say at least 30 per cent of a property development must be reserved for bumiputras, mainly ethnic Malays. But the requirement can be as much as 70 per cent in some suburbs such as Shah Alam in Selangor, where the Malay population is higher.

Developers who do not meet the quotas have to obtain an exemption from the state authorities before unsold 'bumiputra units' can be sold to non-bumiputras. In the past, some developers short-cut the process and sold units before obtaining state release.

Because land offices used to take an interminable time to issue strata titles for sub-divided buildings - sometimes more than a decade - shortfalls in the bumiputra quota were not obvious.

But the federal government now wants strata titles issued within 12 months. 'And now that these titles are coming out, it is very clear how many units were actually sold (to bumiputras),' said Rehda Selangor branch chairman Fateh Iskandar Mohamed Mansor.

A move to penalise errant developers retrospectively by charging them penalties has made some unhappy - the amounts can run into hundreds of thousands of dollars.

The difficulty of meeting the quota is compounded in areas not popular with Malays, such as those with big Chinese majorities.

Rehda Johor branch chairman Steven Shum suggested there be an automatic release mechanism.

He said that in Johor, developers have to set aside 40 per cent of any project for bumiputras and advertise the project in a Malay newspaper a certain number of times.

But on reaching 50 per cent completion, they can apply to the state authorities for permission to release unsold bumiputra lots tonon-bumiputras.

'But the state does it very gradually, sometimes releasing the units only after the certificate of fitness stage,' Mr Shum said. 'This slows the development process and pushes up holding costs, which is why there is a need for clearer guidelines than the broad discretion given to the state housing boards.'

Other developers told BT that the current 'case-by-case' practice is full of uncertainty and open to corruption.

Rehda Kuala Lumpur branch chairman Teh Boon Ghee said the city council could be giving gradual exemptions because bumiputras usually prefer to purchase completed units.

While the aim of the quota is ostensibly to encourage racial integration and redistribute wealth, bumiputras regardless of their income are entitled to housing discounts ranging from 5-7 per cent in the Klang Valley and as high as 15 per cent in Johor. Naturally, these discounts are priced into the selling price.

Rehda Johor's Mr Shum said that even with such discounts, bumiputras in Johor prefer to buy undiscounted units because these are not endorsed as 'bumiputra title' and are easier to re-sell. Properties endorsed as bumiputra title have to be re-sold to other bumiputras unless the state allows otherwise.

'That's one of the reasons Johor has the second highest property overhang in the country,' Mr Shum said. 'More than 70 per cent of unsold units are bumiputra units.'

With the states enforcing the bumiputra quotas more stringently now, the release of unsold bumiputra units could be even more gradual, possibly raising unsold stock and raising holding costs even higher.