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Under current Government policy there exist strict space standards for low-cost and low/medium cost housing and minimum requirements for the quality of finishes, services, infrastructure and amenities that are already in place1,2. However, housing in the modern context is more than just roof and walls for shelter, or the provision of basic services like water and electricity. It is also a major lifetime investment. We believe that the major factors that determine whether a low-cost house appreciates or depreciates in value have been overlooked by policy makers, architects and town-planners. These factors, any value will say, are location, location, location. Thus floor levels must certainly count as one of the most important location factors, especially for walkup flats without lifts. It is common practice for developers of apartment buildings to price the apartments according to how valuable the units are perceived to be. The factors that contribute towards the perception of value and, therefore pricing, would presumably be relative in size, quality of finishes and so on. But the most important must be location – the floor level, the direction of view, the relationship with neighbouring units, ease of access, etc. This common practice is abandoned when it comes to low-cost housing. The government has fixed the ceiling price and this has become the defacto single price.
A cursory study of Auction Notices over the past year has revealed that the Reserve Prices of low-cost flats in locations like Bukit Sentosa, Bukit Beruntung in the north of Kuala Lumpur is around RM9,000, a small fraction of the original selling price set by Government (fig.1). If this situation is true in general for other locations, it pinpoints serious defects in the current low-cost housing policy.
Note:This reserve price of RM9000 is not exceptionally low. There are 11 other apartments similarly priced (Source: NST UbuyUsell, Tuesday, Aug 22 2006)
Low-cost housing has long been a financial burden to Developers who do not want to build them but are forced to do so by Government policy. The fixed selling price requires cross subsidy from the sales revenue from medium and higher cost units. Yet when the subsidized low-cost housing is built, sales are often slow. The poor do not seem to be enthusiastic about buying them, even though the housing loans are set by Government again at a subsidized rate. So an absurd situation is emerging. Developers do not want to build low-cost houses but they are forced to do so by Government policy. The fixed selling price requires cross subsidy from the sales revenue from medium and low cost units. Yet when the low-cost walk-up apartments are built, sales are often slow – especially the ones on the top floors. In this situation it would seem that government policy is forcing developers to subsidize houses they do not want to build and which the targeted beneficiaries do not want to buy. No wonder – many of these low cost houses depreciate in value, becoming not assets but a financial burden!
Research question & objectives:
This research project aims to study the importance of the apartment floor level as a location factor. An understanding of this issue based on empirical study would be useful in helping developers formulate a pricing strategy that will help them to sell their low-cost houses more successfully. It will also inform people who make and implement policy on how current regulations and practice may be (or may not be) working towards the policy aims. This research specifically aims to link apartment floor level to ease of selling.
Arkitek M Ghazali is the architect of a development in Taman Sutera in Kajang, Selangor, part of which comprises low-cost apartments and low-medium and medium cost apartments (low/medium cost apartments) which were designed to meet the regulations in force at the time the planning application was submitted (fig. 2).
Figure 2 The first phase of the development contained, among others, 5 blocks of low-medium and medium cost apartments (fig.3) and 6 blocks of low-cost apartments. This portion has been completed. The low-cost apartments are six storey buildings with units on the 1st to 5th floor (fig. 4).
Figure 3 Low/medium cost apartment
Figure 4 Low-cost apartment 3
The ground floor is open communal space. The apartments , priced at RM42,000 each, are accessed by staircases that lead to corridors on each floor which face an internal void. The design of the low/mediumcost apartments departs from common practice whereby blocks are exclusively made up of the low-medium flats, and similarly, the mediumcost apartments. The medium-cost apartment blocks are then placed on their own piece of land, separate from the low-medium cost flats. The purchasers of the RM70,000 (maximum price) units are thus segregated from the RM100,000 (ceiling price) units. In the Taman Sutera case, the low-medium and medium-cost units are placed together in the same block, and in some instances, the same floor. The more expensive units were those on the lower floors, and the cheaper units on the upper floors (fig. 5).
Block A B C D E Average Ground RM 77922.14 RM 72307.50 RM 75412.31 RM 74167.50 RM 74876.25 RM 74,937.14 First RM 80046.25 RM 77221.25 RM 78372.50 RM 78933.75 RM 78505.00 RM78,615.75 Second RM 77564.00 RM 75834.75 RM 76051.88 RM 78138.75 RM 76747.50 RM 76,867.38 Third RM 69225.00 RM 71040.00 RM 70876.63 RM 70417.63 RM 68820.00 RM 70,075.85 Fourth RM 64697.50 RM 61852.00 RM 61501.25 RM 64134.24 RM 62642.5 RM 62,965.50
Figure 5 The other departure from conventional practice is the pricing strategy. The units were picked as if it were a normal commercial project. For example, units on the lower floors were priced higher on a per square foot basis compared with those on the higher floors. Corner units were priced higher relative to the intermediate ones. Units that looked out onto neighboring units were priced lower than those that had better views. Whilst the low-medium and medium-cost flats were sold as “Mawar” apartments, the low-cost apartments were marketed through the relevant State Agency as, well - “Low-Cost Flats”. RESULT Thus there were units on the ground to fifth floor for the low/medium cost units, and units from the first to fifth floor for the low-cost units. Which floors did the customers buy first?. There were also two pricing strategies to compare: the commercial pricing approach against the mandatory single pricing. How did the consumer respond to these two alternative approaches? Collection data : We obtained from the developer the details of the sales of the apartments to work out the basis of the developer’s pricing decisions, and compare this with the response of the purchasers, in terms of how long it took the developers to sell the specific units. 4
Design pricing :
The detail design of the low-medium and medium-cost units is shown below (fig. 6). The units range from 771sf to 850sf. The bigger and more expensive units are generally on the lower floors and at the corner of the building, except on the ground floor where less expensive units are placed at the block entrances.
Figure 6 The sales section of the Developer’s office provided records listing details of all Sales and Purchase Agreements (SPA’s) entered into between the Developer and purchasers. We transcribed the dates of the SPA’s against the respective blocks, floors and units.
Sales procedure :
The units were generally launched for sale block by block. The developers would take bookings from the prospective purchasers who were required to come back within a fixed period to sign the SPA and make the first 10% payment. For this research, the date of the signing of the SPA is taken as the date of sale.
For the purpose of comparing “ease of selling” the dates of the signing of the SPA for each unit of every block is compared with the date of the SPA for the first unit sold for that block. We took the difference between the two days to become the proxy for “the number of days taken to sell’ the unit. The data was sorted out by block and by floor. For every floor of each block, the average day it took to sell each unit was calculated. 5
The data was then sieved for anomalies. The first anomaly came in the form of “resale units”. In this case, the initial purchasers decided to resell the units to a third party. In this case, there was a second SPA and the first SPA was aborted. However, we had access only to the date of the second SPA. It was easy to spot these cases because the dates of the SPA were very much later then the rest of the SPA’s. Hence, we were able to ignore these specific cases when calculating the average time taken to sell the units. The second anomaly is the situation where there are still unsold units, and this occurs mainly for the low-cost units on the 4th and 5th floors. So that a single figure for “average days to sell” could be arrived at, we adopted the assumption that all these units would be sold on the 31st December of this year (i.e. 2006).
The data for each low/medium cost block used to arrive at the average number of days it took to sell the units for every floor. The relevant tables and graphs of these are shown below (table 1, fig. 7).
AVERAGE DAY TO SELL LOW/MEDIUM COST APARTMENT
LOW/MEDIUM COST BLOCK
NO. OF DAYS
Floor Ground First Second Third Fourth
Average days to sell 36 57 117 167 190
150 100 50 0 ground First Second FLOOR Third Fourth Average day to sell
Table 1 Figure 7 The data for each low cost block used to arrive at the average number of days it took to sell the units for every floor. The relevant tables and graphs of these are shown below (table 2, fig. 8). LOW COST BLOCK
AVERAGE DAYS TO SELL LOW COST FLAT
Floor First Second Third Fourth Fifth
Average day to sell
NO. OF DAYS
1200 1000 800 600 400 200 0 First Second Third FLOOR Fourth Fifth Average day to sell
130 198 261 702 1251
The overall average days to sell for the low/medium cost blocks was calculated, and similarly, the low-cost blocks. This is shown below (fig. 9).
COMPARISON BETWEEN 6 STOREYS LOW COST FLAT AND 5 STOREYS LOW-MEDIUM & MEDIUM COST APARTMENT
1400 1200 1000 800 600 400 200 0
NO. OF DAYS
low/medium cost low cost
ro un d
Figure 9 The ease of selling the low/medium cost apartments compared to the low-cost can be clearly seen
Low/ medium cost apartment are easier to sell than low-cost flat. • Consider low/medium cost apartment were sold at RM80 - 90psf, compared to RM65psf for the low cost flat • The process of selection purchasers by the government is a contributing factor to delay in selling. • Low cost units were designed on the basis to meet regulatory standard and to minimize cost, which ultimately is not popular. People prefer to live on lower floors rather than higher floors. • The rising curve is very evident depicting unpopularity of identically designed and priced unit on every floor. • Even when the architect had placed smaller and less expensive units on the upper floors, the preference for the lower floors is still evident.
Se co nd
Fo ur th
Fi rs t
The ground floor, when it is available, is the easiest to sell. Many developers believe that the first floor units would be the most popular, and would price the units accordingly. Some authorities in Malaysia still do not allow units on the ground floor in spite of very strong arguments to allow it: • To cater for old folk and the disabled • To reduce construction cost • Communal space is provided for in a separate building The fact that there is a mixture of product price categories in one building (and by extension, purchaser income categories) does not seem to inhibit buyers. On the other hand the housing which comprised only low-income category was unpopular. Can we surmise that the people here don’t seem to mind living in mixed-income communities but definitely dislike living in a low-income community? CONCLUSION Policy recommendation: Pricing Developers should be allowed more leeway in setting prices. Perhaps the RM42,000 price be viewed as a “maximum average price”. In this way the top floor units can be sold at a lower price, and the shortfall is made up by selling the lower floor units at a higher price. Design Practically all low-cost units on the 4th and 5th floors remain unsold. This is sad state of affairs for the Developer. Unfortunately, this is a common feature of low-cost flats in Selangor. It is widely accepted that Developers have to subsidize the low-cost flats. Even when the Developer is able to sell all the units, the price of land and the cost of the main infrastructure outside the site is not taken into account, it can be argued that he just breaks even. Therefore, a 40% shortfall in sales immediately translates to a loss of 40%, that loss expressed as a percentage of the development cost.
The architect should be allowed to design units on the ground floor. The ground floor units could be specially designed to cater for old folk and the disabled. Communal space is provided for in a separate building. Architects should be allowed to design affordable housing schemes that contain a wider mixed-income community. A block of falts could have RM80,000 units on the ground floor, RM60,000 units on the middle floors and RM60,000 units on the upper floors. Recommendation to the developer: There are still 540 low-medium and low-medium cost apartments and 600 Low-cost flats to be built in Phase 2. The results obtained from this research work might be helpful to improve the design and marketing of the coming development. Pricing It could be argued that the units should be priced such that all floors are equally popular, such that perhaps the upper floors should be cheaper and the lower floors slightly more expensive: the price differences would neutralize the preference for the lower floors. On the other hand, it is better for the Developer to give priority to completely selling the units on the lower floors first before the higher floors. This is because the natural construction sequence requires the lower floors that needs to get built first. We believe that the pricing of the low/medium units in the first phase was fortuitously correct. The units on the lower floors were quickly sold out prior to the units on the upper floors, but the sales for these units did not come too much later. Design In our opinion, it may be possible to make the upper floors sellable by installing lifts. The cost of providing one lift to each block, including the associated structural works, is estimated to be about RM210,000. This cost is able to be covered by the addition of 8 units on the ground floor; the additional revenue from the sale of these units should be able to cover the cost of the lift and the cost of constructing the units. Of course the approval and cooperation of Majlis Perbandaran Kajang would be required.
Standard Perumahan Kebangsaan Bagi Perumahan Kos Rendah Satu dan Dua Tingkat, CIDB Malaysia 1998 Standard Perumahan Kebangsaan Bagi Perumahan Kos Rendah Rumah Pangsa, CIDB Malaysia 1998