April 5, 2023

|By Patrick John Limcaco

Affordable housing: Challenges and sustainable solutions in Malaysia, Singapore, and Hong Kong

Experts reveal sustainable approaches for addressing affordable housing issues in Malaysia, Singapore, and Hong Kong

One of the key factors in Singapore’s success in affordable housing has been its strategic land acquisition. SaiArLawKa2/Shutterstock

Affordable housing remains a pressing global problem, impacting nations like Malaysia, Singapore, and Hong Kong. At the PropertyGuru Asia Real Estate Summit 2022, experts from these countries — including Dr. Nai Jia Lee (Head of Real Estate Intelligence, PropertyGuru Group), Ryan Ip (CFA, MRICS, Research Director and Head of Land & Housing, Our Hong Kong Foundation), and Tan Sri Datuk Eddy Chen Lok Loi, Trustee, REHDA Institute) — convened to discuss the challenges that their respective countries face, and the sustainable solutions being employed to tackle the problem.

Malaysia

Malaysia is grappling to accommodate its rapidly growing and young population, particularly those with lower incomes who struggle to afford homes. While the government has addressed the needs of those eligible for social housing, there’s a group known as the M40 group, often overlooked, earning too much to qualify for social housing assistance but still facing housing affordability issues.

To cater to the M40 group, the Malaysian government established PRIMA, which is an affordable housing project. However, financing remains a major impediment due to rising interest rates and non-appreciating debts. To alleviate this burden, the government has introduced incentives and subsidies, such as the homeownership campaign that offers concessions like waived stamp duty and legal fees.

Lobbying for lower costs and data-driven solutions

Industry players are lobbying the government to lower the costs of affordable housing by reducing land premiums and infrastructure capital contributions. This will make it easier for developers to offer more affordable housing options.

However, Malaysia currently lacks comprehensive data to support the decision-making process for affordable housing. Private initiatives are needed to address this data deficiency and provide independent insights into suitable locations for affordable housing projects. Collaborating with platforms such as PropertyGuru could help generate essential data, guiding developers and policymakers to make informed choices that benefit both the market and aspiring homeowners.

Private initiatives and quotas

Malaysia mainly relies on private initiatives to provide affordable housing. The government requires developers to set aside 50 percent of their units for affordable housing, which must be sold at government-set prices. This ensures that some housing options are available for low-income households.

However, there are challenges to this approach, including rising construction costs, limited land availability, and the compulsory quota system. Regardless of location feasibility, developers are obliged to adhere to the affordable housing quota. Therefore, they may be forced to build affordable housing in suboptimal locations, which can make it less accessible to potential buyers.

Innovative solutions: Rent-to-own programmes and other housing models

In light of the evolving housing landscape, Malaysia is exploring new solutions, such as rent-to-own programmes. In collaboration with banks, these programmes em- power renters to eventually become homeowners after renting a property for a specified period and then buying it at a predetermined price at the end of the lease. The rental payments help build equity in the property, so renters can eventually become homeowners.

Malaysia is also examining successful models from other countries, such as Singapore and Hong Kong, in which homeownership is not as important as it is in Malaysia. This is because these countries have robust social safety nets in place, so people don’t need to own a home to feel secure. Drawing inspiration from successful European housing practices, Malaysia is considering alternative models, such as renting, to make housing more affordable.

Singapore

After gaining independence, Singapore faced a severe housing shortage due to its rapidly expanding population. This prompted the government to implement a building plan and public housing initiatives.

Unlike other countries, Singapore focuses not only on low-income households but also on the middle-income group. Singapore also allows public housing units to be traded in the secondary market, turning these into valuable assets for residents.

Strategic land acquisition and sustainable living

One of the key factors in Singapore’s success in affordable housing has been its strategic land acquisition. The government has been able to acquire land at relatively affordable prices, which helped keep the cost of housing down and enabled greater accessibility to housing. As a result, Singapore has successfully housed nearly 90 percent of its population.

Singapore has also been innovative in its use of technology to make housing more affordable. For example, the Housing and Development Board’s (HDB’s) Green Towns Programme incorporates modern technologies, such as solar panels and advanced sensors, to optimise resource usage and develop a smart and sustainable city.

Challenges and innovative solutions

Though Singapore’s housing policies have been successful in providing homes for the majority, challenges persist for specific groups, such as those just above the income ceiling for affordable housing and singles. Many singles find themselves priced out of the market, so they turn to the rental sector for housing options.

To address these challenges, the government allows renters to purchase smaller HDB flats, promoting homeownership and breaking the poverty cycle. Another solution is the intergenerational wealth transfer, which allows families to pool resources to help their children purchase homes. Furthermore, Singapore’s efficient MRT transit system and decentralisation efforts have boosted property prices in outer areas, facilitating the transition from public housing to private properties for many residents.

Hong Kong

In Hong Kong, the homeownership rate stands at 51 percent, significantly lower than in neighbouring countries like Singapore and Malaysia. This is due in part to the city’s high cost of living and limited land availability.

Hong Kong has implemented many initiatives to address the challenge of affordable housing, including:

  • Public rental housing: The public rental housing system is the largest in the world, providing housing for around 30 percent of Hong Kong’s population. Rental rates are set at around 10 percent of the tenant’s income.
  • Home Ownership Campaign (HOC): HOC is a government programme in which subsidised housing units are sold at discounted prices.
  • Public-private partnerships: The government works with private developers to build affordable housing. The government selects specific sites and sets requirements for developers, such as affordable pricing and unit specifications. This approach helps control the distribution and nature of affordable housing provided by private developers.

Despite these initiatives, Hong Kong still faces plenty of challenges in providing affordable housing, such as:

  • Insufficient supply: The supply of affordable housing has not kept pace with demand. This has led to long waiting lists for public rental housing and high prices for private housing.
  • Concentration of low-income groups: Low-income groups are disproportionately concentrated in public rental housing estates. This had led to social issues, including higher divorce rates and single parenthood.
  • Lack of mobility: The current system presents obstacles to mobility, as many low-income families struggle to afford homes in prime locations. This hinders their ability to build equity and move up the property ladder.

Innovative solutions: Focus on homeownership

Recognising the importance of homeownership for societal stability and wealth creation, Hong Kong aims to transition from a rental-focused public housing system to one that emphasises homeownership. One proposed solution is a rent-to-buy model for new public housing units, which would allow tenants to purchase their units at a later date, making it easier for them to become homeowners.

The government is also considering selling existing public rental housing units to sitting tenants at affordable prices. This would increase the homeownership rate, foster a sense of belonging among citizens, and encourage intergenerational wealth transfer.

Navigating the path to affordable housing

Affordable housing is a complex issue with no easy solutions. However, the experiences of Malaysia, Singapore, and Hong Kong provide valuable Insights for addressing the global housing crisis. By working together, governments, developers, and private entities can make housing more affordable for all.

This article was originally published on ARES White Paper Volume 3. For more information, visit AsiaRealEstateSummit.com or email [email protected].

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