Affordable housing: Challenges and issues among developers in Klang Valley

1.0 Introduction

In Malaysia, affordable housing is one of the most concerned agenda of government and thus,
government has tried to use various policy and programme to make housing affordable and
available to particular group (Ebekozien, Abdul-Aziz, Jaafar, 2017). Developers are facing
challenges on affordable housing development. The PR1MA chief executive officer Datuk Abdul
Mutalib Alias has raised concern on the challenge looking for suitable land and location, obtain
planning approval from authorities and developer’s profit margin (Saieed, 2016) Tan, Samihah,
H. K., and Phang (2017) pointed the challenges faced by developers can be categorised to
economic challenges which including high land cost, shortage of workers, goods and services
tax, capital contribution and compliance cost; and institutional challenges such as anomalous
bureaucratic process and inefficient affordable housing delivery system.

According to Construction Industry Development Board Malaysia (2019), housing

affordability affected by the change of housing price and the levels of household income.
According to data shown on NAPIC, the housing price of 3rd quarter 2021 is RM436,958
(National Property Information Centre, 2021) and Statistic department declared an average
monthly household income as at August 2021 is RM7,089 (Department of Statistic Malaysia,
2021) which is equal to RM85,068 annual income. Thus, the price to income ratio is 5.1, which
housing affordability is severely unaffordable as defined by Urban Reform Institute (2021) and
widely used by Malaysia Central Bank. According to Cheah and Almeida (2017), between 2012-
2014, Malaysia housing affordability has significantly deteriorated which reflects mainly the
imbalances of supply-demand to the market and slower increase in household incomes (12.4%)
relative to house price (17.6%). Ebekozien et al. (2020) pointed that, tax policy and enforcement
in some states has provided opportunities to the housing developers to deny the needs of house
by the low-income groups even there are several affordable housing policies and aim established
by the government.

Housing is one of the human basic needs (Maslow, 1943) and it has been defined as human
rights whereby an adequate quality of living is part of the right (United Nations, 2011). Over the
decades, we are facing rapidly grow of urbanization, the Organisation for Economic Co-
operation and Development (OECD) expected 70% of the world population will live in cities by
2050. In 2017, McKinsey Global Institute (2017) predicted that a 330 million metropolitan
households are live in substandard housing currently or stretch to pay more than 30% of their pay
to housing cost and this number could reach 440 million households by 2025 with the current
trend. In Malaysia, the design of affordable housing is to meet the needs of the low and medium
income groups where they have sufficient income support them to get an appropriate living place
without sacrifice other basic living needs.

Malaysia government including the federal government and state government had made
several attempts to make housing price affordable especially for lower income group with the
establishment of affordable housing policy and program. However, the housing issue has not
been resolved. According to Ismail (2019), there is no significant improvement on Malaysian
housing affordability between 2002 and 2016. The household income and basic amenities survey
2019 has shown that the household income differs from the affordable housing median price
which range less than RM150,000 and between RM150,000 to RM300,000. It has resulted some
new affordable housing remained unsold. Obviously, even the government has set the price of
affordable housing, but it is still unaffordable to certain income group. On the other hand,
affordable housing demand-supply gap is in increase critically as revealed by many scholars. The
recommended standard of housing supply should be 8-10 units per 1000 population in
developing countries while Malaysia has approximately 4 units (Olanrewaju, Abdul-Aziz, Tan,
Tat, & Mine, 2016). Ebekozien, Abdul-Aziz and Jaafar, (2020a) viewed the issue of mismatch
low-cost housing is due to the emerging urban slums.

The purpose of this research is to identify the challenges and issues in delivering affordable
housing in Klang Valley faced by private developers. Under the 12th Malaysia Plan for 2021-
2025, Malaysia’s Prime Minister Datuk Seri Ismail Sabri Yaakob has highlighted that a 500,000
affordable home will be built for lower income groups like bottom 40 percent (B40), middle 40
percent (M40) group in the 5 years roadmap (Malay mail, 2021). With the government target,
private developers are encouraged to increase affordable housing development in their business
plan.

1.1 Problem Statement

Malaysia has implemented affordable housing policy since 1970 to resolve the poor and
restructuring Malaysian society to achieve economic balance between urban and rural area
(Masram & Misnan, 2019). Under the Malaysia context, low-cost housing is part of the
affordable housing policy (Gan et al., 2017; Liu & Ong, 2019) to provide housing to the specific
low income groups. Over the years, Malaysia affordable housing policy has been reviewed and
evolved though Malaysia plan to solve the housing affordability issue. The strategy has been
practiced in Malaysia including increasing the quantity of affordable housing and reduce the
housing price which has been widely implemented by other countries like US and Australia, but
yet the housing affordability issue has not been resolved effectively in Malaysia with the low-
income groups housing is still not guaranteed (Liu & Ong, 2021).

Government initiative in delivering affordable housing is evident including increasing supply

of affordable housing, control housing price and improve mortgage financing ability. However,
from the perspective of micro-economic, the challenge of development cost and economic factor
are excluded from the strategies implementation. Low-income household and national economic
growth are also part of the reason to review why affordable housing still not affordable to the
low- income groups. The scenario of overhang affordable housing in the market may cause risk
to the housing developers which supporting the housing policy to increase the number of
affordable housing. Thus, researchers have started to question is the interference of government
and local authorities to the affordable housing delivery necessary and what more they can do to
overcome the issue?

There are numerous studies provided insight and analysis of National Affordable Housing
Policy from different perspective, but most of the literature are focus on the supply-demand
mismatch issue and buyer preference and behaviour. The root cause of the mismatch should be
identified in order to resolve the affordable housing issue in Klang Valley. Problems with urban
housing typically arise when developers in urban areas lose interest in constructing housing at
medium and low cost because of the small profit gained from the development, which has a
knock-on effect on the housing market in terms of its affordability (Wahi et al., 2018).

According to Foo (2018), land cost, construction costs and consultant costs which included in
the development cost are the main factors affect the housing prices. Due to the substantial
expenditures at each project phase, the construction process is capital-intensive (Ugochukwu et
al., 2014). Financial restrictions together with awareness and expertise were regarded as two of
the most significant obstacles facing in the property development industry. The high land cost in
Klang Valley is the major cost of developers especially at some matured township area and
hence, developer unlikely to sustain if they develop affordable housing at the premium location.
Some of the affordable housing has been built far from amenities with poor accessibility due to
the cheaper land cost. However, this has served meaningless to the lower income group as they
rely to the public transport to travel. Overhang issue might be created for housing located
distance from living essential and it became new challenge to developers. Another challenge is
the transaction cost whereby the charges being pay to local council and state government on
compliances is rising with the complicated process. The long awaiting period of getting approval
on compliances and getting qualified purchasers is also challenging to developers. Developers
have to spend more to maintain the site condition and on operation while waiting for the
approval to run a project. It further increased the risk of a developer when there are changes in
policy. It is all cost-related. Developers may end-up do not make any profit from a 5 years
project since the profit margin for an affordable housing project is typically low. The role of
government is crucial to ensure the industry is continuously grow while continue to deliver
affordable housing. National housing policy and regulatory adjustments must be implemented
since the government's participation in the competitive home development industry is critical. A
deeper investigation on the constraints of policy is significant to be studied in order to improve
the current housing system.

Affordable housing issue is significant to be studied since it is a global issue. Malaysia

government attempts to resolve the paucity of affordable housing since the 4th Malaysia Plan
1981-1985 and in the latest 12th Malaysia Plan, the new target has been set. Many scholars such
as Ebekozien, Abdul-Aziz, Jaafar, Ferlito and others has look into several aspect of the issue in
the past. However, there is lack of focus on the view of Klang Valley’s developers. Klang Valley
is the most prosperous, developed, expensive, and high density area in Malaysia, as well as the
capital city located. Thus, the concern from developers in this area is important to policymakers,
government and authorities in future policy review. This study served to review the issue from
the Klang Valley developers’ perspective to identify the issues and challenges faced by
developers to provide detailed understanding and delivery implementation of affordable housing
in order to meet the delivery of affordable housing target of the government as set in the 12th
Malaysia Plan.
1.2 Research Significance

1.2.1 Practical Significance

This study is significant to get detailed understanding of the challenges and issues on the
perspective of developer in order to response to the concern of housing affordability issue in
Malaysia. The result of the research could be a highlight or reference to the policymakers,
government and authority in order to review the current affordable housing policy and housing
regulations. Besides, this research also provided information to the new entrants to have better
understanding on the risk before decision making.

The reality of the affordable housing delivery issues in this study is significant to the
government in order to success in resolving affordable housing issues. The industry players are
waking the government’s awareness on the challenges of building affordable housing they are
facing as government could improve the system via policy revision and adjustment in order to
meet the government’s objective on affordable housing delivery. This study has also gathered the
ideas and insights from the industry players which could help the government in better
implementation of affordable housing delivery and further encouraging the private developers to
extent their effort and social obligation to fulfil the needs of the low-income community in home
ownership. The policy makers and authorities could be leveraged from the ideas given by the
industry players.

Due to the high cost of subsidies, private developers have become less interested in building
affordable homes in recent years. Housing development is an adventure in business for
developers, and despite the fact that there is the possibility of making a profit from it, there are
also many hazards involved. Although it is a tough journey to the housing developers, they are
still attempting to fulfill their social responsibility. It is important to the public or communities to
understand the scenario of affordable housing market and the effort of government and private
developers in resolving the housing issue to the poor. The expectation of private developers
could absorb the cost of affordable housing development is unrealistic while the cost is still
arising. The social awareness and knowledge of public and community to care about the
accommodation need of the low-income group is crucial to make them accept affordable housing
as part of their neighbourhood and this is where the significance of this study. This will also
explain the efforts and concern of the government and private developers that prepared to make
every resident a house owner.

The private developers are facing challenges with the policies and guideline of compliances
and practices gazetted by the government and agencies to start a new development. This study
tried to cross the gap of the previous studies about affordable housing issues by provide private
developers some insights and solutions that could help them to sustain in their affordable housing
development business. Developers can identify their weakness with the information of housing
market provided in this study and prepare for the future market trend. This study is significant to
the private developers by providing them alternative options and experiences from other
developers to minimize their business risk. At the same time, for new entrant in the industry, this
study has an in-depth analysis from experienced industry players to provide better understanding
of the challenges faced by developers, so that they can build their own strategy to achieve the
business sustainability.

1.3 Research Scope

The research objective of this paper is to identify the challenges and issues on delivering
affordable housing among developers in Klang Valley by review the existing housing policy and
practice. This paper is attempts to explore the role and effort of government, agencies, public and
developers to ease the housing affordability issues faced by developers. The researcher will look
at the affordable housing issues faced by developers in Klang Valley particularly focus area
under governance of Kuala Lumpur City Council.

1.4 Research Question

Researcher formulated 2 research questions in this study as follows:

• What are the affordable housing challenges and issues among developers in Klang
Valley?

• What is the role of government and agencies on the issues faced by developers in Klang
Valley?
1.5 Research Objectives

Researcher formulated 4 objectives in this study as follows

• To study the high transaction costs as a challenge among developers in delivering

affordable housing

• To study the high land costs as a challenge among developers in delivering affordable
housing

• To study the housing policy and schemes as a challenge among developers in delivering
affordable housing

• To explore the role of government and agencies on the issues and challenges among
developers in delivering affordable housing

2.0 Literature Review

2.1 Review of key concept

In this study, the concepts of affordable housing, transaction costs, land cost, housing policy,
government and agencies and housing developer will be defined and evaluated.

2.1.1 Affordable housing

Before we understand the concept of affordable housing, we must define what is housing.
According to Melnikas (1998), house is a physically, naturally socially close area where
individuals or groups can carry on with their biosocial life, by getting administration, performing
house chores and other activities. In Europe, housing is commonly defined as a premise with
walls, roof, windows and doors, and other technical elements which physically separated from
outer environment (Henilane, 2016). UN-habitat categorised housing as a fundamental human
right, which not just a roof, but opportunity for better lives and future. (UN-Habitat) At the same
time, housing is important in human’s wellbeing and contributing to physical and mental health,
education, hiring and safety (Baqutaya, Ariffin, Aini, Raji, Fauziah. 2016). In the large scale,
housing can be defined with mutually related concepts i.e dwellings, including low-cost
dwellings, social housing, sub-standard dwellings etc. (Henilane, 2016).

Affordable housing, also named as low-cost housing, refer to the housing unit which
affordable to a particular group based on the income within the median household income, i.e.
housing needs of the lower and middle income group (The Economic Times, 2021), whereby the
cost of housing shall not exceed 30 percent of individual’s gross income by using Housing Cost
Burden approach adopted by Central Bank Malaysia (Cheah & Almeida, 2017). According to the
United Nations Human Settlements Programme (United Nations, 2011), affordable housing is
adequate in quality, location with cost that allow occupants to meet other basic living
requirements. In general, the National Housing Department of Malaysia define affordable
housing as housing with decent quality, located in suitable area, and its purchase does not
prevent its occupants from satisfying their basic needs, which includes quality and location
besides of housing price (Sidal, 2019).

In this research, affordable housing measured by the following factors as below.

2.1.1.1 Transaction costs

Williamson (1985) defined transaction cost as a friction cost in the market. With his
transaction cost theory, the cost of planning, adapting and monitoring the practices of objectives
shall be included in the case of alternative governance structures (Williamson, 1981). Housing
development turn to be costly, longer and less secure when compliance cost from local
authorities is involved and it will affect the housing affordability (Schuetz, J.,2020). Furobotn
and Richter (2000) viewed the expenses of assets used for the creation, maintenance, exchange
and others of institutions and firms which such as the cost of information, bargain and
enforcement during the transfer of property and contract rights. This has made up 50-60% net
national product of the economy (Furobotn & Richter, 2000). Gu and Hitt (2001) concluded that
economic efficiency would perform better when the transaction costs is lower.

2.1.1.2 Land cost

Land is defined as an asset and a foundation for urban and industrial development which is
taxed and desired by the governments and interest groups (Verheye, 2004). UN-Habitat (2012)
define land as an essential input in housing. Land cost is not only the land price of the building
area, but including cost for road areas, arbitrary setback and community facilities which also
reduce the density of housing unit (Bertaud & Malpezzi, 2001). Therefore, the cost of land can
be affected by the changes of regulations (Bertaud & Malpezzi, 2001), the complexity
encompassing of its area, value, accessibility and legitimate status (Acioly, 1994) and
urbanisation progress which will create or raise the land value (Collier, & Venables, 2013).
According to Tan et al. (2017), land cost is determined by market rate, and it is higher in urban
and city. This is because of scarce land resource in city and land scarcity has become key factor
to the housing price and impact to housing affordability (New Straits Times, 2018).

2.1.1.3 housing policy

Housing policy can be defined as “any action taken by any government or government agency
to influence the processes or outcomes of housing” (Clapham, 2018). The actions of government
or government agency including regulatory process and program delivery which create
circumstances to housing supply, availability, quality and urban planning (Homeless Hub).
Global experience has proven that a scientific and sensible housing plan in light of housing
market analysis is significant for affordable housing delivery (Worthington and Higgs, 2013).
According to Tiesdel and Allmendinger (2005), housing policy able to shape, regulate,
invigorate market and for capacity building in the housing market. Housing policy is always the
thought of in terms of state housing policy which is on both national and local levels (Hill &
Bramley, 1986). There is a National Housing Policy as a macro policy to cover the direction,
planning and development of housing sector in Malaysia (Masram & Misnan, 2019).

2.1.2 Government and agencies

Finer (1970) define government is a group of people charged with the duty of governing in a
condition of ordered rule to process the duty of governing in the manner, method or system by
which a particular society is governed. Under the Malaysia housing development context,
according to Ebekozien (2019), the government can be defined as a party formed by several
ministries and agencies including Ministry of Urban Wellbeing, Housing and Local Government,
Ministry of Federal Territories, Prime Minister’s office, Ministry of Finance through Syarikat
Perumahan Negara Berhad among others. The public sector broadly define government is an
administering body with a defined territorial authority which include all departments, ministries
incorporate all divisions, services (The Institute of Internal Auditors, 2011). The agencies are
refered to the organization appointed commission with a specific function and is always use to
improve the productivity of public services.

2.1.3 Housing developer

Housing developer refer to “any person, body of persons, company, firm or society (by
whatever name described), who or which engages in or carries on or undertakes to be undertaken
a housing development” and with license (housing development (control and licensing) act, 1966
(Act 118)). The housing developer can be private developers or partnership between government
and private developers like PRIMA, with a role from searching land, planning land use, looking
financial support, supervise and execute planning, generate sales and monitor construction
progress for each and every housing development.

2.2 Review of Model and Theories

The Public Interest Theory or Public Interest Theory of Regulation developed by English
economist Arthur Cecil Pigou and Institutional Theory expanded by Marx and others are
evaluated in this study. The first theory Public Interest Theory holds that regulation is instituted
in light of the interest of the general population for the remedy of insufficient market practices
(Hantke-Domas, 2003). In general, Public Interest Theory is a piece welfare economics that
regulation ought to expand social welfare whereby regulations are the benefit examination result
which done to decide whether the expenses on market operation offsets the figure of social
welfare. This theory apply to the study is to review the government practices on housing
development whereby bureaucracy system and the inefficiency of approval process which
increased the cost of housing has abused the public interest.

The Institutional Theory has been wisely used by scholars, such as Masram and Misnan
(2019), Shen and Burhan (2020), Tan et al. (2017) and other. The theory formed by three pillars
which are regulatory, normative and cultural-cognitive, is a social structure with high degree
resilience. Regulatory ensure the compliance system including guideline and implementation,
normative highlights on standard, value and social obligation or responsibility while the cultural
cognitive is refer to the tendency to perceive of humans on certain issues. In this study,
regulatory concept is important for the right strategy to be done because the institutional settling
can impact the improvement of the previous structure in a public establishment (Ebekozien et al.,
2019). The participation of government in the affordable housing delivery particularly involve in
free land allocation and planning application is crucial (Abdullahi, & Wan Abd-Aziz, 2011).

Both Public Interest Theory and Institutional Theory are emphasising the participation and
intervention of government. But the point of view has been argued by Ferlito (2019) who
believed that the cyclical dynamic of the property market must take into consideration and the
intervention of government in the affordable housing market push out the potential private
initiatives. His point of view supported by Bertaud (2010) who claims that many government
policies based on wrong data and resulted wrong conclusion. The argument set on the point of
property market will be in down turn with the interference of government and lead to the
negative impact in economic growth, but it has not solved the problem of lower income group
who desperate to have a house.

Based on scholars’ finding, Abd. Shatar., Othman, and Mohd Yusof and Mohamed (2017) has
raised that evolvement of housing policy and programmes are urged to fulfil the public
expectation and react to the problem facing by the housing industry. The issues facing by the
developers shall be reviewed by the government or authorities via policy and standard operation
standard. Musole (2009) viewed that market failure when economical and socially desirable
result unable to be fulfilled and state will intervene in economic system and market when there is
market failure. Thus, public policy intervention would provide a guideline to the market in order
to meet the expectation.

2.3 Empirical Studies

In the past 5 years of research, researcher found that many studies have been conducted by
different scholars. Many previous studies have shown that the reluctant participation of private
developers to build affordable housing. Tan, at el. (2017) has examine the reason and categorise
it to 2 challenges which is economic challenges and institutional challenges whereby the
economic challenges including land cost, good and service tax, shortage of skilled workers,
capital contribution and compliance costs. Similar point of view has been found in CIDB (2019)
research where cost and policy are the main influences to the supply. However, CIDB has
remarked that the construction costs including time, labour and waste materials are significant to
identify the economic challenges faced by developers besides of cost of land and compliances.
Liu an Ong (2021) concluded that land cost, construction cost, compliance cost, supply and
demand and economic factors are among the influencing factors to lowering the housing price to
achieve housing affordability.

Besides, both Ferlito. C (2019) and Shen at el., (2020) have included location as part of their
measurement of housing affordability instead of price only. From the data analysis by Shen, at
el., (2020) shown that most of the high rise building in Kuala Lumpur are priced more than
RM400,000 which are not meeting the concept of PRIMA to have affordable housing between
RM100,000 and RM400,000 for middle income group. The study quoted Ong (2008) that Kuala
Lumpur has the smallest land size but with highest density, therefore, high end strata type
development is the best choice for developers due to the high cost of land. The high cost of land
has made PRIMA unlikely to develop affordable housing in Kuala Lumpur, so the land cost issue
has been further extended to location issue.

Tan, at el. (2017) blamed that the intergovernment relationships, anomalous bureaucratic
process and inefficient affordable housing delivery system has increased the transaction cost of
housing development and it will eventually led to unaffordability of housing. Developers have to
sanctify street-level bureaucrats in order to get their application approved or quicken the process.
(Tan, at el.,2017) Although Tan, at el.(2017) admitted that involvement of government to solve
the housing problem is necessary, but Ferlito. C (2019) has critically debated on this. He quoted
Bertaud, Stephen Malpezzi and Stephen Mayo (2018) that the relationship between housing
supply elasticities and development regulation simply means fewer regulatory or market
constraints would result on price adjustment toward the lower levels. He further evaluated that
the housing scenario in Malaysia has been “artificially made unprofitable by a series of
regulatory obstacles that become supply-side bottlenecks” (Ferlito.C, 2019).

In the studies of Tan, at el.(2017) concluded that the government deals with the problems of
housing affordability by regulating housing prices is necessary. This conclusion is not adopted
by Ferlito. C who found the excessive intervene of government may squeeze out private
initiatives and traumatise the property market which will lead towards economy recession. In his
point of view, the institutional challenges faced by the developers are implemented through the
policy provisions and constraints. (Ferlito. C., 2019) According to Ferlito. C (2019), cyclical
dynamic in the industry has been disregarded in current discussion of Malaysia housing issue.
Ling, at el.(2017) agreed with the judge, “ structure and cyclical factors in the housing market in
Malaysia have resulted in a failure of the market to provide an adequate supply of affordable
housing”. But unlike Ferlito. C (2019), Ling, at el. (2017) analyse the issue from supply and
demand both side which resulting the effort made by government, housing developers, banks,
consumers, regulators and interest groups is needed.

To solve the affordable housing issue, Ling, at el.(2017) found involvement of government is
inevitable to complete and implement policies including centralisation of affordable housing
initiatives, database integration, reducing construction costs, rehabilitating the balance sheet of
household and strengthening rental market. Both Ling, at el.(2017) and CIDB (2019) found
innovative transformation in the industry is very important. According to Real Estate and
Housing Developers’ Association (REDHA), 80% of the housing prices are made up of the
construction costs. There is a potential to reduce the high construction costs by increase its
productivity and effectiveness from the benefits of innovative technology and system
introduction to the industry (CIDB, 2019).

2.4 Literature Gap

Affordable housing issue has become a global issue due to the inadequate supply. But the
current discussion on affordable housing is truly unbalanced toward the mismatch of supply-
demand market in the country while the challenges faced by the developers has been disregarded
(Ferlito. C., 2019). Most of the past literature are using quantitative as their research method.
There is a gap between qualitative research and qualitative research as qualitative could study the
issue in-depth via a series of interview. This study has discovered some insights from different
angle which has not been covered by the previous studies. This study is to attempt to fill the gap
of empirical studies in order to have an entire picture of the challenges of affordable housing in
Klang Valley. Researchers like Bilal et al. (2019) using qualitative research method to focus on
the analysis of the structure and operation of current affordable public housing programmes
while Ebekozien et al. (2020) using exploratory mixed methods to investigate the state
affordable housing policy. Qualitative research allow researcher to look in depth on the
challenges faced by developers with the operation of affordable housing programme and current
housing policy.

2.5 Conceptual Framework

Based on the findings from the past studies conducted by Ebekozien (2017, 2019, 2020,
2020a), Tan et al. (2017), Shen and Burhan (2020), Construction Industry Development Board
Malaysia (2019) and Cheah and Almeida (2017), researcher develop the below conceptual
framework to study the independent variables of high transaction cost, high land cost, housing
policy and scheme as a challenges of developers in delivery affordable housing in Klang Valley
and the role of government and agencies impact to the issue.

High
transaction
cost

Role of Affordable
government/ High land housing
agencies cost development

Housing
policy and
scheme

---

Affordable housing is always encouraged by the government to resolve the housing issue in
the country. However, there is concern from the residents that affordable housing built at the
existing housing estate will affect the current property value as well as rental value. At the same
time, crime and illegal activities are also concern of the neighbourhood as it will bring direct
impact to the housing value and neighbourhood environment. However, the urgency of solving
housing issue for the lower income community has led to the result that the state government has
implemented policies and scheme to require all developers to build at least 20 percent affordable
housing in Selangor state and at least 30 percent in Kuala Lumpur (REHDA, 2018). With the
housing policy, REHDA (2018) aware that due to the high cost of subsidies, private developers
have lost their interest in providing housing with affordable price. This is challenging to a
developer. As a result, in any development strategy, the subsidy necessary for low-cost dwellings
must be partially compensated by the pricing of non-low-cost houses.

The rise in construction costs and land cost has also rendered the cross-subsidy approach for
providing low-cost housing unfeasible. Aside from that, factors like location, pricing, type of
property, etc has also created an obvious mismatch between supply and demand of affordable
housing in Klang Valley and it will create oversupply of certain property type at certain location.
This will further endanger developers when there are too many overhang units in each
development. Developers facing challenge when there are too many properties remained unsold.

In addition to this, the moratorium term on certain housing scheme like PR1MA properties
which launched by the government in 2012 has been lowered from ten to five years, and it begins
with the signing of the sale and purchase agreement (The Edge, 2017), which means owners will
be able to sell their homes as soon as 14 months following vacant possession when the
construction period is 36 months. However, other housing scheme i.e. RUMAWIP or PPAM are
still remained as 10 years. Under this circumstance, if the sites of the PR1MA projects are
attractive, purchaser will put PR1MA project as their first choice as there is a good likelihood
that the prices will increase over the course of the five-year holding term and it will be simple to
sell them once the allotted amount of time has elapsed. The unfair conditions applied to different
affordable housing programme has become challenges to private developers as this will further
threaten developers’ financial status when there are many affordable houses remained unsold.

Currently, there are many affordable housing projects being launched in Klang Valley.
However, there is still many complaints and issues being brought by the residents as well as
developers. To ensure profit guaranteed, most development maybe far from city center, high
density, smaller size or with strange layout, it is not attractive to the lower income group who
rely on public transport or with big family. They will continue to rent a house with their
preference instead of buying an inconvenience property. Such development and even
surrounding property will be hard to sell when there is an affordable housing development in the
area. However, the challenges of affordable housing issues that faced by developers are more
likely can be resolved via government’s policy or scheme. It also required government support
especially subsidy to developers on the affordable housing development business i.e building
additional infrastructure and public facilities, reduce developers’ cost, etc. REHDA (2018) has
proposed to the government on the provision of the issues including government to centralised
one body to develop such project, rent to own programme by the government, restrict purchasers
do not profiteer from affordable housing, etc. There are a lot of experience and study of
affordable housing implementation abroad where the government can use it as a reference to
resolve the current issues.

3.0 Methodology

3.1 Research design and strategy

This is primary research. Qualitative research method is used in this research due to the
complexity of phenomena and it may relate to participant personal experience (Merriam, S.B.
and Tisdell, E.J., 2016) which is unique, qualitative research allows rich description of the event.
Qualitative researchers are interested in gaining an understanding of how individuals shape their
worldview, how they perceive their encounters, and what significance they ascribe to those
experiences. This understanding is an end in itself, so that it is not attempting to predict what
may happen in the future necessarily, but to understand the nature of that setting and, in the
analysis, to be able to communicate that faithfully to others who are interested in that setting
(Patton, 1985). In most cases, the results consist of essential representations and presentations of
important discoveries that were derived from an analytical synthesis of data (Saldana, 2011).
Similar research has been adopted by Hinderson and Illerbrand (2021) to identify the challenge
of affordable housing in new urban development projects in Nyhamnen and Yap and Ng (2017)
to explore the housing affordability issues in Malaysia. Denzin et al. (2017) asserted that
qualitative approach could provide advantage of describing meaning, perceptions and human
assumptions.

This research is a phenomenology type research design which focuses on the phenomenon point
and involve collection data from participants with experience of the particular issue and analyse
the situation by describing the experience according to theme (Plano-Clark & Creswell, 2015)
was adopted in this research. According to Hein & Austin (2001), phenomenology is established
in the idea that all of our insight and comprehension of the world comes from our experiences. It
is focus on the process of experience and the outcome of the experience brings to us instead of
the event itself. Thus, participants’ response unable to be presumed. To conduct the research,
research must first explore the own bias and assumption and keeping it in mind during
conducting analysis.

The nature of the research design is an exploratory research which attempts to understand in
deep to the topic from interview and discover new and interesting data (Swedberg, 2020).This
research will use the data collect at one specific time from particular participant, is a cross-
sectional research. This is because cross sectional research allow researcher to collect data very
quickly and observe variables at a particular time (Thomas, 2021). This research is main to
create an outcome under the current moment context, therefore cross-sectional research would be
a very effective way.

3.2 Data collection method

An email interview with structured and open-ended questions (qualitative) or semi structured
email interview (Hawkins, 2018) is used as a data collection method in this research because data
collection via technology will be more efficient and economical (Walker, 2013). The email
interview is different from the email survey, but will be done with participants by extensive
interviews via email or text message. The approach via email or text message which is more
convenient whereby participants could response to the interview questions at their convenient
time (Gibson, 2014) and location (Walker, 2013) and this would have increased the level of
participation of working adults (Fritz, & Vandermause, 2017). Senior employees from housing
developers, architect and agency representatives have been selected to be participant of this
research. A set of mix of structured and open-ended pre-set questions will be given to
participants as a primary interview via email or text message initially and follow by subsequent
questions based on the response of each participant in the primary interview. With this method,
there are more open-ended questions can be asked and allow interviewer to explore additional
meaningful insight from the participants. Besides through interviews, data collection will include
observations and documents. The non-numeric data of text collected will be processed and
analysed to understand the concepts, feelings, knowledge and experiences of the participants.
Researcher could generate new insights of the issues from the processed data.
3.3 Data instrument

In this qualitative research, researcher reviewed the past studies and literature to validate the
interview question. The content analysis on the past study will provide better understanding of
the issue. Semi-structured questionnaires consist close-ended and open-ended questions will be
conducted in this research. Gillham (2000) believe that open question brings better level of
discovery, but at the same time he agreed that open questions are difficult to be analysed. In this
study we are using email interview, so to overcome the issue and get a better result, open
questions and close questions both should be included in the interview. The interview questions
are tailored according to the objectives as stated above.

For the validity, the content validity might be reviewed by the lecturers or supervisors of the
study. Based on the comments from the respective lecturers and supervisors, the unclear or
inappropriate questions will be restructured or reworded. At the same time, the ineffective or
non-related questions will be discarded.

The 6 methods recommended by merriam (1998) which is triangulation, member checks, long-
term observation at research site, peer examination, participatory or collaborative modes of
research and researcher’s bias will be applied to measure on the findings with the reality. A pre-
testing semi-structured email interviews were undertaken to explore the affordable housing issue
before the actual interview conducted, 2 participants will be selected for the piloting test.
Questions like “What do you mean?”, “Can you further describe?”, “Could you provide
examples?”, “Can you elaborate more details?”shall be including in the interview statement to
get more information(Collis & Hussey, 2014).

Merriam (1998) concluded that “the human instrument can become more reliable through
training and practice.” This is because qualitative research is unlike quantitative research looking
for number to confirm the reliable but based on consistency and dependability of data. Merriam
(1998) also giving a suggestion that the investigator’s position, triangulation and audit trial can
be used to ensure the dependability of the result. The investigator should explain the process and
inquiry of the study with detailed rationale to increase the research reliability. Different source
and variety of data collection can make the study more reliable. The description of the method of
data collection, analysis process, theme created and the findings outcome obtained should be
included in the audit trial to get the reliability of the study.
3.4 Target population

The targeted interview participants of this research are senior employees from housing
developers, architect and agencies representative who involve in at least 1 affordable housing
development in Klang Valley particularly area under governance of Kuala Lumpur City Council
(DBKL), with more than 5 years working experience in the Malaysia housing industry. The
group of people selected because they are involving in the development of affordable housing
and playing a significant role in policy making. This research will be conducted in Kuala
Lumpur where has 95 affordable housing projects has been approved by the ministry as at
November 2021 (The Star, 2021) and targeted to deliver 80,000 affordable houses by 2028
together with another 2 federal territories, Putrajaya and Labuan. This study will not include all
affordable houses but select the projects developed by the participants.

3.5 Sample size and sampling method

Qualitative research always uses smaller sample size compare to quantitative research. This is
because qualitative research intended to focus in-depth to the issue and understand the detailed
instead of testing the hypothesis which require big data. Basically, there is no justification on the
sample size for qualitative research but scholars are interested to argue on the saturation over the
sample size (Mason, 2010). Saturation is defined as no new or significant information to be
provided in the data collection process. However, in this phenomenological study,
recommendation of Creswell and Poth (2016) that sample size between 5-25 has been adopted.
There are 7 participants including senior employees from private developers and architects to
complete the study until the saturation point is reached. The same method has been practiced in
Tan et al. (2017). The small sample size is also supported by Young and Casey (2018) who has
concluded that small sample in qualitative research could achieve meaningful and robust result
under certain condition i.e participants have related experience and met the pre-determined
criteria.

The general details of the participants are as per below:

Interviewee Designation Years of Experience

Developer A General Manager 28

Developer B Assistant General Manager 18

Developer C General Manager 16

Developer D Senior Sales Manager 18

Developer E Project Manager 9

Architect Architect 10

Ministry of Housing & Local Government Senior Assistant Director 5

Table 1. Details of Participants

Seidman (2006) has suggested 3 interview series to conduct a phenomenological interview.

Researcher adopted this approach because the practice allow participants can further explain or
describe in details on personal experience related to the particular theme. The first interview is
more on close-ended or straight forward questions to get the general information of topic. Based
on the reply, more open-ended questions will be asked in the following interview. The third
interview is to relate the past and current experience to clarify the issue, whereby participants
have to reconstruct their experience for member check purpose.

The selection of sampling is not random samples but a chosen sample which is quality, logic and
allow researcher capture rich information and data from the findings. A non-probability sampling
is the most suitable method in this qualitative research as non-probabilistic sampling is to collect
the essence of the study (Meriam, 1998) which allow researcher to get a descriptive, informative
and discovered findings instead of prediction or test. In order to get the right sample, criteria
must be set whereby participants must with transaction experience within Klang Valley region
and extensive knowledge of affordable housing issue.

3.6 Ethical consideration and accessibility

The data collection is via email interview approach, therefore there is a possibility of
participants’ commitment and motivation to answer the question and provide quality data due to
time consuming on typing to reply. Participants may aim for more efficient way to complete the
interview as they have no patient to spend the time to construct the story. Thus, voice note or
voice recording is accepted in this study instead of text form. This will allow participants to
provide more details and information in the interview. At the same time, due to the sampling
method is a 3 interviews series, the gap between one and another interview is concerned. As
study of Hodgson (2004) shows that the possibility of dropouts or frustration to interviewer or
participants will increase if the interview period drags longer. So the data processing for the first
and second interview is very time consuming in order to create the next interview. Researcher is
required to complete the entire 3 sets of interview within 3 months.

While discuss on the affordable housing issue, there could be many confidential deals between
the government, authorities and developers. To unveil the real situation and problem, privacy and
confidential details must be concerned. Informed consent will be issued to the participants to
inform any potential risk during the email communication and participants are given rights to
withdraw from the study. Researcher will protect participants’ information including profile or
particular and any specific person, institution, projects or department involved. At the same, all
data shall be encrypted to avoid any leakage of information. Additionally, to verify the data and
confirm honesty of the research, the presence of third party verifier such as lecturer, supervisor
or student is needed.

3.7 Data analysis plan

The email interview will be recorded, sorted and proper coded according to the theme of
affordable housing. According to Stysko-Kunkowska (2014), thematic analysis using the data
collected to identify, analyse and report themes. In this study, the themes will be produced
according to variables which is high transaction costs, high land cost and housing policy and
schemes. From the outcome of interviews, citations were chosen to accommodate the related
issues. Additionally, any data that easy to be quantified will also be captured.

4.0 Analysis and findings

4.1 Affordable housing market

The definition of affordable housing is basically built on the parameter of price and size of the
unit, just like what developer A defined “Affordability means how far the financial capability of
the individual is able to match with the price tag of the properties which he/she desires and their
eligibility to get the maximum loan in order to purchase it. So, it is basically boiled down to the
income level of the individual which is the ultimate determining factor for the size, price tag and
eventually the housing programme which befitting these 2 parameters.” Developer B mentioned
that “There are no one size fits all, everyone’s affordability is different due to each individuals
differences such as their capacity, household, knowledge and the most important thing value
proposition.” This statement also supported by Developer C that “Due to the variety of the
affordable housing schemes launched (in terms of pricing, type/size and locality) in the current
market for Klang Valley areas, we are of the opinion that we cannot have the perception of One-
size-fits-all as it is very much depending on the target group or buyers and the location of each
affordable housing development scheme as each scheme involved will serve its own purpose,
functionality and level of resource involvements.” However, in Klang Valley area, the industry
players have a common consensus of the definition of affordable housing which is below the
price of RM400,000 and with minimum size of 700 square foot, such as the housing programme
of “RUMAWIP, PRIMA, Residensi Selangorku” (Architect) as per introduced by government
“to help first time home buyer to purchase their first property at a reasonable price” (Developer
E). On the other hand, the participant from Ministry of Housing and Local Government
(Participant 7) is still claimed that this is not affordable, it is “a failure. The price range is still
very high. The location is not suitable for the B40.”

Generally, developers are not interested in building affordable housing, Participant 7 concluded
the reason as “not profitable.” “Developers are in the business of doing business ie. Figures
minded. If the mathematics doesn’t work and affect the financial stability, it is a question of
survival and not whether a matter of social consciousness or one’s likening or not.” Said
Developer A. Developer C told that “generally no many developers are keen to involve in the
affordable housing as it is not profitable venture, except such required affordable housing
scheme is mandatory imposed by the local authorities during the approving processes. Some of
the affordable housing development is incurring losses totally whereby the developers involved
may not be able to re-coupe their development expenditures. Hence, in certain circumstances it
needs to be co-exist and developed together with other free-cost (non-fixed or controlled priced
residential property) in order to shoulder and share the burden of the costs of these affordable
housing schemes.” We unable to deny that there are still developers developing affordable
housing, “There are developers interested in developing affordable housing. Developers can get
leniency from authority i.e. density, development charges, etc.” said Developer D. With the
density, there is still some profit can be generated. Developer E explained that “It will help to
stimulate the economy of the property market.” Developer D describe the scenario of affordable
housing as “Meantime, developers like doing Corporate Social Responsibility (CSR) which can
play a role in helping local residents to own houses in line with the government’s agenda.”

There are many affordable housing in the market. Developer A told that “too many programmes,
all eyeing same pool of target customers but are mooted under different agencies/authorities and
under the banner of different programme names, for example PPAM, SaSAR, RUMAWIP,
Rumah Selangorku, etc.” Developer B further explained, “To be precised shall be governmental
compliance policy scheme property development, in Malaysia due to the political situations there
are quite a number of such scheme being introduced for whatever reasons being good or bad, in
view of such in fact it disrupts the stability and the flow of the property market.” The
implementation of affordable housing programme is complicated and it will create confusion to
the public as different agencies has different criteria and requirement. At the current situation,
the affordable housing programme is still not up to satisfaction and not reach the target set by the
government. Participant 7 claimed that the current affordable housing is “A mismatch. Those
with a higher purchasing capacity are buying the affordable homes and depriving the real buyer
who needs it.” “60% - 70% of people aim for affordable housing, due to the difficulty on loan
application and bad economy.” (Architect) However, the real buyers may not have the ability to
afford a house even it is considered as affordable, it is because “growth in house prices surpass
growth in household income” as per stated by Developer D, although “the supply of affordable
housing is slightly higher than the current demand as the sales of affordable housing shown a
decline trend.” (Developer E) In the point of view of developer, Developer C concluded the the
current market scenario of affordable housing is “Some of the affordable housing schemes have
received well responds and the developers are able to successfully fully sold the launched
projects. However, due to the locality and the pricing, the developers may face the hard time in
selling off the launched units and facing the slow take-up rates.” Affordable houses still available
in the housing market, there is still a demand of affordable housing in the market. However, the
low-income community still unable to buy a house as there is a mismatch of household income
and housing price. At the same time, people with better financial capacity are also buying
affordable housing for investment to get better financial return since the economy is bad now.

4.2 Challenges faced by developers

There are a lot of issues faced by developers in order to begin an affordable housing project.
Commonly to get a land at good location with reasonable price is typically hard. Subsequently,
cost is the major issue. Developer C pointed the 4 aspects of the challenges of a developer
including to find a suitable location that “attached to areas with easy accessibility to public
transportation like bus, MRT/LRT/KTM, e-hailing and taxi services, well connected to highway
and major trunk road to city/urban centres, etc. and within the near vicinity of 3km-5km having
the school or education institute and general public amenities such as retail shops or commercial
centres, clinic, hospital and medical centres as well as the green space etc.”, government policy
which require improvements from time to time in the urban planning, design and development,
financial muscle of the developers and the delay in delivery. As such, these aspects which
involved policy and cost of developers will determine the successfulness of affordable housing
project and business sustainability of developers.

4.2.1 Transaction cost

Developers are struggling with their affordable housing projects delivery especially with the
Covid-19 pandemic when there are shortage of labours and materials issues. Developer E
claimed that “the increased of material cost and shortage of skilled construction workers in
recent few years due to Covid-19” is their main challenge. He further described that “Developers
are struggling to deliver the affordable housing with low profit margin.” It is all about cost as per
Developer B said, “Everything related to cost, no matter in reference to governmental
compliance policy scheme property or the open market property development, the pace of rising
cost is not equivalent the income which giving general public the wrong perception of value
proposition for a property.” And what Developer B mentioned has been supported by Developer
D that “high expectation from all purchasers.” Developer C raised it concern from the financial
issue of developers that “The affordable housing schemes may require a huge capital outlay
upfront and the return and risk are unknown to most of the developers. Without the strong
cashflow backing from the developer concerned, the project/schemes will tend to fail especially
if the sales performance is not catching up as expected/planned. Furthermore, no many banking
institutions in town is keen to provide the sufficient loan facilities to the interested developers
because of the lenders generally perceived that this venture is not profitable and the image of the
banking group on the concept of “affordable housing scheme”.” The cost issue also occurred
when there is slow sales conversion rate. Developer A view the issue from the purchaser’s
borrowing situation that “high loan dropped out rates as such slow down sales conversion. The
rate ranges from 30% to 50%.” The root cause of the issue will go back to the mismatch between
housing price and household income, “increase in house prices over growth in household income
will cause buying power drop” (Developer D).

To begin one development project, developers are forced to fork up millions in Ringgit in order
to get the project to be approved to start. This capital may not able to roll back if the units are not
selling well. At the same time, there are still some additional transaction cost. Developer E gave
us some examples of these transaction cost which including “authority contribution cost,
increasing material cost, increasing labour cost and increasing land cost.” Architect has added in
that the transaction cost shall also include the period of getting approval, “Approvals and permit
application getting more difficult.” Developer C added that the transaction cost including
statutory construction or payment such as development charges, sewerage fund, water
contribution cost and electricity levies etc; local authorities processing fees and license fees,
infrastructural enhancement or contribution to upgrading existing school or build a new school as
well as green and environmental compliance related cost including landscaping design and
implementation. He also mentioned that the recent 2-year Covid 19 pandemic had seriously
affected the physical progress of most of the property development projects and construction
activities, the affordable housing scheme is further impaired due to the nature of it low return
which has indirectly tighten the cash flow position of developers. Delay in delivery has further
increased the risk of developers. Therefore, most of the projects and the contractors involved are
asking for extension of time for completing the construction works cum with an increased in
project overheads situation especially during the pandemic era. Developer A view the transaction
cost from the processing time of getting approval and the compliances being enforced,
“Affordable housing projects are just like any other residential development projects and are
required to undergo the same planning approval processes and comply to the basic project
specifications set forth by the relevant agencies, thus cost components are indifferent and quality
of finishes are not incompatible to others. It requires almost the same cost to build a non-
affordable unit. Maybe certain compliance costs such as development charges will not be
imposed or being granted at discounted rate but there “preferential rate” is not granted
automatically. Developers have to go through round and round of appeal and this lengthen the
planning approval process.” Furthermore, due to government requirement, “The developer need
to build homes that have good accessibility. They have to work together with the Local Council
and build the necessary infrastructure.” (Participant 7) Thus, developers shall consider the
processing period of getting license and permits approvals, contribution cost, increasing of
material and labour cost, infrastructure cost and many unforeseen costs into their cost. This is
basically added the housing cost and make housing not profitable to developers. In this case,
since the cost of building is same with the non-affordable housing, developers would prefer to
develop a housing project with profit in order to sustain their business.

The transaction cost is absolutely could affect the housing price just like what Developer B
claimed, “It’s a simple equation. Every single RM save can be lesser in lost, improve in a
marginalized profit and in return to the purchaser having a lower price or higher quality
property.” This is supported by other developers that “Transaction cost can be increasing with
current situation. Due to lack of the materials or logistic or manpower provided by third party, all
the price incurred will be imposed to the end use (Developer D).” Developer C shared the
reasons how transaction cost make difference in housing price. He explained “the development
charges especially in urban and sub-urban areas of the Klang Valley/Greater KL areas, imposed
by the local authorities, is getting higher and higher, plus the escalated common infra structure
costs to enhance the connectivity of the projects to the surrounding developments and existing
housing schemes.” Another reason “the compliance costs arise such as green element
(environmental issues) rules and regulations imposed on the property developers” being raised
by Developer C is also worth to notice as the expenditures will certainly increase the
development costs hence leave the developers concerned with no choice but to increase the
selling prices accordingly so transfer the cost burden to the property buyers. “Housing price will
increase taking into consideration of the additional cost (Developer E).”

Architect has a thought that “very subject to cash flow planning.” However, it is also not easy for
a developer to get term loan or bridging loan to start a new project. There is also financial cost
will be imposed to the project cost as well. Developers need to find their way in managing the
transaction cost while building affordable housing. For immediate effect, developers are
monitoring their project cost and marginate the project profit carefully. As Developer E said, “by
calling tender to compare pricing and award to most cost competitive contractor that comply
technically and to reduce operational cost by adopting industrialised building system (IBS).” The
same opinion given by Developer D, “Negotiation with all relevant parties to make sure the
construction to be completed accordingly.” As what concluded by Developer C, “as far as the
developer is concerned, all the building materials and construction costs are required to properly
planned, budgeted and approved by the Management of the Company by setting up the
budgetary control template whereby the actual expenditures incurred must be measured against
the budgeted costs, in order to avoid the potential cost overrun. The contract awarded to main
contractors or sub-contractors needed to be effectively and efficiently monitored throughout the
entire project implementation period. Hence, the quality, financial muscle and good project track
records of these contractors or sub-contractors which are the key success factor must be properly
screened thru prior to the project award and appointment being granted.” Furthermore,
Developer A is using cross-subsidized method that “The affordable component is cross-
subsidized by other uncontrollable price components within the same development project.”
Developers are trying hard to marginate their profit margin even they are participating in the
affordable housing development project. Profit is their business objective; thus, they need to be
leveraged from committing in delivery of affordable housing.

4.2.2. Land cost

Developers are facing problems when they acquire land for development. It has to go through a
“long and tedious process (Developer E).” There are many issues “from compliance to
unforeseen circumstances (Developer B).” Developer A provides us a scenario that “Alienation
of government land is hard to come by and if no alienation of land is granted, a very lengthy
documentation process to formalize the collaboration before planning approval can be submitted.
Flip-flopping of policy makers and bureaucratic procedures resulting in consumption of time and
making things not agile.” Architect further described that under certain scenario “need certain
statement by certain authority and contribution needed for the infrastructure works for public.”
This has lengthened the processing period as well as money has to be spent in order to get a land.
A step further, Developer C categorized the major issues as 3 parts: first is during the conversion
of land use either from agriculture land or industrial land to residential land which may take quite
some time to get approval. Second is the plot ration allowed is always lower that what
developers could afford to build for affordable housing. Developers would need to request for
higher density in order to have more units for sales to making the affordable housing scheme to
be more economically and commercially viable in terms of recoupment of development costs
and to ease the cash flow requirements. Thirdly is the pricing and marketability issues of the
free-cost development units that co-existing alongside with the affordable housing development
has not been properly addressed and it worth putting proper planning efforts and due
consideration.

Generally, participants agreed with the statement that land cost in Klang Valley is exceedingly
high. Of course, there are still some differences between one and another area in Klang Valley
just like what Developer B described “Klang Valley is huge and the price variance is also huge
from one end to the others. It’s a simple economic methodology of “demand and supply”.” This
further confirmed by Developer D with example that housing price of “Residensi Wilayah (KL)
housing is more higher than Rumah Selangorku (Selangor).” The cost of land become higher not
only because of the price of land itself, but it also involved many aspects. Developer C gave us
an example “There were some land acquisitions transactions via purchasing the plots of land
from the local authorities which the land costs were more than the threshold of RM100.00 per
square foot, to name a few here, in Setapak and Bukit Jalil of Kuala Lumpur.” With the higher
land price, there is no way for developer to reduce the housing price. Developer A told us that
“Scarcity of land within Klang Valley renders high land premium and high ratio of affordable
components being imposed for alienated land thus making the cross-subsidy model by other
uncontrolled price components is increasingly challenging.” Architect supporting with the
statement that “each development will automatically mix in some affordable housing which
make the project less feasible.” Developers are looking for cheaper land out of city center or
prime area in order to meet the requirement of affordable component at the same time generate
profit to the company. As what participant 7 suggested, it “can be avoided by not overcrowding
the city centre and build sister cities around Klang valley with a good transport system.”

The high land cost is inevitable if a developer focus on the development in Klang Valley area.
Since the cost of land is major part of the cost, developers are looking for efficient and effective
way in saving cost from other elements. For example, Developer E mentioned that “To save cost
on other aspect such as material, to reduce material wastage through proper planning.” To put it
in details, Developer C explained that “Some innovative developer will co-operate with the
consultant teams to work out for more practical design and substitution of building materials
(“value engineering” or “replacement cost method”) to try to lower down the overall
development costs to achieve optimum construction cost of the units but at the meantime still
maintain the quality and functionality of the property/product.” This is the easiest way to
“marginalized profit” (Developer B). Saving cost is one of the methods, but open new source of
income is equally crucial. Developer A using the strategy of “passing back to components which
cross-subsize the affordable components.” And this is agreed by Developer D that “mix free cost
component and affordable housing in a development. From this scenario, developer will get
incentives from the government, i.e reduce development charges, approval cost, increase density
and etc.” Architect also proposed the strategy of “request for development charges waiver or
incentive.” In general, Developer C indicate that developers which implementing affordable
housing projects usually will increase higher density from the local authorities, such as increase
of density from 400 pax per acre (“OSE”) to 1,000 OSE, in order to allow the developer
concerned to build more units to achieve the reality of “economy of scale” to improve its Gross
Development Value (“GDV”) and reducing the average cost practically. At the same time,
developers also request for lower rate of the development charges to be imposed on affordable
housing schemes as compared to the rates charged by the approving authorities for those free-
cost development. For non-government land, participant 7 proposed to have joint venture
between the land owner and developer in order to reduce the cost of land. It can be done by profit
sharing instead of developer paying for the high land price.

4.2.3 Housing policy and scheme

Different government authorities or agencies may have their own set of housing scheme and
concept in terms of pricing, design, size, location etc. Some may inconsistent to each other hence
the developer or consultant team will need to familiar with their planning guidelines in the
respective project areas concerned. The key selling point of the affordable housing scheme is to
assist those lower income group mostly young generation living in Klang Valley areas to own a
unit of apartment or house in Klang Valley. In return, there is a moratorium of 5-year or 10-year
holding period stipulated in the Sales and Purchase Agreement which the owner is not allowed to
sell or transfer the unit to new buyer without the government permission. As such, Developer C
raise his concern that this term may block some potential buyers from buying an affordable
housing unit, “This may deter some of the interested buyers from buying it as they are of the
opinion that they may need to forgone the better job prospect in other States or elsewhere. This
immobility factor may causing lessen interest of the house buyers especially those in the age
range of 25 – 40 years whom may seek job opportunity elsewhere then consider to sell off
current owned affordable unit and then to buy or own another property in the working place for
convenient stakes.”

Apart from that, Developer C continue to point out other policies that impact to the developers.
The developers are required to enhance the domestic infrastructure surrounding areas, as well as
to contribute part of the project land to build the new school building or to renovate and extend
the existing school building and education facilities of the affected local government schools.
These impositions will further provide challenging impact to the developers concerned and
causing heavy development cost and triggering cash flow problem to be solved. The current
government policy and authority’s guideline have constraints to the developers interest in
participate in affordable housing development. Developer B commented that policy should be
curated according to the intentions, need and ideology and not generalized. Moreover, under
certain circumstances, the pre-approved prices by the local authorities are too low and
unreasonable as compared to the costing required for standard and functionality of that product
or unit. The developer is facing the risk of suffering the huge losses then they will inevitably
reduce the budget allocation on materials and the labour costs to resolve their financials aspects
and this will affect the quality of the final completed units. As such, developers will receive
lengthy complaints from the house buyers. Participant 7 who services in government body has
agreed with the developers that location and pricing policies are the major concern in building
affordable housing. The market will react to a project based on its location and pricing, but at the
same time, the costing of developers should also take in consideration in order to make
affordable housing scheme successful.

Besides, there is some gap in the government policies. Some of the guideline and policies has not
been completed or enhanced according to the current situation. For example, government has not
provided developers a clear guideline on how to resolve the current overhang units that most
likely located at the sub-urban or less accessibility area just like what Developer A concerned. A
clear and pragmatic way to deal with unsold units from the government or agencies is urgent to
developers in order to generate cash flow. With all the data given by participants above, the
current government policies are still not fully cover all the problems. Particularly, there is no
standard and complete guideline focus on affordable housing released by government or
agencies. A set of general guidelines apply to all kind of products and projects which consider
unfair to developers who participate affordable housing project.

The constraints of the current policy and scheme on affordable housing is there are too many
different standards according to different programmes managed by different agencies. Developer
A claimed that there are too many programmes and not being administered under a unified
platform. Developer D posted the same view that “too many different policies and scheme on
affordable housing introduced by different agencies with different eligible criteria.” With the
current constraints, developers have proposed their ideas to resolve the current issues. Developer
D suggested to coordinate among all agencies to establish a single entity which easier for all
industries players to follow the same guidelines and standards. On the other hand, from the point
of view of the architect, adjust selling price, spec of furnishing and reduce size of the units could
help the developers to minimize their challenges. This statement also agreed by Developer D
who proposed to minimize the size so could minimum the price of affordable housing. To make
the policies more practical, Developer B proposed that policy makers shall involve stakeholders
in their policy drafting. In certain circumstance, to have open discussion and to allow flexibility
in the approval processes by taking into consideration or feedback from the developers and the
engaged consultant teams will assist to make the implementation of the affordable house projects
more successful and meaningful to those needful ones. Developer C given a more strategic idea
that the government or local authorities and agencies involved may need to conduct the detailed
study on the demography be it for current and future plan so that the prescribed affordable
housing schemes to be undertaken by the developers will be better planned and suitable to cater
the demand and supply of the particular areas concerned as different areas and region,
particularly urban versus sub-urban versus rural areas that may require different concepts and
toiler-made housing schemes to really benefit the target low-medium income groups. Apart of
this, participant 7 found that it shouldn’t be any political power involved in the application
process. This is to ensure all the process running according to the standard operation procedure
and policies with no exceptional case.
4.2.4 Role of government or agencies

The participants have agreed that the change of government has a great impact to the developers
and housing policies. There is no doubt that “no matter as a purchaser, residents of the country or
anyone in business, of course there is impact even a slightest movement from the government
and the policy makers (Developer B).” One step further, Developer D explained that “Every
appointed government has its own policies. Once they govern the country, they will supersede
earlier government policies. Hence, some approved projects had to be stopped, postponed or
even cancelled. It will affect to development cost.” To certain extent, these changes will impact
the property development industry and its market sentiment. Developer C quoted a few of these
experiences here. “When there is change in the local authorities’ chieftains, there will be new
planning guidelines and regulatory aspects to be adopted by the developers prior to the granting
of development approval for the said projects. This may result in a re-submission of the
development order application and plans to incorporate the necessary amendments or revisions.
This may require another round of OSC meeting(s) and official approval of mayor. The
processes normally will take another 2 to 3 months for each round of revision or resubmission
and exco meeting until final approval is granted. Some of the proposed developments had
submitted for master planning approval and technical clearance, but due to Covid 19 pandemic
leading to the lock down and implementing the rationalisation of workforces in office to curb the
Covid cases which had already much affected those application submission under DBKL Master
Plan 2020 4th changes which supposed due to gazette in 2nd half of 2022 and timeline has been
delayed for months. Unfortunately, there is a change in the Central Government administration
upon the completion of the recent General Election 15 conducted in Nov’22 and therefore the
government approval and gazette will be further be delay to 2023 as no authority meetings being
carried out during the period of Oct till Nov’22.” From the insight provided by the participants, it
is evidently that change of government will create serious impact to the housing policies and this
will further impact to the developers’ business. As such, participant 7 told that “developers still
find a way to avoid following housing policies.”

The government and agencies have important role to encourage developers participate in the
affordable housing programme. For example, government and authorities can reduce the current
practice of bureaucratic red tape and having one unified platform to deal with various
programme and improvise policies (Developer A). Architect also agreed with this and
highlighted that to make the process of application especially on apply development charges
incentive is critically crucial to make a development success. Simplified the process of getting
approval will shorten the waiting period to kick on one development and this indirectly help the
developer in saving cost and further encourage developers to join together with the government
to achieve the objective of housing. Developer D shared that “Government can help to simplify
or improve existing procedure on approval stage and introduce developer-friendly policies. In
additional, the government also can introduce new incentive to attract housing developers.”
Beyond to this, Developer E has raised the importance of education and awareness to public.
“Government or agencies should take initiative to provide education and awareness to public on
the affordable housing scheme as well as provide encouragement to public in the form of
incentives and rebates to stimulate the interest of public.” The interest of public could help to
release the stress of low sales conversion and low loan approval rate issues faced by developers.

The government units involved in the affordable housing scheme must play the key role as the
regulatory body to push for the implementation of this type of housing scheme while at the same
time adopting a more “approachable and friendly approach” for guiding the property
development industry so open out the discussion with them whenever the developers concerned
are experiencing difficult issue and when the need arises in order to create a “win-win” situation
for the government, the industry players and the potential buyers of the said housing schemes.
There are 3 aspects that government or agencies could support developers in develop affordable
housing raised by Developer C: 1) to release those available vacant “land plot” which is suitable
for developing the affordable housing schemes so that the demand and supply are properly
matched; 2) to provide financial incentive to those developers who is keen on implementing the
said housing scheme by lowering down the transaction costs such as processing fees, statutory
contribution payments, hence may reducing the overall development cost of the said housing
schemes; and 3) to expedite the approving processes involving the affordable housing schemes
so that the turnaround time for delivering to the buyers will be in a timely and efficient manner;
indirectly reducing the developer’s administrative or project overhead costs. The proposals raised
by Developer C are make sense as it is solving the developers’ challenges from the root cause
which are policies and cost that developers concerned. To be more specific, participants have
provided their ideas that certain practices can be changed and there are more effort can be made
by the government or authorities such as revise the density of a development, reduce the
submission fee and development charges, provide tax incentive and special funding for
developers who participate in affordable housing scheme, etc. This is the question that how shall
the relevant authority and the relevant stakeholders work in consensus towards the “noble
intentions” (Developer B).

4.3 Conclusion

From the data collected, participant 7 which from the government body denied that the
government or agencies are influencing the cost of housing. However, the rest of the industry
players agreed that in certain way or overall, the government or agencies are influencing the cost
of housing. The transaction cost and land cost incurred are part of the cost of development
besides of building materials and labour costs. If the transaction cost unable to be reduced and
there are no special incentives or funding to developers, it is very hard for developer to work
together with the government to obtain the housing objective. Apart from that, the government or
agencies also control the selling price of affordable housing which lead to a challenge to
developers. Developer C mentioned, “For this moment, the government authorities and agencies
are the key men in determining the pricing of affordable housing units by taking into
consideration of the design concept, locality, size and functionality as well as the final factor
most concerned by the developers, i.e., the fixing of the pricing of the units for developer
concerned to market and sales.” Developer A added how can government help in minimize the
housing cost in order to get housing price lower, “Free land cost, free development charges, free
utility contribution, government full subsidy for the difference between market price and the
controlled price cap apply to each affordable housing schemes.”

The tie between the government and private sector is very important. Developer E gave us an
example of the cooperation model that government can provide incentive or rebates for private
sector while private sector can provide technology and innovation which will help the
operational efficiency and reduce operating cost. With the contribution of both parties, housing
can be completed and delivered on time. Without the collaboration between the government and
the market players, i.e., the property developers, the implementation of affordable housing
schemes may not be easily successful as the efforts required for right town planning and design,
lengthy time and huge financial resources and the risk needed to be properly taking into account
for this nationally planned and demanded “affordable housing schemes” mooted by our
government to achieve its goals to benefit the lower to medium income groups in the long run.

5.0 Conclusion

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