Housing laws need review

09/10/2006 The Star

The second in a series of six fortnightly articles by Real Estate and Housing Developers Association of Malaysia

LAWS, regulations, guidelines and such are introduced to provide society with the necessary framework for maintaining law and order and for instilling equitable discipline for the larger good. As society evolves and progresses, the need for new regulatory provisions or revision of old ones to cater to changing times and circumstances will inevitably arise.

Looking at the housing industry in Malaysia, with all its warts and problems, one cannot help but wonder whether it is properly and adequately regulated. Every time a problem emerges, be it abandoned projects or poor quality workmanship or delayed delivery, the predictable reaction is for more regulations to be added.

Unfortunately, this predilection to heap more and more regulatory control upon the private sector seems to have been taken to new extremes. Increasingly, we are seeing, as a first resort, proposals for more punitive laws, including jail sentences for civil offences, and more arbitrary guidelines being imposed on private enterprises.

The perception that the housing industry is straining under the weight of too many regulations and guidelines is not far wrong.

Housing development in Malaysia is a process involving many stages of approvals and vetting by various authorities. The multiple vetting system generally incurs excessive costs and entails lengthy periods of waiting before final approval is obtained. Just listing all the laws, regulations and guidelines that these players have to comply with will more than fill up the space of this article.

Suffice to say the burden of regulatory compliance is a very onerous one for the housing industry. As unpalatable as it may be, every time new regulatory requirements are introduced, be they in the form of legislation or policy guidelines, there will be additional compliance costs. And it is the house buyers who end up footing the bill.

But are all these regulations and guidelines necessary, or have some become redundant? Have there been any efforts to review redundant laws and rationalise the regulatory framework? Should industry and house buyers continue to shoulder, painfully albeit unknowingly, the costs associated with redundant compliance requirements?

The issue of over-regulation is not confined to the housing industry in Malaysia. Even for more mature and efficient markets such as Australia, there are calls for reform to improve housing affordability. Studies undertaken by the Housing Industry of Australia estimate that between 20% and 35% of the price of a typical new home is a result of the indirect taxes being levied at different stages of the development process.

Although no specific study has been conducted on the cost impact of over-regulation in the Malaysian housing market, the Australian experience probably offers a good benchmark, especially when we have a system of quotas and discounts in the form of social engineering policies such as low cost housing policy and bumiputra quotas and discounts.

Developers often end up taking the rap as being the party guilty of excessive profiteering at the expense of the poor house buyer.

Rehda believes that for a sustainable housing market to develop, offering more affordable housing to house buyers, the regulatory environment must be improved.

First, a full and critical review of the major laws, regulations and guidelines governing the housing industry should be undertaken to assess their relevance and effectiveness. The expectation is that with fewer unnecessary rules, efficiency and productivity will improve and compliance costs will be reduced. This should in turn translate into lower prices for house buyers.

Second, enforcement efforts must be stepped up. Not enough has been done about bringing errant parties to book. Even based on existing provisions, more action can be taken against defaulters to send signals that misdeeds will not go unpunished.

Third, there must be continuing dialogue between key stakeholders in the housing value chain – regulators, developers and house buyers – to address the issue of over-regulation and its cost implications, especially on new house buyers, and more importantly to find new breakthroughs in making Malaysian housing more affordable, more accessible and more cost effective.