This is the third in a series of six fortnightly articles by Real Estate and Housing Developers Association of Malaysia. 

A LARGE part of the housing delivery process revolves around the provision of infrastructure. 

In most countries, this is undertaken by the government as part of its mandate. However, as nations and economies progress and modernise, the trend has been for governments to privatise the development and provision of infrastructure to the private sector.  

This approach is favoured as it is perceived that greater efficiency and productivity can be achieved via the privatisation route. 

In Malaysia, this has also been the path the nation has chosen. From essential services such as electricity, water, sewerage, to solid waste management and telecommunications, the modus operandi has been to privatise these services.  

Indeed, there has been notable success in this approach. We have seen Malaysia grow phenomenally in the last couple of decades, thanks to the participation of the private sector, which has brought much energy and enterprise to the development of greenfield areas. 

Yet, even as we extol the virtues and benefits of privatisation, we should be mindful that there is a price to be paid. One sector that feels the impact most directly is the housing development industry. 

Housing developers are subject to various requirements to provide infrastructure for roads and drainage, electricity and water supply, sewage treatment facilities, and telecommunications services. The cost for providing such infrastructure is imputed into the cost of the housing development and embedded in the house price. 

House buyers are in fact already paying, via developers, a host of fees and charges to utilities service providers, towards development of a built environment that is well complemented and equipped with the necessary facilities for safe, healthy and comfortable living.  

But increasingly, the pressure being exerted on developers to shoulder more infrastructure works and to comply with higher standards by the privatised utilities providers has become unbearable.  

There are two trends in infrastructure funding – one is the growth of levies and charges on new housing development to fund an ever-expanding range of infrastructure and, second, a move to charge developers up-front for infrastructure development as in capital contributions.  

For example, some 10 years ago, when Indah Water Konsortium (IWK) wanted to build central treatment plants for sewage treatment, it was proposed that a capital contribution charge of 1.65% of the house price be imposed on new developments.  

On top of that, developers would still be required to build treatment plants within their own developments in the interim. This would have translated into substantial additional costs to house buyers of these new projects (around RM2,500 for an average house priced at RM150,000). Fortunately, after many rounds of representations and discussions, the Government suspended the proposal.  

A more recent example was the proposal to require developers to provide infrastructure for telecommunications services in new housing areas to help the nation leapfrog into the digital era. It was felt that without such infrastructure, access to broadband and the nation’s IT competitiveness would be greatly hampered.  

Again, it was conveniently suggested that the responsibility for additional external trunking infrastructure be borne by the developer. Even though it is the house buyer who ends up picking up the additional tab, the issue of fairness and equity must be considered. 

Developers have argued that they are not against higher standards. But such requirements must be justified and equitably imposed.  

In a buoyant market, there may be more flexibility to absorb such increased costs, but the ability to pass on these added costs may not hold in less robust times. Even so, the principle of payment involved here is quite unfair.  

Purchasers of new homes are increasingly bearing the lion’s share of the cost of funding community-wide urban infrastructure that is enjoyed by all, something that was previously financed by state and local governments and paid for by the broader tax-paying community.  

Home owners in older localities have historically had this external infrastructure provided by the Government, so it is rather unjust to expect new generations of home buyers to have to pay when past generations of home owners did not have to. 

Part of the problem is that planning for infrastructure is typically piecemeal and tends to be agency-based rather than from a government master planned perspective. It is also a fact that there are no consistent principles underpinning infrastructure charges in the various states and by the various utilities service providers.  

Consideration should also be given to rationalising local government development contributions with the aim of reducing redundant payments. There should also be accountability for proper and timely allocation of funds raised for infrastructure provision.  

There is an urgent need for rationalisation of policies and requirements that cause undue financing impositions on the house buyer, especially against the backdrop of private utilities companies reporting higher profits.  

Each charge or levy may seem small on its own, but taken together, all these add up to adversely impact accessibility to home ownership.  

All stakeholders involved in providing infrastructure and utilities must work together to improve the efficiency in the delivery process without unduly burdening the new house buyer.