Contributed by AREA Management Sdn Bhd executive chairman Datuk Stewart Labrooy
Prime Minister Tun Dr. Mahathir Mohamad , DPM Datuk Seri Wan Azizah and Finance Minister Lim Guan Eng arriving for table the Budget 2019 at Parliament
AZHAR MAHFOF/The Star (2/11/2018)
Come senators, congressmen, please heed the call
Don’t stand in the doorway, don’t block up the hall
For he that gets hurt will be he who has stalled
The battle outside ragin’
Will soon shake your windows and rattle your walls
For the times they are a-changin’
- Bob Dylan 1964
Written in 1963 by Poet Laureate Bob Dylan in response to a rising tide of dissent to the Vietnam War, never has an anthem of the 60’s been more relevant than today. More than 50 years after Dylan wrote it, “The Times They Are a-Changin” vibrates with new meaning.
Perhaps because the song itself doesn’t look to the past — rather, it’s an anthem of hope for a future where change is always possible.
The 9th of May this year saw a change in Malaysia; the likes of which the world has not seen — a peaceful transition of government from a regime that ruled Malaysia for 60 years to a new untested government, albeit helmed by the experienced Tun Dr Mahathir. The lines of the song speak of the high expectations the Rakyat of Malaysia has of their newly installed leaders.
The new government has been presented with a laundry list of issues, and by large, there appears to be a concerted effort to address these problems.
Topping the list is the growing inequality between the very rich and the poor in this country. It’s a dilemma not unique to Malaysia but is manifesting itself across all developed and developing nations in the world. Affordable housing seems to have become a lightning rod amongst burning social issues and much has been said about it in the press over the past months.
To date, two new innovative schemes have been put forward by The EdgeProp Sdn Bhd and The Real Estate and Housing Developers’ Association (Rehda).
On Nov 4, the Prime Minister with Edge Media Group chairman Datuk Tong Kooi Ong launched FundMyHome. Under the scheme, homebuyers will provide 20% of the property price. Maybank and CIMB as participating financial institutions will be contributing the remaining balance of 80%.
Currently, the selection of properties covers the one priced between RM300,000 and RM500,000. After five years, the homeowner has a choice to either sell the property or refinance the 80%. It will be interesting to see how successful the take-up rate will be.
The second scheme mooted by Rehda proposed a residential real estate investment trust (REIT) to provide public rental housing for the bottom 40 (B40) income group as an alternative solution to home ownership.
The association’s research arm, Rehda Institute, disclosed that it is in the process of formalising the proposal with the assistance of investment banks and accountants.
“Once we have formalised it, then we will be making submissions to the two ministries (housing and local government, and finance).
“If they agree, the next step is to go to the Securities Commission (SC),” said Rehda Institute chairman Datuk Jeffrey Ng during the Rehda Budget 2019 Commentary recently.
Khazanah Research Institute director Dr Suraya Ismail, who spoke at the Rehda event concurred with the need for more rental housing.
“I’m wondering who can afford the 20% down payment? Household debt is very high. We should encourage those who can’t afford home ownership to rent instead. Rent first. When they have enough income then they can consider buying,” she said.
I fully concur with what Dr Suraya Ismail said. I believe that the issue today is not about affordable housing but affordable rents. We must realise that those in the B40 segment simply can’t afford to buy a home as most of them essentially live from paycheck to paycheck.
Many of them do not have enough savings to cover two weeks’ worth of expenses. So here is my take of how we can work out a solution, drawing on ideas from both the schemes:
We need to develop a national policy for council housing and tie it to an unlisted Residential REIT model. The initial subscribers to the equity for the unlisted REIT will be the pension funds, institutional and insurance funds.
A REIT Manager will be appointed, and they will set about to purchase the unsold units in the market priced RM 500,000 and below albeit with steep discounts to make the rental model work. This will assist the developers in recycling their capital and unlocking value.
These units I believe will largely consist of high-rise apartments in the RM 300,000 to RM500,000 range, and I don’t think that there will be many landed properties involved.
The key to the idea is to get the state governments and local councils on board. The local councils will be tasked to identify candidates for the rental scheme, and the successful candidates will pay for a subsidised rent that they can afford. Each council will then enter a master tenancy with the REIT which guarantees it a yield on its cost.
In short, the councils will have to undertake the payment to the REIT for rents collected plus the shortfall arising from the subsidy.
The big question arises — who underwrites the difference? I believe it should rest with the state government and local councils, who should be allowed to raise state and council taxes to cover the shortfall.
The scheme should then be self-financing. I believe that communities should take responsibility for the poor in their communities and play a part in nation building.
By having a REIT Manager managing the assets, the question of poor maintenance does not arise. The manager will ensure that the assets in the portfolio will be well cared for and its value preserved. Costs for maintaining the assets will be paid for by the state government or local councils via government grants.
The REIT upon stabilisation can be listed as a new asset class. It will have its fair share of sceptics. The government could incentivise unit holders (in what is essentially a social REIT) with a tax holiday on distributed income derived. It would put less pressure on the manager to get higher yields initially (REIT income is currently taxed at 10% for individuals and 25% for corporates).
Our current government appears to be looking at innovative solutions — their announcement of the proposed Airport REIT was the first of its kind and well received. Perhaps the residential REIT will be another groundbreaking solution for a lingering problem that could be adopted around the world.
Yes indeed — The times they are a changing!
About the Contributor
Datuk Stewart LaBrooy is the Executive Chairman of AREA Management Sdn Bhd, a subsidiary of AREA Advisors Pte Ltd (AREA), an appointment he has taken since his retirement as CEO and Executive Director of Axis REIT Managers Bhd on 31 December 2015. AXIS-REIT is the first Shariah-compliant industry REIT in the world and one of the first REITs to be listed on Bursa Malaysia. He is also the founding chairman of the Malaysian REIT Managers Association (MRMA) and is currently an Honorary Secretary of the Association. Dato’ LaBrooy is also a board member of the Asia Pacific Real Estate Association.
With a career spanning over 40 years in the industrial sector, he has spent well over a decade since 2005 in heading Axis-REIT and establishing REITs as an essential component of the capital markets. He is a prominent speaker on the subject of real estate investment and has presented numerous papers at conferences globally.
He holds a Bachelor of Engineering (Hons) degree and a Post Graduate Diploma in Business Studies from the University of Sheffield and is a member of the Institute of Engineers, Malaysia.
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