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SHAH ALAM – Developers should be prepared to reduce their profit margins to clear unsold properties instead of relying heavily on government incentives to stimulate sales, says Malaysian Institute of Property and Facility Managers (MIPFM) president Ishak Ismail.
Ishak, who is also Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVAEP) Property Managers Committee chairman, said developers needed to take greater responsibility for ensuring their properties could be sold.
He said unsold properties were essentially products that the market had rejected, meaning developers should consider lowering prices in the same way businesses would reduce the price of goods that remained unsold for too long.
“If the developer initially has a 30 per cent margin, reduce it to 20 per cent. If it still does not sell, reduce it to 15 per cent, then 10 per cent. At least the property can be sold,” he told Sinar Daily.
Ishak said developers could also consider reducing prices only for the unsold portion of a project rather than discounting the entire development.
He said a developer with a RM500 million gross development value (GDV) and a 20 per cent profit margin would still make RM80 million if it absorbed RM20 million worth of unsold stock.
“So instead of giving a discount on the entire project, perhaps they could reduce the price of that unsold portion and absorb part of the loss. The market can probably absorb that,” he added.
However, Ishak acknowledged that lower prices could also cause some buyers to delay their purchases as they waited for prices to fall further.
He said this was particularly complicated for low- and low-middle-income buyers looking at homes priced at RM300,000 and below, as existing homeowners might need to sell their current properties before purchasing another home.
Ishak said government initiatives such as stamp duty exemptions and home ownership campaigns could help stimulate demand, but such measures could not be relied on indefinitely.
He said the Government needed to find ways to unlock the value tied up in unsold properties, which he estimated at around RM18 billion.
“If we currently have around RM18 billion worth of unsold stock and we do nothing about it, that value will remain stuck in the economy. We have to find a way to unlock that value,” he said.
Ishak also backed a shift towards the build-and-sell model, saying the approach could reduce risks for buyers and encourage greater discipline among developers.
He said under the existing sell-and-build model, developers could sell properties before completion and use proceeds and bank financing to fund construction, allowing them to take on greater risks.
Under a build-and-sell system, developers would have to have sufficient funds to complete properties before selling them, meaning they would need greater financial strength and confidence in market demand.
“I think we will start to see smaller developers consolidating, while only financially stronger and more established developers remain in the market,” he said.
Ishak said this could ultimately strengthen the industry by ensuring developers entering the market had the financial capacity and proven track record to deliver large-scale projects.
He said buyers would also benefit because they could see the completed property before deciding whether to purchase it.
“Once this becomes common practice, I think we will be able to control prices better because buyers can actually see the completed property. If they like it, they buy it. If they do not, they can simply walk away,” he said.
Meanwhile, BOVAEP Estate Agency Practice Committee member Ethan Leong Yung Sen said the government should pay closer attention to the high proportion of overhang units priced below RM300,000.
He said some of these affordable properties could be located too far from city amenities and infrastructure, reducing their attractiveness despite their lower prices.
Ethan, who is also Malaysian Institute of Estate Agents (MIEA) vice-president, said the Government should also strengthen schemes aimed at helping first-time buyers, including 100 per cent financing initiatives.
He said other options such as rent-to-own schemes could be expanded to help people who had never owned a home overcome financing barriers.