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Why Housing is an important income generator?

Looking at different Private facets such as: entrepreneurs and industries The general public i.e. individual person like you and me The governments; the federal, the state and local authorities

Gov emphasis in DEVELOPMENT OF HOUSING SECTOR (federal government)


Being measured in terms gross domestic product Being measured in terms employment Being measured in terms of impacts economically or socially especially taxes in terms of cooperate or individual taxes.

State Gov interest in housing sector


Catalyst to other development which lead to more taxes, levies etc Mass housing development would also drastically improved taxes on land Some states government e.g. SELANGOR and JOHOR esp. involve directly in housing development.

Local authority
Main incomes are quit rents and parking

THE PRIVATE SECTOR WILLINGNESS TO PARTICIPATE IN HOUSING SECTOR HOUSING IS THE MOST PROFITABLE SECTOR

EXPLAIN WHY THE GENERAL PUBLIC IS MOSTLY AFFECTED IN TWIST OF AN ECONOMIC CYCEL NEGATIVE OF POSITIVE
Based on the magnitude of investment in housing Based on the amount of saving on housing Based on the magnitude of mortgage involved Based on the financial expenditure link to housing

From an individual perspective Shelter and its vast interpretations Main Asset Safe but high return investment A good form of saving A highly acceptable form of collateral

From the Federal government perspective

Federal government An important income generator refer to GDP and KLSE company listing http//biz.thestar.com.my/marketwatch/ Corporate tax Personal income tax

From the State government perspective


Encourage housing development especially in a large scale. Why? Increase federal contribution to the state i.e. per head contribution Increase in land tax e.g. the conversion of agriculture to housing. Profitable venture and directly involve in its development such as Selangor and Johor Other taxes associated to development.

Perspective of private entrepreneurs


Extremely profitable venture take example shah alam. Almost 65% of company listed in KLSE related to housing directly or indirectly to housing sector. Especially properties, construction, banking and insurance, industries and especially plantation Most unrelated companies have interest in housing industries.

GROSS DOMESTIC PRODUCT Gross domestic product (GDP) refers to the market value of all goods and services produced within a country in a given period. It is often considered an indicator of a country's standard of living

In economics, deflation is a decrease in the general price level of goods and services.[1] Deflation occurs when the annual inflation rate falls below 0% (a negative inflation rate). inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[ inflation also reflects an erosion in the purchasing power of money a loss of real value in the internal medium of exchange and unit of account in the economy

Inflation's effects on an economy are various and can be simultaneously positive and negative Negative effects of inflation include a decrease in the real value of money and may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions)

A recession is a business cycle contraction, a general slowdown in economic activity.[ Recessions generally occur when there is a widespread drop in spending often following an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary such as increasing money supply, increasing government spending and decreasing taxation.

Boom-bust cycles come hand in hand with periods of thriving stock markets and rapid growth in real state development. The boom phase of the cycle is often associated with a rapid increase of gross domestic product (GDP), consumption and specially investment. Eg. Malaysia in 1987

Investment (both invisible and FDI) Employment Income Production and export Composite Index Lending policy liberalized Economic policy expansionary Full employment Inflation manageable (encourage lending) Public spending and consumption

The number of service employment in 000


4,500 4,000 3,500 2,976 3,000 2,500 2,000 1,500 1,000 500 0 1989 1,171 1,333 1,470 1,639 1,742 1,877 2,051 2,325 2,209 3,154 3,240 3,325 3,497 3,590 3,710 3,817

1990

1991

1992

1993

1994

1995

1996

1997

The Car Import (CKD).

300 250 200 150

3500

268.0
Quantity ('000) Value (RM'000)

3,043

3000 2500 2000 1500 1000 500 0

181.0 151.0 144.0 139.0 1,934 1,429

131.0 102.0 1,281 1,338

100 50 0

923

1,259

1998

1990

1991

1992

1993

1994

1995

Housing Loans (RM000).


25,000
21,009 21,721

20,000
16,639

19,469 18,055 12,203 11,588 9,589 14,508

19,853 16,741 16,640 14,041

15,000 10,000 5,000 0

14,479 12,995

8,143 3,365 4,289 4,963 6,039

6,467

7,322

7,570

2,671

Government Commercial Banks Finance Companies

1989

1990

1991

1992

1993

1994

1995

1996

KLSE TURNOVER In Terms of Volume and Value


Volume ('000) Value (RM'000)

400,000,000 300,000,000 200,000,000 100,000,000


1984 1985 1986 1987 1988 1989

1990

1991

1992

1993

1994

1995

Net Profits in

Chart 13: Net Profit and Earning Per Share of the Malayan Banking Bhd.
EPS in cents
1200 1000 800 600 400 12 200 38.0 0 1988 1889 1990 1991 1992 1993 1994 1995 1996 80.0 172.0 210.0 26 31 32 35 76 Net Profits EPS 56 864.0 644.0 391.0 261.0 94 100 90 1075.0 80 70 60 34 50 40 30 20 10 0

(RM millions)

Source:The Maybank Annual Report 1989 - 1997

Commercial Banks Loans to Construction Sector (RM000)


16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1989 1990 1991 1992 1993 1994 1995 4,763 5,505 6,730 8,602 10,377 9,309 13,995

The bust cycle follows with a downswing in which consumption and investment fall sharply, leading to a period of depressed economic activity. E.g. Malaysia 1997

Continuation
extreme form of recession, a depression is characterized by its length, by abnormally large increases in unemployment, falls in the availability of credit often due to some kind of banking/financial crisis, shrinking outputas buyers dry up and suppliers cut back on production, and investment, large number of bankruptciesincluding sovereign debt defaults, significantly reduced amounts of trade and commerceespecially international, as well as highly volatile relative currency value fluctuationsmost often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession.

Greed and imprudent spending. Can be uneconomically unrelated factors

the reverse to the economic boom

NPL Bankruptcies Abandoned projects Pending projects resubmitted Drastic drop in housing prices and rental. Can lead to failure in banking system e.g. USA, Rep of Ireland, Greece Limited availability of housing loans

Bank reacts differently and contradicting during the economic cycles. Obliging during boom Suppressive during bust Intermediate situation depending on the bank negara reads the situation e.g. currently.

Independent day 31st of August 1957


Gaining independent with conditions citizenship for the immigrants the birth of a multiracial country. With distinct characteristics
Distinction of race in terms of types employment Distinction of race in terms of place of stay

A perfect brew of racial/economic inequality and national instability as shown in 13th of May 1969

New Economic Policy


Objectives restructuring society in terms of place of stay and employment. Modus operandi creating a new economic cake and urbanizing the Malay (creating Malay urban population) NEP turns housing into political animal. Housing issue is placed under the Min of Internal Affair in the 70s.

Creating urban Malay urban population


Only mentioned publicly in the 1990s by the premier but implemented with the establishment of the New Economic Policy The creation of predominantly Malay population especially the generic new towns at the poorest predominantly Malay regions. In line with mushrooming of squatters areas in major towns in Malaysia

Continuation.
Government agencies such as UDA, SEDCs, DARA, KETENGAH etcs. Some projects are financed by borrowing from the foreign sources. State government directly involved in the development of low cost houses. Getting soft loans from the federal gov. and surrendering lands for the purpose Introduction of government end financing loan for the government servants

In 1980s
A complete philosophical turn-around with coming of Dr. Mahathir as the premier. In the 1970s (Tun Abdul Razak) the housing policy concentrate of helping the new economic policy and the development of low income housing to help the Malay population set foot on urban areas. In the 1980s the housing inspiration of the nation do not change but the implementation attempts of this policy are contradictory. A good example is the 30% policy.

Continuation
A philosophical change..in relation to the low income. Job creation is more important than providing houses to low income groups. Bankers are given full autonomy in giving loan as result the low cost housing quota was abolished in 1989 Integrated development concept is introduced in the 1980s led to the development of town within a town. Argued that a way to provided town facilities can be provided efficiently and adequately inclusively housing for the poor can be provided line with the 30% low cost housing rule.

Looking into the priorities of housing machinery in Malaysia Analyzing housing problem in Malaysia in particular housing the poor

What is the current housing problem? Housing mismatch. The market bias towards the demand of higher income section of the population. Not only negatively affected lower income of the population of the population but families of household income of rm4000 are also affected. A good case study is the Klang Valley and Shah Alam is included. Why this is happening? Maximization of profit. It is more profitable to build higher cost houses and it is easier to get housing loan for them. Who is to blamed for this?

Geared for maximum profitability and the upmost security of investment Tendency toward lowering management cost Tendency for high value of housing loans Tendency to shy away from low income groups unreliable groups or unsafe group to do bussiness

Responsibility of low cost housing scheme given to private developer i.e. 30% rule since 1980 Bank low cost housing loan quota abolished in 1989. State refuse to surrender land for low cost houses led to development of SPNB State government become housing developer and shy away from constructing low cost and affordable houses State government accept the notion that high price of land in main town areas are unsuitable for low cost and affordable house construction which led to mismatch problem

Private entrepreneur stance


Very clear low cost housing scheme is unacceptable cross-subsidizing of profit is a myth Various tactics used to shy away from the social responsibility and they are very successful

Housing demand for affordable and low cost houses are unattended. Even housing demand for household with monthly income of rm4,000 in main urban areas are also unattended.

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