22 February 2019 – Issues of housing supply, affordability and home ownership have been in focus in recent years. As a university that places importance on the practical implementation of policies affecting society at large, INCEIF has embarked on a research to make houses in Malaysia more affordable.
With a grant provided by Khazanah Nasional Berhad, INCEIF recently completed a two-year study on funding issues in building affordable houses. The findings were presented by INCEIF Subject Matter Expert on Islamic Banking & Finance Prof Saiful Azhar Rosly and PhD candidate Mohamed Ariff to the National Action Council on Cost of Living (NACCOL), in a monthly meeting chaired by Deputy Prime Minister Datuk Seri Dr Wan Azizah Wan Ismail in Putrajaya recently.
INCEIF was among a number of institutions invited by NACCOL to present findings and proposals on how to address current issues affecting consumers.
In his presentation, Prof Saiful highlighted that surveys carried out for the research identified five components affecting house prices. These are:
- Land cost
- Compliance cost
- Construction cost
- Finance cost
- Developers’ profit margin
INCEIF’s research zeroed in on the finance cost incurred by developers in building affordable houses. Based on this, the proposal focused on reducing house price by lowering finance cost through the setting up of an Islamic property trust fund for affordable housing, particularly one that could be utilised by small and medium type developers who might be overlooked by financial institutions.
Subsequently, when there is critical mass demand for affordable housing, a sukuk could be issued by a special purpose vehicle.
Based on the survey, the lowering of finance cost can be made possible from the interest of institutional investors such as Employees Provident Fund and Lembaga Tabung Haji to invest in an Islamic property trust fund based on the ESG (environmental, social and governance) principles as the fund is meant to address the housing needs of the middle-lower income groups such the M40 and B40 category. The main idea is to establish the fund as one asset class for the institutional investors to invest in.
“Based on the ESG mandate, the study expects to see potentially large injection of funds at a lower cost from the institutional investors based on their social and responsible financing values.” Prof Saiful said.
The Deputy Prime Minister has recommended that INCEIF further deliberate the findings at the executive committee level at a later date.