Tuesday, September 30, 2014

Good Quality Affordable Homes

Nowadays, it is hard to find any property in an acceptable location which is below RM500k. It is even harder to find anything below RM300k. By acceptable location, I mean places like PJ, Setapak, Cheras... not Semenyih, Sungai Besar etc... But I'm sure even those far-flung outskirts of the Klang Valley will soon see prices unimaginable by today's standards. Look at Klang and Kajang. They are not near at all to KL city but property prices there are almost as high as PJ and Subang Jaya.

And another thing you see these days, most property launches are either very high density or if not, they are very "luxurious". The fact is, most people's income have not really gone up but property prices have increased out of reach. So, every time you see there is a government effort to build affordable homes, they turn out to be these huge highly densed construction such as PR1MA and those low cost housing projects. Many of these, like what you see in the PPR (Projek Perumahan Rakyat) so-called people's housing turn out to be huge slums with all sorts of social issues.

So, I am taking upon myself to develop small low density and quality housing - to prove that it can be done. We are talking about 2-3 bedroom units at prices below RM300k, or RM400k at better locations. There will be studio apartments for the young guys and girls who are just taking out their 1st pay-cheque. Starting pay is around RM2000/month these days, so what can they afford? Definitely RM160k and below... watch this space!

Density will be from 10 units up to 80 units per project. They are not going to be too small either. The 2/3 bedroom units will be no less than 800sf and the studios are 500sf and up. Nothing fancy. No swimming pool, no gym, no sauna... no gimmick. Just basic, no frills quality homes with car parks and security.

How are we going to make it?

The answer lies in our local councils and city hall. It's up to them to approve such projects and also decide on the plot ratio and density allowed. What we have seen is a lot of approvals for luxury bungalow, semi-D and gated community developments. This does not go towards solving the nation's housing problem but the issue usually is the objections from the local community. Nobody will like it if a medium cost apartment project suddenly comes up in their posh Bangsar or Damansara Heights. There has been some precedents however...

I take a lot of inspiration by looking at neighbouring Thailand and also our own Penang Island, looking around the Pulau Tikus and Gurney area. Here, there are many small apartments built on formerly bungalow lands. There are a few in KL as well, such as One Mesraria in OUG, Old Klang Road which has only 20 units 1,300sf apartments. Just over a year ago, you can get a 3-bedroom unit here for around RM350k. Today, the price tag is RM580k. If you can find a seller, that is.

I am going to start by introducing you to a small project of studio apartments. This will be at Sentul, about 2km from the Sentul LRT station... so the location is not really that bad. The land is freehold and it is only 4000sf. Normally, the council will require you to have a 10ft barrier from the border of the land up to the built-up area. For a 4000sf piece, it means you will lose almost 1600sf, so your built up will end being just 2,400sf. But the interesting part of this land is, you can build from border to border, so it's possible to use up almost the entire 4,000sf. The next thing is the approval from city hall. The most they will allow is a plot ratio of 1 to 5. Take away 1,000sf for common areas and infrastructure such as lifts, lobby and stair case, a plot ratio of 1:5 means you can have 3,000sf x 5 = 15,000sf.

Therefore, if we are going to offer 600sf studio apartments, that means we can build 25 units. But building 25 apartments means providing at least 25 car parks.... that will make the building too tall or if we are doing basement car parks, it will be too expensive. So, to cut the story short, we are just having 12 studio apartments and 1 special 2 bedroom unit.





This is how the maths work out...

Cost of land RM560,000
Cost of construction RM1,000,000
Miscellanous and statutory costs RM80,000

Total cost RM1,640,000

Total sellable square feet... 12 x 600sf and 1 x 1,200sf = 8,400sf

Cost per sf... RM196

The cost for 600sf studio is RM117,600 each

The cost of 1,200sf 2-bedroom unit is RM235,200

So, if we are selling the studios at RM160k each and the 2-bedroom unit at RM350k, we are looking at a gross yield of 38%

It may sound too simplistic to some of you but may I remind you in this case we are only building 13 units in less than 4,000sf of land. When we look at other examples later, it becomes even more interesting...

11 comments:

David Shieh Chong said...

Interesting, something at the next level of property investment =)

-David

SC Lim said...

If this is true I would like to buy one for myself!

SCLim

Jas Khoo said...

Yes, i would love to get one, pls?

Lim Hoelek said...

I also want 1. Keep me update.

sugarbabe said...

Dear Sin Leong,

What a brilliant plan!

I truly hope that this plan could be reliazed. If there are more developer practising this it will definitely help to ease affordable housing issue. But the question is how many of them willing to do so?

May I also suggest that above mentioned project should only be available for genuine home owner, not for investment.

I believe any ethical & socially responsible investor would give it a pass.

Keep up your good work!

Cheers,
Samantha

khlin7 said...

Actually i also have this thought last time if we can build a medium rise apartment... nothing fancy but decent home. Because we have limited land at good location. But quite hard to build parking space in such a small built area...

Bonifasius Dipati said...

I truly commend the idea and this is really been around for long. Partake, shoplots block whereby the ground floor is for shops and the 2nd, 3rd and 4th floor are sold strata based , mostly studio or 2br size.
The issue with the calculation as above is :
1. Land price vs construction price ratio is not generally accept
2. Parking space , you need to maneuver
3. maintenance for such a small block is not easy.

sinleong said...

certainly you are right and we are learning as we go along. we have to pay a premium on the land to convert the title which enables us to partition the block into strata title. this premium is subject to the plot ratio given. the construction cost however we are able to keep it low as the building is without frills...very basic... we also eliminate any unecessary facilities such as swimming pool, gym etc, just basic security and may even opt for automated security to keep costs down. but there will be no economy of scale to hire full time manager and technicians

iguarako said...


Dear Sin Leong,

It was an interesting read and a commendable effort by you to provide more than affordable housing in a good location. Elsewhere in your blog I read about your disappointment in missing out on investing in the heritage areas of Penang, and I share this with you, especially now that the restrictions imposed by Malaysian government, make it all the more difficult for foreigners to own landed properties in Malaysia.

I may have something interesting to discuss with you for a Penang project (if it ever comes through, I being a foreigner being unable to undertake the project myself) and would appreciate it very much if you would kindly send me your e-mail address for me to fill you in with the details. My e-mail is iguarako@yahoo.com

Thanks
Lee

iguarako said...

Dear Sin Leong

Ok, I got your e-mail: sinleongng@yahoo.com. from another page.

I will be e-mailing you this evening or tonite.

Ciao!
Lee

K3n! said...

Dear sin Leong

How is the project going?

Any updates? It sure seems like an interesting project