While developers face the brunt of complaints about the increasing prices of houses, an important cause hidden away thus far are the utility companies. The added-on surcharge they add to a development’s fee is something substantial to be considered when purchasing a property. We attempt to unmask utilities’ contribution to the high costs of properties.

Utility companies are essentially TNB, TELEKOM, IWK and water authorities such as SYABAS, which until recently, were corporatized or, worse still, privatized, versions of public utilities provided the same services for much less. The payments they demand from developers seem to be influenced by the profits the developers make rather than their real value.

Privatization, it was claimed, would see an improvement in efficiency and a better quality product, but this may not necessarily be so. They demand for ever-increasing contribution sums from developers for water, electricity, telecommunication and sewerage and refuse disposal services, and the building of infrastructure works, which developers are bound to ensure are available to their purchasers.

It is a serious concern that a significant percentage of the cost of building houses is the contribution sums that they demand:  for a RM200,000 house, about 5% - 10% of the purchase price is the contribution sum.

A Piece of the Pie

The direct cause of privatization can be seen in this: the elements provided by God for the benefit of Mankind have been turned into a monopoly by a few. The infrastructure was developed at the risk of public capital by the former humble, ‘honest-to-goodness’ public utilities, which have now assumed the avatar of privatised corporations of politically-connected individuals with no track record of the business. Unlike developers, there is no risk of loss to the utility companies which have to be paid in advance of sale. Developers then factor theses utility contribution sums into the house purchase price; the ‘hidden costs’ which developers blame with some justification.

Essentially, the business strategy of the utility companies is to use the house buyers’ money to pay for their ‘start-up’ capital expenses; house buyers pay monthly for the utilities and services on top of the requisite deposit(s).  It is a double whammy for house buyers who have to pay higher house prices besides facing the scary possibility of the housing development being stalled or abandoned or the errant developer shortchanging the buyers with shoddy workmanship and sub-standard building materials.

Ironically, it is the utility companies, all Government Linked Companies (GLCs), which are effectively sabotaging the National Housing Policy.

Breaking Down the “Hidden Cost”

Below is a chart showing the estimate of contribution sums and other “freebies” developers would normally be required to give to these utility companies, in which costs are  ultimately passed on to house buyers. The chart compares pre- and post-privatization of contributions to these companies.

 

Costs of Utility Infrastructure - Pre & Post Privatization/ Corporatization

                                                                               

 

Profit At What Expense?

The question arises:  why are privatized utility companies given the privilege of having non-business related third parties - the rakyat – meeting their business expenses by giving ‘forced hand-outs’? What’s the justification for this?

Perhaps, it was on “charitable” grounds in that everyone ought to contribute towards the expenses of providing utilities and services nationwide because when they were public-owned entities, they had little cash or it was better than borrowing. It may have been proper in the days of ‘Lembaga Letrik Negara’ (LLN) and ‘Jabatan Bekalan Air’(JBA).  They are now give-no-quarter-and-ask-for-none business entities, and listed in the Bursa Malaysia.

The CEOs and other high-profile corporate figures in the utility companies may feel the need to maintain high profitability in order to justify their hefty take-home-package plus benefits. However, it is not entrepreneurship that is expected of them, it is the exploitation of an unavoidable human need for a facility which they never did anything to create.

The National House Buyers Association (HBA) views that it is inequitable for such privatized, profit-motivated entities to impose capital contributions on others, rather than meet their own expenses of doing business from their own resources. These companies must provide the full capital outlay for infrastructure works.

It is also inequitable that developers are often held to ransom when additional requirements for capital contributions are imposed mid-stream during the project construction stage or worse yet, at the point of issuance of CCC (Certificate of Completion and Compliance) because property prices would have been fixed and approved by the Ministry of Housing and Local Government much earlier.

Roadmap to Reduce Burden on Housebuyers

HBA recommends that the relevant utility Commissions namely, Suruhanjaya Perkhimatan Air Negara (SPAN) and Suruhanjaya Komunkasi dan Multimedia Malaysia (SKMM) try to change the utility companies’ perception of developers; try to see them as being in a symbiotic business relationship for more equitable benefits for themselves, developers and, above all, house buyers which is only proper of GLCs which are regulated to ensure there is a sense of corporate social responsibility. The rates should be revised lower or absorb by those corporation.
 
HBA further recommends that as part of its social responsibility, privatized utility companies should also play their role to ensure that the Government’s aim of home ownership is achieved.

One way would be to cross subsidize the housing industry, especially the affordable housing segment, with their other business sectors based on the principle similar to developers cross subsidizing low cost housing.

HBA further recommends that the relevant Utility Commissions peruse the imposed contribution sums in light of the Price Control and Anti-Profiteering Act, 2011.

Under the Act, the Price Controller may determine the maximum, minimum or fixed price for producing or retailing any goods; including property and utilities provided by privatized utility companies.

Further to that, the Price Controller, in determining prices of goods, may determine different prices or charges for different areas in respect of like or similar goods.

Quite simply, it is submitted that the Price Controller determines the price of houses and in turn, the amount of the contribution developers may be required to pay the utility companies. Together with the perusal of cross subsidy, a more equitable solution ought to be implemented. If at all, the interest of the rakyat particularly house buyers would require taking new, courageous and bold steps forward.

 

NATIONAL HOUSE BUYERS ASSOCIATION [HBA]

 No. 31, Level 3, Jalan Barat, Off Jalan Imbi, 55100, Kuala Lumpur
Tel: 03-2142 2225 | 012- 334 5676 | Fax: 03-22601803