Of that is permissible and that is good in letter and spirit

Cewah... it's been a few weeks since my "Technical report writing for executives" course at PERMATA and I think what I learnt is creeping into my everyday writing! During the course, of course we didn't cover blogs but I guess emails are as close as we can get to blogs in some ways so one of the rules of writing good emails is that the email title must sum up the email. This will get the recepient to open the email to get more details. In this case today, the title of my blog post hopefully sums up what this post is supposed to cover although in emails the conclusion should be on top of the email and the explaination and details at the bottom of the email, while my posts are more reports/articles rather than emails.

So why the topic today? Well, two things. 1) I haven't really written any posts that touch topics that are dear to me and my principles and 2) My previous post received a very constructive comment from an anonymous reader that really made me want to reply.

To start off, if you haven't read my previous post, please read it first. You will notice a comment at the bottom of the post which reads as below:
Salam,

Don't you think the government should do more in controlling property investment rather than the 70% loan margin? Mostly are ridiculously priced..

Do you know how much is the construction cost for a 2-story? slightly above 30k... and how much they sell it for? might as well get a piece of land and build a bungalow for yourself....

IMHO this won't happen if distribution of wealth is practiced according to Islamic teaching where "instead of becoming concentrated in a few hands, should be allowed to circulate in the society as widely as possible, so that the distinction between the rich and the poor should be narrowed down as far as is natural and practicable. The attitude of Islam in this respect is that it has not permitted any individual or group to have a monopoly over the primary sources of wealth, but has given every member of the society an equal right to derive benefit from them"

Credit to - http://www.finance.alislam.pk/WealthDistribution.aspx

In this case, the element of greed (salah satu sifat mazmumah) has controlled the passion of men regardless how secular, pious or religious one can be...

Perhaps you wanna do a research & write on this..

Regards
I know there are some kids reading this so for their benefit, and so that you may find my post of benefit to you I shall guide you in how I answer questions so that insyaAllah it might be of help when you have to answer questions, regardless of what kind of questions they are, be it historical, maths or even geography. As this is a question that is multi disciplinary it can be answered in many ways, from many persectives. Like most things in real life, there is no absolute right or wrong. Many things in life are compromises that hopefully best meets the needs of all that have a stake in the matter. Before I start addressing the matter I would like to make it clear that I did not do any research on the matter other than what I already know, researching it properly would mean spending more days and months and I would probably be able to write a masters thesis that could earn me a degree. hehehe... Therefore some ideas in this post, okay most ideas in this post are not referenced as I cannpt remember where I heard, read or seen these things that influenced my world view on this matter. Please take this as my opinion only. You can do your own research on the things you read on my post to whatever level of detail that satisfies your quriosity. I am no religious scholar nor economist.

Ok, now that I've done with my disclaimer, lets get started. Firstly kids, before answering questions one must first disect the question(s) and understand what the question really asks so that we have a better chance of meeting what the question asks. So here we go:

1) The first paragraph the reader asks my opinion of whether the government should control property investment.
Don't you think the government should do more in controlling property investment rather than the 70% loan margin? Mostly are ridiculously priced..
2) The second question is related to the selling price of property and the cost of building it. He/she suggests that it is better to buy a piece of land and build a bungalow for oneself. Okay, this is not a question but a comment but I will comment on the matter.
Do you know how much is the construction cost for a 2-story? slightly above 30k... and how much they sell it for? might as well get a piece of land and build a bungalow for yourself....
3) The reader then quotes a para he/she read from that link below and suggests that if the distribution of wealth is practiced according to Islamic teachings the issue of wealth discrepincy will not occur. Again, this is not really a question but a comment but the reader then suggests that I do some research and write about it. In other words he/she asks me to comment on the matter, which indeed I am happy to oblige.
IMHO this won't happen if distribution of wealth is practiced according to Islamic teaching where "instead of becoming concentrated in a few hands, should be allowed to circulate in the society as widely as possible, so that the distinction between the rich and the poor should be narrowed down as far as is natural and practicable. The attitude of Islam in this respect is that it has not permitted any individual or group to have a monopoly over the primary sources of wealth, but has given every member of the society an equal right to derive benefit from them"

Credit to - http://www.finance.alislam.pk/WealthDistribution.aspx

In this case, the element of greed (salah satu sifat mazmumah) has controlled the passion of men regardless how secular, pious or religious one can be...
So, now that we have broken down the "question" in to managble bits we can now start to address the matters at hand starting with the first bit:

1) Should the government do more to control property investment? Well, If I'm not mistaken the government wants just this: to increase the value of property in the city centre so that It may match the prices of property in other city centres of the world, namely Singapore and Bangkok. Believe it or not, construction sector is one of the biggest contributor to the Malaysian economy and property prices generally reflect the economic state of a nation. Imagine if property in KL was as cheap as it were 20 years ago, I think I could've owned a couple of property in prime areas. There are tens of thousands people with a salary level like mine. Even more people with higher salaries or wealth than me. Cheap property would mean many of those properties will probably be owned by them. At least if property is expensive these rich people cannot afford to buy as many houses as they could if the houses are cheap and hopefully there are some left over for people like me... You see, in any free economy there will be rich people and there will be poor people and there will be the middle class people like you and I. If I elaborate further I'll answer question number 2 but I'll leave it here on this point.

On whether the government should control investment in property, my opinion is yes and no. Yes, is because we need to ensure that there is housing for everyone and that no one is homeless. No because we cannot deny the right for those with money to buy houses or properties. The key is to understand why people invest in properties and why certain areas appreciate more than other areas giving the potential for profit that attracts investors in the first place. If people can't make money from property, nobody will be buying property to make money. Simple. Why does property rise in price? Well, that is simple demand and supply which I will elaborate when answering question 2. As for providing/ guarenteeing the availability of houses in the klang valley or it's new name "Greater KL", I think the government is doing its part by building the "project perumahan rakyat" and low cost houses catering to those in the lower income bracket. Is that enough? I don't know. The fact that property prices are getting expensive is a sign that people generally are getting richer and can afford the extorbitant prices, else we'd have alot of unsold property out there. The 70% loan margin the government is proposing is actually impeding the middleclass from participating in property investment and the rich with thier deeper pockets will not be affected by this ruling at all....

2) This question is about house prices. The question about price is one that has some historic inpact on myself. During my university years, I had some basic foundation on economics and business embedded in my degree course. In my university, they believed that engineers should have a firm basic understanding of economics and the business world. Every semester we were made to take 1 business module, taught by the lecturers from the business school. At that time I didn't quite see the relevency in engineers learning stuff like Monopoly, Oligopoly, returns on investment, Diminishing returns on investment, economies of scale etc... But what did fascinate me was how the lecturers seem to know alot about things we interact with or use everyday. There was always a story behind things which since a young boy I had always had a fascination on understanding how things worked and why things happen. These economics and business lecturers seem to have very good general knowledge and seem to be "connected" to the real world. The engineering lecturers seem to be more serious and what they teach didn't seem to be directly applicable to the real world.


So, the event that I could never forget and at that time changed my perception on pricing is that one of my business lecturers, in one of his lectures asked us does price have anything to do with cost? At that time my answer was yes! If I made a cake at a material cost of 10 pounds, I would not want to sell it for less than that but If i sold it at 100 pounds then people won't buy it cos they know that it doesn't cost 100 pounds to make... So in my mind, yes the reference point is the cost... so I thought...

You can understand why I remember this moment so vividly cos I was so confident of my anwser yet the lecturer said that the answer is NO! Price has nothing to do with cost at all. Nothing. Zero, Zilch, Nada... There are many things that effect the price of things but it is seldom related to cost. The most important is supply and demand. If there are many people that want to buy an item and the item is scarce, then the price will definately increase. To a point ofcourse that people are willing to pay. Linking this to our issue of property prices like it or not, houses are a finite item. One a piece of land is occupied, that's it, you cannot build on it again, so we'll have to build on another peice of land. sooner or later you'll run out of land to build on. This is the same case as the previous Bandar Kinrara issue. That is basically your last chance to buy property in Bandar Kinrara. If you want to live in Bandar Kinrara, in a new house then this is your last chance. Take it or leave it. Surprise2, even at that price people are lining up to buy the houses so people are willing to pay that some of money to live in Bandar Kinrara. Supply and demand. If it were overpriced, people would not buy any houses there cos nobody will see the worth. They'd say it's ok, I'll buy In Puchong then...It's much cheaper there. But no, they still wanna live in Bandar Kinrara hence the crazy price.

Secondly, there's the issue of governemnt infulence. Governments can distort the prices of things either via subsidies or tax. A good example of how subsidies affect price of things is in the fuel subsidies. The fuel subsidies makes fuel relatively cheap, to an extent encourages wastage and fools people that we are actually okay when in fact a majority of us cannot really afford to live the way we do if fuel prices were at market price. It also hides the weakness in our public transportation. It does to a certain degree influence property prices. Places with good access to access to amenities and public services/places of interest tend to command higher property prices. Improving public transportation would mean that if people were say to work in KL, they need not buy property in KL. They could say, live in Seremban where housing is cheaper and commute to KL everyday via the excellent public transportation system. I've experienced this in both Greater London and also the Kanto region of Japan... Another example of how subsidies affect houseing prices is the subsidy for cement. This is the major incredient, if you may for building houses. Recent speculation is that the government is planning on taking back this subsidy. This has led to the speculative increase in housing prices. For example say you bought your house for RM200k. Suddenly 2 years later the same type of house is being built at the same area and the subsidy had been taken back. The new house is now sold at say RM400k. You can probably sell your old house at close to RM400k, maybe RM350k as for buyers who want to buy in that area have to either pay the 400k and get a new house or pay a little less and get a 2 year old house. The value of your 2 year old house has nothing to do with how much it costs to build it.
Okay... this actually has nothing to do with housing but another thing that annoys me about government distortion with prices. The thing in question is tax and the comodity in the spotlight are cars. It is the single most taxed comodity in Malaysia other than cigarettes and alcohol, but those things are considered things bad for you... Our car prices are among the most expensive in the world considering our relatively low wages and this distorts the market and is also counter productive to the development of our auto industry. The government is actually making more money per car than what the car makers are making! Okay Afif, sabar ye... lets move on...

OMG, this is getting rather long! Lets cut the discussion here and I'll continue with question number 3 which is more theological in nature. For now here are the key points I would like to make:

1) Property has always been a rich man's area of investment. Even in the days of the Prophet only the rich could afford bigh houses in the best locations. The Prophet never disaproved of it. Infact, alot of the prominent companions were rather wealthy and lived in big, expensive houses.

2) Government has the responsibility to provide housing for people. This doesn't mean the government can control who can or cannot buy property. That is almost communist in nature. The government can build affordable houseing and sell it to people they deem deserving of such housing.

3) The government can help reduce the price hike trend by doing things to curb property prices from going out of hand or by stabilising property prices. As discussed earlier one can either i) lessen demand or ii) increase supply to make prices go down. They can also make land titles lease hold as leasthold titled land/property do not appreciate as crazy as freehold property.

i) Lessen demand by not concentrating all economic activity in Greater KL. That will reduce the demand in housing in the KL area. Expand the industrial hub in Rawang and bukit beruntung or Tanjung Malim, or in other states for that matter. Everyone who wants a decent job won't have to move to KL if their home town can provide them with a secure job. Let people buy property there.

Highways connect suburbs
 
ii) Increase supply by building more houses in the suburbs and then creating either highways or public transportation to make getting to the inner city possible. You can see this already whereby suburbs in the Klang/Shah Alam region are sprouting up like mushrooms dispite their distance from the city centre. This is due to highways like the NKVE shortening travel time and thus eliminating the need to live in KL and put up with the extorbitant houseing prices.

The planned expansion of the two LRT systems we already have effectively making it almost into a circular train line.


Before I end, I'd like to say two more things:

1) Although we all like low prices, one must remember that Caliph Umar r.a had once banished a seller from the market for selling a product lower than his competitors who were selling the same thing. He was selling lower with the intention of cutting the margins of his competitors as if the competitors wanted to compete, they'd have to lower their prices too. If they didn't no one would buy from them. When the margins were squeezed to thin, the sellers would go out of business and thus this particular seller could obtain a monopoly on selling this product thus giving him the ability to set whatever prices he wants as people had no choice but to buy from him. This is an example where lower prices are not the desired thing. Islam has always emphasised on fair prices.

2) I have friends who built their houses on land they purchased seperately. Trust me, It's not as cheap as you might think. A big chunk of the cost is actually land cost which if in the KL area will cost you and arm and a leg. It may or may not cost RM30k tu build a 2 storey house but the land it's on may cost in access of 200k if it's in the KL region. Again, the law of supply and demand.

Okay, that's me signing off for now. I'll follow up with my response to question number 3 tomorrow. Have a great weekend my dear readers.