Market will crash if rent rates are capped, says expert

The government is drafting a law to set a maximum rental rate.

PETALING JAYA: A veteran in the real estate business has warned of a shortage of houses for lease if rent rates are capped under the proposed Residential Tenancy Act.

“The market will crash” if the government sets a maximum rental rate, according to Ernest Cheong, who has been a chartered surveyor for more than 40 years.

“You cannot legislate economic distribution,” he said. “It has to be determined by market forces.”

He recalled that the government imposed a cap on the price of commercial properties in the 1960s.

“The developers couldn’t sell and eventually there was a shortage,” he said.

“A similar situation will occur for the rented property market. When property owners do not want to lease their property, there will be a shortage of properties available for rent.”

He questioned whether the government was thinking of forcing people to put up their properties for rent.

Ernest Cheong.

Last Sunday, Housing and Local Government Minister Zuraida Kamaruddin said the government was drafting a law to set a maximum rental rate. She mentioned low-cost houses in particular.

She said one of the reasons was to curb racist practices.

Cheong said market forces had nothing to do with race.

“If I am to lease my property, I don’t care about your skin colour,” he said. “If you can pay, I will rent it to you.

“Say a Malay person comes to me and offers RM2,000 to rent my property, but the next person who comes can offer me RM2,500 and he happens to be Chinese. If I choose to rent it to the Chinese guy, is that racial discrimination?”

National House Buyers Association (HBA) secretary-general Chang Kim Loong also said property owners must have the right to choose their tenants.

“Different owners will have different criteria based on their experiences and individual preferences,” he said. “While HBA does not support using race as a criterion, a property owner should not be compelled to rent to a tenant not of his choice.”

He also disagreed with the proposal to impose a cap on rental rates.

“Rental is a private commercial arrangement between a willing tenant and a willing landlord,” he said. “If the government is going to interfere with rental for residential housing, there could be calls for it to also interfere in the rental of commercial properties.

Chang Kim Loong.

“Will the government then be forced to cap rentals for shopping malls, food courts, restaurants, office buildings and other non-residential properties?”

He warned that this would deter investments from both local and foreign interests.

Commenting on the proposal to focus on low-cost housing, Chang said this would go against the very reason for building low-cost houses. Such houses were meant for owner occupation, not for rental, he said.

However, he said he agreed on the need to regulate tenancy practices.

“We suggest a quasi court in the form of a tribunal to settle tenancy disputes instead of using the civil courts for the purpose.

“But perhaps a more holistic approach is needed where potential landlords and tenants are educated on their shared roles and responsibilities.”