This article first appeared in The Edge Malaysia Weekly on April 25, 2022 - May 1, 2022

PR1MA Corporation Malaysia, the agency responsible for developing affordable housing projects in the country, is seeking a strategic investment from the Qatar Investment Authority (QIA).

On March 29, Bernama reported that Prime Minister Datuk Seri Ismail Sabri Yaakob said PR1MA had put forward a strategic investment proposal worth RM8.1 billion to QIA to explore investment opportunities in Malaysia, especially in the housing sector.

Ismail was reported as saying that the Qatari government had agreed for QIA to hold further discussions with PR1MA, particularly in providing more affordable housing for Malaysians.

This raises the question of what exactly the strategic investments are for. Is it for investment opportunities that are separate from PR1MA’s affordable housing projects or is it to fund these projects?

According to PR1MA chairman Datuk Dr Fathul Bari Mat Jahya, PR1MA had put in an investment proposal to QIA, which is still under early consideration.

“We want to make sure that we are sustainable, and not dependent on the government’s development expenditure. That is why we are looking for funding through [the] government-to-government [avenue].

“We want to make sure that our financing costs are as low as possible, so that we can come out with houses that are affordable. QIA doesn’t look at dollar and cents alone, but the relationship of the two countries,” Fathul tells The Edge in an interview last Thursday.

It is still unclear, however, as to the level of returns that QIA will require from the RM8.1 billion investment. Fathul says this point should not matter, as long as the units are still affordable.

According to its website, QIA — Qatar’s sovereign wealth fund, with US$450 billion (RM1.93 trillion) under management — was established in 2005 to protect and grow the country’s financial assets and diversify the economy.

PR1MA has been funded by the government since inception. According to Budget 2022, the government has allocated RM1.5 billion for the development of low-cost and affordable housing projects.

It is not clear how much was allocated to PR1MA. Besides PR1MA, the government also has other affordable housing programmes such as the Perumahan Penjawat Awam Malaysia and Federal Territory Affordable Housing Programme (RUMAWIP).

It is not known whether the RM1.5 billion allocation will be enough for all the programmes, especially when the government has a target to build 500,000 affordable houses under the 12th Malaysia Plan.

Is this where QIA comes in?

According to sources familiar with the matter, PR1MA had prepared a memorandum of understanding to be entered into with QIA. The purpose of the MOU was to explore a potential collaboration between the parties to provide funding for new PR1MA housing projects.

This means PR1MA is seeking RM8.1 billion from QIA to fund its affordable housing projects.

Why does PR1MA need QIA as an investor? An affordable housing project does not require specific technology or know-how that PR1MA does not already have.

An investment will require a return for the investors and, being an affordable housing project, what kind of returns can PR1MA promise QIA? Would this return be lower than prevailing interest rates, or the coupon rate in the case of bonds, if PR1MA were to raise funds through bank borrowings or debt instruments?

RM8.1 billion is a huge sum and, if secured, would enable PR1MA to build 81,000 affordable houses, assuming that the cost of a unit is RM100,000. As a comparison, since inception, PR1MA has sold 35,917 units with a gross development value of RM8.2 billion.

The PR1MA programme has been under scrutiny, as it had failed to deliver the original target of 500,000 units by 2018 when it was started in 2013. Now, the government aims to build 500,000 units of affordable housing, of which PR1MA will be responsible for 100,000 units.

PR1MA is not a profit-making entity. Therefore, if it is seeking investments from QIA, that means the new projects are going to be profit-driven, which may lead to higher selling prices of the units. Already, PR1MA is loss-making, as it has to bear the cost of building affordable houses.

According to PR1MA’s 2019 annual report, the agency registered a net deficit of RM165.97 million in the year ended Dec 31, 2019, compared with a deficit after tax of RM65.06 million in the preceding year.

Its current bank borrowings stood at RM2.54 billion in 2019, which was almost unchanged from the previous year, while its non-current bank borrowings amounted to RM2.5 billion. The current bank borrowings incurred interest of RM38.1 million, which translates into an interest rate of 1.524%.

PR1MA also received RM741.96 million in government grants for the purpose of development and private finance initiative projects in 2019. The government injected RM500 million of the same grants into PR1MA in 2018.

Granted, building affordable housing is costly, especially if a huge number of units are required to be built. If PR1MA were to build 100,000 units in five years, this would mean that, on average, the corporation would have to build 20,000 units a year.

If a unit costs RM100,000, PR1MA would need RM2 billion a year to build the houses. Therefore, it is a huge endeavour for PR1MA, especially when the government has allocated only RM1.5 billion a year for all its affordable housing programmes.

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