Brunei Darussalam: Rebuilding housing confidence

Increased cooperation between major banks and real estate agencies in new developments and mortgage products has raised the prospects of Brunei Darussalam meeting its housing goals while keeping credit levels in check. However, limited land availability continues to threaten growth in the residential sector.

On September 20, Bank Islam Brunei Darussalam (BIBD) announced it was organising a property roadshow with local real estate agency Bess Perfect Property, in which the bank will showcase its finance solutions and the realtor will highlight its new property housing developments. In the week prior, the BIBD teamed up with Primeland Real Estate, a local agency, on a similar housing exhibition, with the bank sending a dedicated team of home specialists to the event to offer advice on home financing entitlements.

The cooperation comes as BIBD launches a mortgage product designed to reflect the Sultanate’s focus on Islamic finance . BIBD Rumah Plus is both sharia-compliant and based on the concept of Musharakah Mutanaqisah, an Islamic mode of financing in which a customer and a bank jointly purchase a property, with the customer gradually buying all the bank’s shares until he/she fully owns the property. The mortgage’s conditions include extended financing of up to 30 years and financing entitlement of up to 100% of the property price.

The “ethical” outlook of BIBD Rumah Plus gels with a new housing fund and saving scheme that the Ministry of Finance introduced in August. Officials have said that the initiative, launched through the Employees Trust Fund (Tabung Amanah Pekerja), is designed to encourage the public to save up, rather than maximise their ability to borrow money from the banks.

Following the announcement by the government in March that all 47,000 deeds issued through power of attorney will be converted to 60-year leases and must be registered with the Land Department, real estate agents and developers told local media that business had decreased by around 50%. Under current law, only citizens are eligible to own land outright. Historic issues with debt have likely spurred relatively stringent criteria for the scheme, which makes participants over 25 whose household income does not exceed BN$4000 ($3220) eligible for financial aid from the government not exceeding BN$25,000 ($20,124).

The government has also allocated BN$1.5bn ($1.21bn) for housing projects, including the Landless Indigenous Citizens Housing Scheme and the National Housing Scheme, under which 17,500 low-cost homes will be built by 2014.

Pressure on the government to provide housing and finance solutions is compounded by a national urbanisation rate that has jumped to almost 15% in the past three decades, with the Brunei-Muara district, which is home to 66% of the population, witnessing the highest growth. Nearly 26,000 houses are planned for development in the Brunei-Muara district, with a further 5500 homes needed in the Belait district and the remaining shortfall in the Tutong and Temburong districts.

According to Pehin Dato Suyoi Haji Osman, the minister of development, the biggest challenge in housing is the provision of land, which is becoming increasingly limited. “This issue is amplified by the fact that only about 5.5% of the country is free of development constraints...(and) most of Brunei’s land is either hilly or covered with peat swamp, which is very costly and difficult to develop,” he said.

However, the government has committed to ensuring that “vertical” housing developments will meet environmental standards. A number of six-storey apartment blocks are currently being built with a focus on minimising energy consumption and will use modern techniques for sewage disposal and have rooftop gardens.

While increased cooperation within the private sector bodes well for the increasingly critical issue of housing, the government will need to explore new approaches to ensure that its development plans progress smoothly.

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