Housing affordability, Part A
IMO, the recent decision by the PM to get Bank Negara to review the financing model for easier home ownership for low income groups is flawed. https://www.edgeprop.my/content/1901897/bank-negara-must-review-financing-model-easier-home-ownership-—-pm Yes, the housing affordability issue in Malaysia is real. If large segments of society cannot afford to buy homes, it is going to be a major political problem for the government of the day.
But IMO passing the buck back to the private sector (the banks and mortgage lending institutions) is disingenuous. Making it easier (read cheaper) for B40 home buyers to borrow money is probably not going to help.
Why? Check out this article in a leading property portal, "Housing affordability: The reality" Oct 16, 2020, https://lnkd.in/gUuzBtWE
Excerpts from the above:
"...today’s overhang and housing affordability problem is likely a reflection of the decreasing purchasing power among mass market buyers. This happens when household income is not increasing as quickly as the overall cost of living, and along with it, their ability to afford a house.
This, then, translates into a decline in housing demand and a less active housing market. A clearer picture on how slowing income growth has severely affected the Malaysian housing affordability” can be obtained by studying the growth of house prices against the growth of income in Malaysia and selected Asian countries.
.....house prices in all these countries are either trending downwards or moderating throughout the period of 1990 to 2019; except for Malaysia and Hong Kong, where house prices in these two countries are generally on a rising trend, with a significant growth trend in 2010 to 2019.
Likewise, income growth in all these countries is generally higher than the house prices growth throughout 1990 to 2019; except for Malaysia and Hong Kong .....
The respective compound annual growth rate (CAGR) for house prices and income in Malaysia is 7.63% and 1.94%; while in Hong Kong, the respective CAGR for house prices and income is 9.86% and 5.45%....…
In the case of Malaysia, it has experienced the most drastic house prices escalation during 2007 to 2014, with a CAGR of 11.4%, against the growth rate of income, at a CAGR of 6.4%.
House prices skyrocketed during this period not only due to the introduction of developer interest-bearing scheme (DIBS) that helped drum up the buying sentiment; but it was also attributed to the favourable lending policy and built-up speculative herd instinct among buyers and investors that increased the deviation of house price from its fundamentals.
To add salt to the wound, the country, at the same time, expanded its credit by engaging in an expansive monetary policy in order to increase the money supply available to borrow, to spend, and to invest.
As a consequence, house prices have badly inflated, leading to the deterioration of housing affordability nationwide"
In Part B, yours truly will look at the structural reforms in housing policy Putrajaya needs to commit to address the housing affordability issue.
To be continued.
