Rethinking our affordable housing policy

By Jahaziah Lim 

In the face of the Malaysian property glut and issues regarding home affordability, it seems that our plastered-on, short-term quick fixes are starting to burst at the seams.

Traditionally, when faced with the problem of low take-up in homeownership, the government will employ two strategies:
  1. Build more affordable homes; and
  2. Loosen lending regulations and encourage mortgage uptake.
This is precisely what the government has done to help address the woes of both the public and property developers. But is it sustainable over the long term?
Bank Negara introduced a RM1 billion home loan scheme earlier this year to help make mortgage repayments easier for first-time buyers. Last year, our housing and local government minister was calling for Bank Negara to extend the mortgage loan tenure to 40 years.

There is also the Home Ownership Campaign 2019, where discounts were given on properties and buyers exempted from stamp duty. The ministry touted the campaign’s success in achieving RM17.66 billion worth of sales for about 28,000 houses.

However, what I see is about RM15 billion worth of debt accumulated among the B40 and M40 groups. Making mortgage financing more accessible might lead to a risk of over-leveraging.

Recently, Bank Negara announced that non-performing loans for residential property-backed mortgages had reached an all-time high since 2011. It was reported that bad loans for residential properties hit RM6.83 billion in October 2019, a 4.76% increase from the month before.

Public Investment Bank said the mortgage portfolio was only RM240 billion in 2011. Currently, it is about RM600 billion, so the hike in non-performing loan figures should not be viewed in isolation or should be downplayed.

I was even more shocked at how quickly we have been accumulating mortgages for the past decade, which is about a compound annual growth rate (CAGR) of 12.14% across eight years. Our annual salary increment is not growing at nearly the same amount.

I believe Malaysians have still managed to afford properties this past decade because we have transitioned into a dual-income economy. It is common to see both spouses chipping in for monthly loan instalments. But this also means that we are slowly stretching our capacity to service loans – unless we would like our children to pitch in as well.

Coupled with a high debt-to-service ratio, it is not hard to see the figures for non-performing loans inflating in the near future. In fact, our household debt-to-gross domestic product (GDP) ratio is above 80%, higher than that of our regional neighbours.

Meanwhile, the government has initiated the National Affordable Housing Policy, pledging to flood the property market with one million affordable houses. One might ask, will flooding the market with more properties help solve the property glut issue and tackle the problem of ever-increasing debt accumulation within the lower-income group?

Even recently, with Bandar Malaysia receiving the official green light, part of the deal was to have IWH CREC Sdn Bhd build 10,000 affordable homes within Bandar Malaysia, 5,000 more than initially planned.

It might be wishful thinking to believe that 10,000 low-income families will purchase such properties in the Klang Valley. What is more likely to happen is that these properties will be bought as investment vehicles to be rented out for passive income, unless strict guidelines are in place.

So what exactly is the core issue here? Is it that residential properties, in their current state, are highly unaffordable?

There is nothing much the government can do to lower property prices without artificially injecting monetary incentives. Land prices only constitute about 15% of the overall cost of property development, while construction and building costs are outside of the government’s control.

This is why I advocate zero control over property prices. Let the property market be subject to market forces – pure supply and demand – and leave the property developers to fend for themselves.

If catering to the low-income group is a priority, have the government play in a field over which it has more control, but which severely lacks attention: People’s Public Housing (PPR) and rental laws.

PPR policies are in dire need of more enforcement. We have a PPR resident flying business class, claiming that she didn’t know her flat was meant for the poor. Our enforcement regarding PPR guidelines are also seriously lax, and this high-flying lady is by no means the only one taking advantage of the situation.

Why not upgrade and expand existing PPRs, and evict tenants who are definitely overqualified to live in such spaces? Why haven’t we established a proper tenancy law to tackle racism in tenant selection and landlord abuse? Surely these are more pressing issues for the lower-income group than buying a home.

Why are we so gung-ho about pushing the homeownership agenda among the lower-income groups anyway? The capital can be better used for career and educational opportunities that could push them up the income ladder, rather than raising debts that they can barely afford.

In fact, now would be the best time to embrace the rental agenda. Urban millennials are much less inclined to own property and would rather rent, to free up capital for other purposes. They are starting to view property as just another investment tool, no different from the surge of fintech investment platforms available on the market.

As for the rural and unprivileged folks, we should focus on giving incentives for renting, rather than forcing them to shoulder a huge commitment that they may or may not be able to afford.

Why not incentivise investment firms and real estate investment trusts to own and manage residential properties for lease to underprivileged tenants? Why not offload the risk of running PPRs to other private entities?

While the government is currently in hot water over a multitude of other issues, it should focus on long-term, sustainable policies that solve real issues, regardless of whether they are popular or not.
Because at this point, I am not entirely certain if pushing the affordable housing agenda will be a cost-effective and proven way to elevate the quality of people’s lives.
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