Yet another housing affordability article, this time by Malaysiakini...

Reaffirming my views that there is over speculation of the property market, developers should now look at providing homes for the masses with a view for longer term appreciation instead of for short term flipping. This involves:

1. Doing away with DIBS - basically this just adds into the costs of the property rather than make them easy to own

2. Provide basic homes - no furnishing package, no fancy kitchen etc

3. Focus on family layout instead of SOHO, SOFO, SOVO, SOwhatever marketing ploys

The Widening Housing Affordability Gap

by Khairie Hisyam

A hot button topic in the Malaysian property circle at the moment, housing affordability is a sore point for many Malaysians who can only dream of owning a house to call home.

Amid talk of surging house prices being unsustainable and pointing towards a property bubble in the residential property sector, the fact is that the man on the street has little care for such market concerns —he just wants a roof over his family’s head.

With that in mind, the prevalent feeling these days is that houses are increasingly becoming too expensive for many Malaysians in the middle-income segment, who can only look on as prices surge faster than their income levels can keep up with.

That’s how it feels for Anne, 27, who recently welcomed her first child. Together with her husband, her household earns between RM3,000 to RM5,000 a month but finds that prices for houses that suit their needs are too high.

“The right ones are too expensive, while the ones we can afford are not suitable,” said Anne to KiniBiz. “Often the affordable ones are too small and in poor locations.”

Farlina, 26, concurs, saying that she and her husband just want a safe house in a location that fits nicely between their respective places of work.  “Prices are unbelievable. Some intermediate houses are up to RM450,000 where we’re looking.”

The side effect of curbing household debt

In a previous series by KiniBiz on the property industry, there is much discussion highlighting excessive market speculation as the reason for skyrocketing house prices in recent years.  While some action has been taken in effort to curb the speculative elements, how much impact they have in helping genuine homebuyers remains to be seen.

For one, the real property gains tax (RPGT) was re-introduced in 2010 after a temporary exemption between April 1, 2007 and Dec 31, 2009, although with lower rates which has prompted some quarters to call for higher rates and tougher implementation.

There has even been the argument that further raising RPGT rates would accelerate the increase of house prices.

Additionally, concerns surrounding rising household debt levels have indirectly affected genuine housebuyers.  As part of a wider effort to curb the rising indebtedness of Malaysian households, Bank Negara recently capped capped mortgage tenures to 35 years, which also follows the issuance of its responsible lending guidelines to banks last year.

The indirect impact is that as banks tighten their lending criteria in response to Bank Negara, genuine housebuyers in the middle-income bracket find it harder to qualify. While Farlina and her husband collectively earn about RM8,000 per month, they can only apply for mortgages using her income.

“We did have problems with mortgage applications especially since my husband is self-employed,” said Farlina to KiniBiz. “And we can’t find a house using only my loan [capacity].”

Choong, 28, and her husband also faced problems with mortgage applications, especially when asking prices for sub-sale houses did not match the lower valuation given by banks. The dilemma then is whether to take less favourable terms or find a way to foot a huge down payment sum.

While Choong has since found a house her family can afford, she remembers very well the pressure to find the right house. “Before we got our home, we kept worrying that our household income may not be enough to buy a house because prices keep increasing day by day.”

The growing price-income mismatch

Choong’s concern is not just sentiment — house prices have indeed risen faster than income levels.

According to the 2012 Household Income Survey by the Department of Statistics, the national average monthly income of the Malaysian household is RM5,000, with an average annual growth rate of 7.2% between 2009 and 2012. The national median monthly household income stood at RM3,626 while the average annual growth rate between 2009 and 2012 is 8.1%.

KiniBiz via simple calculations found that earning RM3,626, a borrower with a 35-year tenure and interest rate of BLR -2.2% can expect to get  a maximum of RM239,156 in mortgage amount, but this figure precludes any debt obligations on the borrower’s part such as student loans, car loans and personal loans.

Given that cars and student loans are nearly a given for many Malaysians, the actual amount they qualify for is presumably much lower. For example, adding a monthly car repayment obligation of RM500 a month reduces the amount to RM203,476.

In comparison, the Malaysian all house price index rose by 9.9% and 11.8% in 2010–2011 and 2011–2012. Based on the Property Market Report 2012 published by the National Property Information Centre (Napic), Ministry of Finance, the national average transacted residential property price for 2012 is at RM248,515.

As income levels grow at a more stately pace, the inevitable implication is that house prices spiralling beyond what most of the middle-income group can afford to pay — and as they struggle to boost their income, prices are rising even faster than they can keep up with.

In addition, rural–urban migration is set to accelerate as Malaysia pursues its objective of becoming a developed and high-income nation. With certain areas being the focus of the population movement, the national average house price does not tell the whole picture.

Zooming in on certain ‘hot’ states, the average is higher — Kuala Lumpur for example sees an average house price of RM489,052 while Selangor’s average is RM338,508. The average house price in Penang is RM304,858. The distinction of highest average residential property price goes to Putrajaya with RM603,413 per unit.

The minister of urban wellbeing, housing and local government Abdul Rahman Dahlan has recently acknowledged affordability concerns, quoting the Department of Statistics in saying that 80% of Malaysians earn below the RM6,954 mark and they can only earn RM300,000 in mortgages.

Comparing the figure with Napic’s finding in its 2012 report that only 31.7% of new housing units were priced below RM250,000, Abdul Rahman said there is a “serious gap of about 40%” between supply of affordable housing and demand.

“Of concern is the fact that income growth has not been keeping in tandem with (rising house prices),” said Abdul Rahman in his keynote address at the 16th National Housing and Property Summit 2013.

Abdul Rahman also noted that rural–urban migration has led to high demand for housing in urban areas, leading to sharp price increases that often follow when demand outstrips supply.

“The free market has gradually skewed towards higher-priced properties whereas most of the existing public housing initiatives only cater for the low income group, and even these are insufficient to meet the demand.”

The middle-income dilemma

The result of the current housing scenario is that many Malaysians, who are already priced out of suitable houses in the first place, will gradually fall further behind as house prices continue to rise faster than their income levels can.

Then the question is: what can be done about the affordability dilemma plaguing those who — like Anne and Farlina— need housing?

“I hope house prices can be more affordable for those just beginning to work or start families,” said Anne. “Because these are the people who need houses but mostly cannot afford to buy one.”

Some point to the government, calling for action to put into place measures to counteract what is happening and arguing that public housing has always been the government’s responsibility everywhere in the world.

And the government has responded. In 2011, prime minister Najib Abdul Razak unveiled the 1Malaysia People’s Housing Programme (PR1MA), which will specifically cater to the middle-income group earning within a specified income bracket.

At the moment, PR1MA defines middle-income as earning between RM2,500 and RM7,500.

“The implementation of PR1MA will be of help towards achieving the National Housing Policy’s objective to provide sufficient, comfortable, quality and affordable housing,” said Najib in 2011.

While some has lauded PR1MA, others question its implementation, raising various issues concerning the programme.

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