A Frankly Speaking comment in the latest issue of The Edge Malaysia (Nov 12 – 18, 2018)
The issue is not availability. It is affordability.
That is why there are hundreds of thousands of unsold houses and apartments across all price ranges. Indeed, homes below RM500,000 make up around 50% of unsold residences. These include affordable homes built by the government via PR1MA.
There are two sides to affordability. On one side is income and access to financing, and on the other is the price of the home.
Home prices have rocketed in recent years while incomes have not. This is a structural fault of the economy that will take years and much pain to solve, if it can be fixed at all.
As a result, according to Bank Negara Malaysia, those earning an average Malaysian income can only afford to buy homes that are around RM300,000.
If we follow this guideline, most Malaysians should not and cannot afford to buy homes.
Renting is what the central bank encourages.
But renting does not build equity or savings for the future. The real winner, if most Malaysians choose to forever rent, will be the property owning class, who are likely to own multiple properties.
It will be a case of the well-to-do landlords getting richer while the less well to do and the poor become permanent renters, unable to build equity in the form of a property, if access to home ownership is restricted.
What are the solutions?
If incomes are too low while home prices are too high, the obvious solution should be to raise income by, say 25%, while also forcing the prices of unsold homes down by 25%.
Affordability would improve by 50% and all the unsold stock could be cleared and hundreds of thousands more Malaysians could own their own homes.
This is just a mathematical calculation. Economics and finance, however, do not work that way.
We know the damaging consequences of raising wages across the board by 25% in one fell swoop just to address the housing affordability problem. Same with forcing home prices down by 25% – it would destroy the value of all properties, not just the unsold ones, by the equivalent amount. It destroys wealth.
Because their incomes did not rise fast enough, many Malaysians resorted to bank borrowings to own their dream homes. This expansion in debt from 2009 to 2015 has made Malaysian households one of the most leveraged in Asia today.
This is why a solution has to be found whereby debt should no longer be the ONLY way for people, especially young Malaysians, to buy a home.
Under the newly launched FundMyHome scheme, in which equity put in by investors replaces lending by banks, first-time homebuyers will not be burdened with mortgage payments in the first five years of ownership.
This five-year breathing space is critical to allow them to build up their savings as their income rises, thereby enabling them to be in a better position to take up a normal mortgage later.
In short, FundMyHome gets them past the door into homes that they would otherwise be shut out of. This way, a home of their own may no longer be just an elusive dream for many young Malaysians from less well-to-do families.