It comes as no surprise that housing woes are among the key talking points in the country. Malaysians have in recent times said just how expensive it is to buy a house, and data would show that house affordability in Malaysia has reached severe levels.
For many, the housing market is at a state where market demand does not mesh with supply, and to find a solution, Bank Negara met with people who are involved in the industry.
In a statement, the central bank listed out what was discussed and gave its input as to how to tackle those issues. The statement was broad and one needs to read between the lines as to what the central bank might be saying.
Bank Negara is no stranger to the evolution of the housing industry. Its rules and guidelines affect one crucial aspect for the industry to prosper, which is in regulating the provision of housing loans by financial institutions. It reiterated that point by saying that income and credit are key determinants of house prices. If loans are hard to come by, then demand for houses will fizzle out.
People have blamed the central bank for placing hurdles in the way of the industry continuing its uptrend, but that was done for a reason. As it mentioned in its statement, the average price of a house in Malaysia between 2013 and 2014 rose beyond levels that were consistent with macroeconomic stability and the country’s economic fundamentals. In short, houses became more unaffordable and this is creating a social issue now. And if not for the ban on the developers’ interest-bearing scheme, which must be maintained, and prudential lending guidelines, that situation would have been far worse today.
Bank Negara also stated that imbalances in property prices are noticeable in selected areas, meaning the Klang Valley, Penang and Iskandar Malaysia, and price segments, which indicate that fewer affordable houses are being built. As pricier houses are built in those areas, people have to endure greater debt levels to own a home, taking up much cash that would have gone to dealing with the cost of living issues.
The findings of the meeting with industry reps also suggest that government intervention is needed to ensure a minimum quality standard of homes for Malaysians. What that minimum is is not specified, but there is a base-case where homes should be built for families in mind and it should be of a certain size.
The statement also touched on the 2007 global financial crisis that had its origins in sub-prime mortgage lending, and the central bank said that that should serve as an important lesson on factors that can increase risks in the housing market, with far-reaching consequences for financial and macroeconomic stability.
What that could have meant was the proposal for developers to provide bridging financing, in short providing buyers with 100% financing, could be counter-productive because it may lead to a subprime situation and buyers may end up in financial hardship.
Policy options such as rental was also discussed, where people could rent before owning a unit. That, the central bank said, needed to be monitored to prevent abuse. Rent-to-own schemes are popular in other countries, and in Germany, the rental aspect of the housing market is a prominent feature. Tenants make up 85% of the market in Germany and recently one local council bought private units to prevent an escalation of rent, protecting people while providing them with an affordable place to stay.
Bank Negara also indirectly said that measures to increase house ownership should not come at the expense of allowing market forces to do their work. One way of reading that is letting the lull in demand bring down prices instead of finding more creative ways to pump up housing demand that will push prices upwards and out of reach for more Malaysians and create more problems for the economy at a later date.
The statement ended by stating that price thresholds for affordable housing need to be realistic, as house prices remain out of reach for many low- and middle-income households. That means pricing of affordable homes has to take into account what people are earning, in particular, the low- and middle-income groups.
With the median household income at RM4,585 in 2014 and 65% earning less than RM6,000 a month, dealing with the affordable housing issue and having realistic affordable prices is important. And more so in urban areas, which is a key policy the Government should focus on.
Malaysia is becoming more urbanised, where by 2020, the rate of urbanisation should rise to 75% and 80% by 2030, according to the Economic Planning Unit.
As it is, urban poverty has become a problem and the supply side of the equation has to be dealt with when it comes to homes in urban areas.
The mass rapid transit will help move demand to the fringes of the Klang Valley and open up housing avenues for more Malaysians seeking to buy a house. A transportation solution or some mechanism is needed also to tackle house pricing woes in other urban areas. But housing is not just an industry where the pursuit of profit should be the main priority. Social welfare too needs to be taken into consideration when devising a long-term housing policy that will see more liveable houses in an affordable range.