Various models can be used to determine affordability but, in Malaysia, there is no consensus on the most suitable model. There are arguments on whether housing affordability should be measured as a short- or long-term financial capacity issue or based on the city-tier system.
The most widely adopted model is the median multiple. Median multiple is median house price as a multiple of median annual household income.
Khazanah Research Institute (KRI) defines housing affordability as a function of both house prices and income, and a yardstick of “affordable” is a median multiple of 3.0 times.
“Using the median household income 2019 published by DOSM and the affordable housing range based on KRI’s calculation of 3.0 times the median multiple, affordable house prices in most states are lower than the median house price. It appears that house prices are not within the affordability of the household, except for Putrajaya and Melaka.”
Many Malaysians have complained that house prices in the country are too high. The median house price is far above the affordable housing price. Some would even argue that one can barely find a house with the aforementioned median house price, except for those in government housing schemes.
In fact, most house prices could be much higher than the median house price. Add to that other expenses such as maintenance fees, transport (public transport, car loan and petrol), food, insurance and entertainment, and one would be hard pressed to find any savings left over at the end of the month.
Take, for example, Kuala Lumpur and Selangor, which collectively have a larger population than other states, owing to urbanisation. If prospective buyer Ali were to opt for a RM470,000 property in Kuala Lumpur (as suggested in the table) and obtain a 90% loan at an interest rate of 3% for 30 years, the monthly repayment is about RM1,780.
If the property is a stratified property, he would have to pay a monthly maintenance fee and contribute to a sinking fund. There are also other fees, such as the monthly Indah Water bill, the half-yearly assessment tax and the annual quit rent/parcel rent.
In general, the maintenance fee in a condominium in Kuala Lumpur is 25 to 35 sen psf. Assuming the condo is 1,000 sq ft, at 25 sen psf, the monthly maintenance fee is RM250. That translates into a minimum monthly expense of about RM2,030 for the loan repayment and maintenance fee alone.
According to Department of Statistics Malaysia (DOSM), the current household income is gross household income and includes income payable as tax and to a social security scheme. The final disposable income varies, depending on individuals’ eligibility for different tax reliefs and other payments.
Take, for example, the case of a young, single-income household of a married couple without children in Kuala Lumpur. With the median household income of RM10,549 and no other tax deductions, the estimated monthly household income after income payable is RM9,548.
The minimum monthly expense of RM2,030 is one-quarter of the estimated monthly household income after income payable of RM9,548.
But, what can you really get in Kuala Lumpur with RM470,000? How about a property with a built-up of at least 1,000 sq ft, three bedrooms and two bathrooms? EdgeProp.my listings shows that there are many older, non-landed properties — especially apartments — priced at or below RM470,000 in various parts of KL.
As for landed properties, there are a limited number that fit the bill and they are all older townhouses as well as 1- to 2-storey terraced homes in Cheras, Kuala Lumpur, Kepong, Sri Petaling, Sentul and Wangsa Maju.
Data by DOSM and Napic suggests that between 2016 and 2019, the number of residential developments increased in tandem with household growth. During that period, about 100,000 new households were formed every year while the annual new completion of residential property was around 80,000 units.
Based on DOSM’s estimate of a population of 32.65 million in 2020, against the existing total residential housing stock of 5.84 million units and the 2019 household size of 3.9 persons, the number of living quarters required is 8.37 million units. It appears that there is a shortage in housing supply of 2.52 million units?
In 2019, residential properties contributed almost half of the country’s property overhang, with 30,664 units valued at RM18.82 billion. Serviced apartment overhang continued to form the bulk of the property overhang, with a total of 17,142 units worth RM15.04 billion.
Nevertheless, for property consultants, property overhang does not equate to oversupply. Instead, their interpretation is that “property overhang [is] due to the mismatches of location, pricing and product”, which has to be examined from a micro perspective.
Location and product mismatches, to an extent, are more pronounced in affordable housing projects as a result of cost justification. Taking the development guidelines for affordable houses as an example, the minimum space requirement of 600 to 800 sq ft (which varies by affordable housing schemes) with three bedrooms is inadequate for long-term living by a typical four-person family. It has to be noted that KPKT [Ministry of Housing and Local Government] recently acknowledged this shortcoming and is looking to revise the guidelines.
All related parties — the government, the authorities, property developers and banks — need to work together to solve the issue of disparity between income and house prices. The government should ensure that integrated data on demand for and supply of homes — based on various factors that include income level, affordability and pricing — is available.
While property developers should carry out studies on the developments to be built, authorities also need to make sure that approvals are given only to projects that match the actual requirements and affordability. And banks have to act more prudently with feasibility studies for any bridging loan or even end-financing schemes.
Reference:
Cover story: The disparity between income and house prices, Racheal Lee, The Edge Malaysia, November 24, 2020 (https://www.theedgemarkets.com)
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