Malaysians Cannot Afford a Home?

According to the median multiple methodology developed by Demographia International and recommended by the World Bank, United Nations and Harvard University, a house is deemed affordable if it is priced not more than three times the annual household income, said BNM’s Financial Surveillance Department director Qaiser Iskandar Anwarudin.

In Malaysia, the median multiple affordability is already higher than not three but four times since 2002. It peaked at 5.1 times in 2014 and 5.0 times in 2016.

Source: DOS, NAPIC, The Star

According to Khazanah Research Institute, the median house price for the country grew at a compound annual growth rate (CAGR) of 23.5% between 2012 and 2014, while median household income grew at only 11.17% over the same period, less than the half of the rate of increase in house price.

Not only reducing buyer’s affordability, higher house prices also lead to housing loan rejection. According to Bank Negara director of financial surveillance Qaiser Iskandar Anwarudin, 80% of the housing loans were rejected because the house was priced more than three times the applicant’s annual income ratio.

Kuala Lumpur, Selangor, Penang and Johor are four states facing serious housing affordability issues in Malaysia. In Kuala Lumpur, for example, the actual house price median is RM793,000 while the maximum affordable level is RM454,000. Negri Sembilan has the most unaffordable unsold properties. For context, about 92% of unsold units in the state are priced above the maximum affordable house price, according to Qaiser.

There are various government housing schemes to facilitate homeownership, including Skim Rumah Pertamaku, Skim Jaminan Kredit Perumahan, Skim Rumah Selangorku, Skim Perumahan Mampu Milik Pulau Pinang, PR1MA, and so on. In the Budget 2020, the Finance Minister Lim Guan Eng announced that the government will collaborate with financial institutions in introducing a Rent-To-Own (RTO) financing scheme. Under this scheme, the applicant will rent the property for up to five years and after the first year, the tenant will have the option to purchase the house based on the price fixed. According to Lim, through this scheme, financing of up to RM10 billion will be provided by the financial institutions with support from the government via a 30 per cent or RM3 billion guarantee.

Will this work? No, not really! Why? The root case is supply of affordable housing. And that is related to land price, cost of construction, location and so forth. So the idea of 1 million new homes over 10 years as the Ministry of Housing and Local Government suggests could be a “pie in the sky” or more appropriately “house in the sky”?

Reference:

1. Many cannot afford a home in the city, 27 Apr 2019, The Star

2. Houses in Malaysia ‘seriously unaffordable’, says Bank Negara, 24 Oct 2019, Free Malaysia Today

3. House prices beyond affordability of most Malaysians, 25 Oct 2019, The Star

4. Budget 2020: Purchasing of homes easier with rent-to-own scheme, 11 Oct 2019, MalayMail