Tuesday 22 October 2024

Household Income is Rising Disproportionately!

Clean water, steady electricity supply, property sanitation and a solid roof over one’s head. These are necessities. Under the 12th Malaysia Plan (12MP), the Malaysian government aimed to construct 500,000 affordable housing units. A total of 69.3% of its goal was achieved by September 29, 2024. The 2024 Budget further saw the completion of 19 new People’s Housing Programme (PPR) projects that provided 6,006 units benefiting 24,000 low-income households.

Real Estate and Housing Developers' Association Malaysia (Rehda) Institute defines affordable housing as units priced between RM200,000 and RM500,000, catering to specific target markets and locations. As for affordability itself, Bank Negara Malaysia (BNM) considers a house affordable if its cost does not exceed 30% of an individual’s gross monthly income. Price-to-income ratios are not to be higher than 3.0, but in recent years it has spiked to more than 4.3. Additionally, households today report being over 85% in debt.

 

Source: https://www.wikiimpact.com

 House prices grew faster than most Malaysians' salaries between 2012 and 2022. This is according to the National Property Information Centre (Napic) and median household income from the Department of Statistics Malaysia (DOSM). While the median house price increased by 7.5% to RM350,000 by 2022, annual salaries increased by 5.75% year over year to reach RM76,506 during this period. As a result, the median house price-to-salary ratio, or median multiple, was 4.6 (RM350,000/RM76,506), considerably higher than BNM’s suggested affordable price-to-income ratio of 3.0.

Malaysia has experienced a significant shift towards urbanisation, with nearly 78% of households residing in urban areas in 2022, up from 67% in 2002. This urbanisation, however, has not been accompanied by a uniform distribution of economic prosperity. 

A possible initiative discussed is for the state government to purchase houses from the open market and rent it to those who cannot afford it. This is in strategic areas such as urban or developed locations. (Have a review of the Australian Model). 

Another idea by Rehda is the setting of up a national affordable housing trust for developers to contribute a certain percentage of their gross development value (GDV) for affordable housing construction. The tradeoff, however, would be that the responsibility of building affordable housing will solely rest on the government’s shoulders. 

To facilitate the purchase of affordable housing, banks could implement several measures. One such measure would be to offer 100% margin loans to purchasers, eliminating the need for a down payment. Additionally, banks could absorb interest payments during the construction stages, reducing the financial burden on buyers. Furthermore, allocating 30% of their loan portfolios to affordable housing initiatives would demonstrate a commitment to providing accessible homeownership opportunities. 

Another potential strategy to support affordable housing involves providing financing of up to 110% of the property value. This would enable buyers to cover additional costs, such as renovation or furnishings. To prevent speculative buying and ensure that the property remains affordable for first-time homebuyers, a resale moratorium of ten years could be imposed. 

Malaysia's housing market has long been a vital economic sector. The nation must have a enough supply of reasonably priced housing as its population rises.

 

Reference:

Household income rising disproportionately with house prices, Samantha Wong, Star Property, The Star, 11 October 2024

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