MARC: Long-term policy solutions necessary

  • Business
  • Saturday, 04 Nov 2017

Cost factor: PR1MA houses in Putrajaya. MARC analyses the affordability issue is due to various factors

MALAYSIAN Rating Corp Bhd (MARC) says the housing affordability issue must be tackle using holistic long-term policy measures.

In its report “Affordable Housing Woes: Holistic Long-Term Policies Necessary”, MARC says the issue is a “complex” one that goes beyond just financing.

A solution to the problem would require, among other things, a rebalancing of the supply-demand dynamics of the housing market and effective implementation of medium- and long-term development measures to accelerate household income growth, the report says.

Access to adequate and affordable housing is a growing problem in Asia. In some countries, it is because of low incomes. In others, housing is expensive because supply is tight and access to financing is limited. In Malaysia, there appears to be a combination of factors at play, the report says.

In response to persistent calls to loosen mortgage lending in Malaysia to encourage home ownership, Bank Negara created a “Housing Watch” website with data showing that it is the lack of affordable housing, not access to credit, that is deterring home ownership.

MARC feels that “loosening mortgage lending to boost home ownership is not the way to go”, the report says.

Assess the potential adverse consequences before proposals aimed at encouraging home ownership through easy financing are considered, the report by MARC says.

> Household debt in Malaysia, at 88.4% of GDP (December 2016), is already among the highest in this region.

> About 43% (or RM467.1bil) of total household debt, according to Bank Negara’s Financial Stability Report 2016, is held by those with annual incomes of RM60,000 or less.

> Uncertain global environment. Challenges include tightening global financial conditions, heightened financial volatility, geopolitical uncertainties and risk of rising protectionism.

> Against such a backdrop, policymakers will likely prioritise financial stability and not growth.

So far, Bank Negara has done well in keeping the financial system stable and resilient, the report says.

Another issue

Financing aside, there may be another issue facing the country. On the sidelines of the Building and Construction Conference 2017 organised by the Master Builders Association Malaysia (MBAM) on Nov 2, the Real Estate & Housing Developers’ Association deputy president Datuk Soam Heng Choon said while supply can be an issue in some areas, building where there is demand is crucial. Soam is also IJM Corp Bhd CEO and MD.

Soam’s remark underscores research results by National Property Information Centre which show there is a huge overhang of affordable units in some states and these figures are not limited to just only the RM200,000-RM250,000 range.

In a nutshell, there is a shortage of such units in urban centres in the Klang Valley but this may not necessarily be so in other places.

The Prime Minister’s Budget 2018 speech underscores this when he said 1Malaysia Housing Programme (PR1MA) would build 210,000 homes costing RM250,000 and below.

“This is the first time PR1MA is going to launch homes with such a price as previously it launched them at between RM150,000 and RM200,000,” Bernama reported.

“So this time, with the allocation given by the Government, we hope PR1MA will concentrate on developing in places where there is strong demand, especially in the Klang Valley, Johor and Penang.”

The affordability issue is due to various factors. Between 2010 and 2016, prices surged by an average of 9.3% per annum (p.a.), compared to only 3.6% p.a. over the 2002-2008 period.

Since 2012, the growth pace of house prices has outstripped that of income levels, due in part to the fact that new supply “has increasingly become concentrated” in the higher-priced categories, said MARC.

According to the Bank Negara website, 80% of new Malaysian housing launches in the first quarter of 2017 were priced above RM250,000. Between 2010 and 2014, the proportion of the higher-priced category was significantly lower at 67%.

In urban states, more than half of unsold units are in the high-end high-rise segment. While both total incoming and planned supply of new residential properties have been seeing quarterly declines since at least the second half of 2015, in the case of high-rise units, these continue to rise.

The result is “acute oversupply” in the high-end segment at a time when there is a shortage in the affordable segment.

With the median annual household income of Malaysians at around RM63,000 (Household Income and Basic Amenities Survey 2016), many find the bulk of the newly launched homes unaffordable. The growth pace of Malaysia’s median monthly household income on a compounded annual growth rate basis has also moderated in recent years.

A house is considered affordable, according to the World Bank-recommended Median Multiple methodology used to evaluate urban housing markets, if it can be financed by less than three times a household’s median annual income.

The report also noted that the US mortgage crisis was due in part to easy bank credit access.

Before the crisis emerged, house buyers borrowed more than ever before, and those with bad credit qualified as subprime borrowers.

“We all know what happened to the ‘American Dream’ ... as many as 10 million families lost their homes to foreclosure during the crisis,” the report says.

That does not mean the issue of housing affordability can be ignored. Considering the complexity of the housing affordability issue, loosening mortgage lending requirements alone does not solve the problem and should not be treated as a long-term policy measure.

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