ONE way to address the issue of housing ownership among young people in the B40 (low income) group is to implement a rent-to-own (RTO) scheme offering affordable housing units.
Why an RTO scheme when the houses are “affordable”? But affordability varies from state to state and not everyone will be able to afford even the “affordable” houses. The crux of this issue is that anecdotal evidence has shown that it will become harder for young people to purchase a house in these challenging times when employability is uncertain for new entrants in the labour market. They risk not being able to earn a stable and sufficient income.
In May, Federal Territories Minister Tan Sri Annuar Musa announced that the government is considering an RTO scheme for B40 youth in Kuala Lumpur who are civil servants or running their own businesses but cannot afford their own homes.
Under the proposed scheme, over 1,000 housing units will be rented out for between RM800 and RM850 a month while waiting for affordable houses priced less than RM200,000 to be built. Once the housing projects are completed, the rental payments can be used as a deposit for the new house or returned to the renters as a rebate.
Perhaps the same scheme can be implemented in other states, say, for youth who have to reside outside their home state for work purposes and want to own a house but cannot afford it. They could be given the option to rent first at affordable rates for a few years and then allowed to buy the house at the end of the rental period or when they can get a mortgage from the bank.
This scheme can offer an attractively low entry cost because tenants would not need to pay the 10% down payment that buying a house requires. To make it work-
able, the government, financial institutions and property developers must collaborate in the most effective and coordinated way.
A scheme like this could help to address worries about home ownership among the youth who face issues like difficulty in getting loans and insufficient funds to pay the 10% down payment.
It could also help solve the issue of property overhang (ie, completed but unsold property) in the country which involves affordable homes priced between RM200,000 and RM300,000 accounting for 43% of total property overhang in the first half of 2019, according to the Valuation and Property Services Department as reported by various media.
This measure can be in conjunction with the Housing Integrated Data System whereby buyers can select their preferred location and type of house that suits their incomes, expected to be ready by next year. With this convenience, underprivileged youth can be prioritised in the allocation process of affordable housing units because if they are still unable to afford a house, they can be directed to the RTO scheme.
The Home Ownership Campaign has been lauded by the public due to its incentives but an RTO scheme could be another boost to help youth to afford their own homes.
Considering young people are likely to be part of the B40 group who allocate the highest share of their expenditure to housing – 25.6% – and income growth tends to not keep up with the rise in house prices, the issue of housing affordability among youth should be addressed.
With that being said, the rental market should be strengthened further to become a viable option for youth who are financially burdened in the short term. Hence, an RTO scheme should be one of the action plans considered by the government.
SOFEA AZAHAR
Emir Research
Note: The letter writer is a research analyst at Emir Research, a think tank focused on strategic policy recommendations.
Why an RTO scheme when the houses are “affordable”? But affordability varies from state to state and not everyone will be able to afford even the “affordable” houses. The crux of this issue is that anecdotal evidence has shown that it will become harder for young people to purchase a house in these challenging times when employability is uncertain for new entrants in the labour market. They risk not being able to earn a stable and sufficient income.
In May, Federal Territories Minister Tan Sri Annuar Musa announced that the government is considering an RTO scheme for B40 youth in Kuala Lumpur who are civil servants or running their own businesses but cannot afford their own homes.
Under the proposed scheme, over 1,000 housing units will be rented out for between RM800 and RM850 a month while waiting for affordable houses priced less than RM200,000 to be built. Once the housing projects are completed, the rental payments can be used as a deposit for the new house or returned to the renters as a rebate.
Perhaps the same scheme can be implemented in other states, say, for youth who have to reside outside their home state for work purposes and want to own a house but cannot afford it. They could be given the option to rent first at affordable rates for a few years and then allowed to buy the house at the end of the rental period or when they can get a mortgage from the bank.
This scheme can offer an attractively low entry cost because tenants would not need to pay the 10% down payment that buying a house requires. To make it work-
able, the government, financial institutions and property developers must collaborate in the most effective and coordinated way.
A scheme like this could help to address worries about home ownership among the youth who face issues like difficulty in getting loans and insufficient funds to pay the 10% down payment.
It could also help solve the issue of property overhang (ie, completed but unsold property) in the country which involves affordable homes priced between RM200,000 and RM300,000 accounting for 43% of total property overhang in the first half of 2019, according to the Valuation and Property Services Department as reported by various media.
This measure can be in conjunction with the Housing Integrated Data System whereby buyers can select their preferred location and type of house that suits their incomes, expected to be ready by next year. With this convenience, underprivileged youth can be prioritised in the allocation process of affordable housing units because if they are still unable to afford a house, they can be directed to the RTO scheme.
The Home Ownership Campaign has been lauded by the public due to its incentives but an RTO scheme could be another boost to help youth to afford their own homes.
Considering young people are likely to be part of the B40 group who allocate the highest share of their expenditure to housing – 25.6% – and income growth tends to not keep up with the rise in house prices, the issue of housing affordability among youth should be addressed.
With that being said, the rental market should be strengthened further to become a viable option for youth who are financially burdened in the short term. Hence, an RTO scheme should be one of the action plans considered by the government.
SOFEA AZAHAR
Emir Research
Note: The letter writer is a research analyst at Emir Research, a think tank focused on strategic policy recommendations.
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