Quest for Malaysian Affordable Homeownership post-Budget 2018
Affordable housing has been the buzzword among Malaysians for quite some time now. However, local residents are finding it increasingly difficult to obtain end-financing for their first house let alone their dream home. This is largely attributed to increasing property prices, higher living costs, stagnant income wages, insufficient household savings, and a mountain of personal debt. The federal and state governments have each launched affordable housing schemes — including PPR, PR1MA, Rumah Selangorku, Rumah Impian Bangsa Johor (RIBJ). This is to enable the lower and middle-income group fulfill their dreams of home ownership. Nowadays, real estate developers have shifted their focus towards building affordable housing to cater to the demand from the public. So what more can be done to provide more affordable housing in Malaysia? The recent unveiling of Budget 2018 also provided some hints and clues to the real estate market outlook next year, particularly within the residential housing sector.
Prospective homebuyers during the recent KPMM-MAPEX 2017 at Shah Alam Convention Centre (SACC)
Affordable housing in the Malaysian context is based upon the gross income of consumers, in particular the house buyers. The sign of a healthy and functional residential market is calculated at roughly three times the gross annual income. The ideal monthly repayment for a house should not exceed thirty percent of the total household income. Based on the above criteria, Bank Negara has suggested that affordable homes in Malaysia are based on the monthly median income of RM4,585, whereas the annual median income of RM55,020 is between RM165,000 and RM242,000 . The overall prices are 4.4 times the median income.
Throughout the states in the Peninsular, house price in Kuala Lumpur is approx. 5.4 times the median household income. In Pulau Pinang, it is around 5.2 times, Johor about 4.2 times and Selangor 4.0 times during the past two years. The current figures or statistics is most probably much higher today. Simply put, homes in Malaysia are simply unaffordable! As such, policies and programmes to encourage home ownership should be aimed or targeted at reducing the price of houses towards the affordable range of between RM250,000 and RM300,000. Moreover, having access to cheap land is also vital to breaking the affordable housing impasse between housing developers and home buyers in Malaysia.
Way back in 2014, just 21% of new housing scheme launches were priced below RM250,000. Just a few years later, there already exists a gross oversupply of houses priced above RM500,000, and an under-supply of houses priced below RM250,000. Instead of putting into place policy interventions to reduce the price of houses, developers are constantly putting pressure on the banks to furnish home loans to buyers who cannot afford these houses. Developers ideally want banking institutions and Bank Negara to ease lending practices to make it more accessible for people to own properties. Building over-priced houses and pressuring banks to dish out more flexible housing loans does not help the stagnating residential market. Ultimately, property developers will have to strike a balance between making outlandish profits and making homes more affordable.
The burden of building more affordable housing rests not only on real estate developers but also requires governmental intervention and political will to come to fruition. The Federation of Malaysian Consumers Associations (FOMCA) has long urged the federal government to ensure that priority be given to building homes that Malaysians can truly afford. Affordable homes for the local housing market are still lacking and insufficient. Regulating housing price and curbing property speculation is another challenge for the real estate sector. The policy espoused by Fomca is to make property speculation exorbitant in order to protect new homebuyers. The Government must ensure that all Malaysians have access to affordable housing, and to promote a robust rental market so as renting becomes a viable option. The Government must also invest in financial education among consumers to create greater awareness, to amass knowledge on prudent financial management, and to make informed decisions in the property market.
To characterize affordable homes in Malaysia as severely unaffordable is a gross understatement. Two years ago, only 35% of the new housing supply in the local market was rather affordable. The year before that, the supply of affordable houses stands at 75%, with the remaining residences costing above RM500,000. Housing problems were not just about access to credit or end-financing. It is an issue of having insufficient household income, or that existing houses are simply too costly. Having access to housing loans and financial credit is also an important aspect to solving the unaffordability crisis of affordable homes. One time-tested method is through tax incentives for developers which will spur them to build more affordable houses, in addition to luxury homes currently being developed.
According to the National Property Information Centre (NAPIC), or Jabatan Penilaian dan Perkhidmatan Harta (JPPH), less than 30% of new housing launches in 2015-2016 were for those priced less than RM250,000, compared with almost 70% in 2008-2009. The official position of Bank Negara Malaysia (BNM) on this fact is crystal clear, with its 2016 Annual Report showing that people earning less than RM3,000 could finance a home worth RM176,000, whilst those earning RM5,000 and below could only afford up to RM283,000. And those earning below RM10,000, they can only fork out RM515,000. The report also stressed that two-thirds of the current supply of residences in the country were truly not affordable.
The continually rising cost of living within Malaysia coupled with the increases in fuel price, toll hikes and household costs have caused its citizens to demand a greater reduction in income tax as well as the development of more affordable housing schemes. As Malaysia has a relatively young population and workforce, and there is relatively strong demand for affordable residential properties within the urbanities (i.e. urban cities). With escalating transport costs, this young and growing segment of property seekers are looking for a property in the cities, often close to their workplace. Since the demand for such property is substantially high, there is more incentive and opportunity for property developers to build such properties. Residential properties priced above RM500,000 are only within reach of households earning at least RM15,000 per month, a financial burden indeed.
Many want to buy homes but are unable to obtain loans, or the loans offered are significantly lower than the price of the home. According to the global property guide, the average price (Quarter 3 2015) of a terraced house is RM 278,223. High-rise residential properties’ averaged RM 296,826. While detached house averaged at RM 524,260 and a semi-detached house averaged at RM 469,823. Malaysia has a successful low cost home scheme called the People’s Housing Scheme (PPR) and this has allowed low-income Malaysians to have a roof over their heads. However, the PPR is confined to those who are in the bottom-40 (B40) income bracket. To address the concerns of middle-income earners, especially younger Malaysians, the PR1MA scheme was introduced where the Government allocates land for homes to be built thus keeping the cost low.
Meanwhile, MyDeposit scheme was first introduced to assist eligible or qualified first-time house buyers to obtain loans to purchase their homes but could not come up with the deposit. There is still an array of options available for most Malaysians who wish to buy a home. But the question remains, should developers build more affordable housing which will reduce their overall profit margins? According to the latest property price index, homes have more than doubled in price within a span of ten years. Ironically, there are fewer homes built today compared to during the last decade. Demand is rather adequate but supply is still insufficient. Taking into account inflation and GST, home prices have sky-rocketed dramatically. The Government can do little to intervene in the mainstream market as general economics is governed by the immutable laws of supply and demand.
The clarion call by Housing Buyers Association (HBA) is that the Government ought to offer more incentives to private housing developers to build affordable properties. Other options include alienating land at lower cost, giving fast-track approvals and even tax exemptions. In addition, HBA has called for the cost of laying the last mile of utilities such as sewage, water, electricity, and telecoms to be borne by the respective utility company to lower property cost. Budget 2018 is specifically focused on the Government’s initiative to build one million homes. Prime Minister Najib Tun Razak tabled the annual budget in Parliament in late October this year, in tandem with the Government‘s mission to intensify efforts to increase home-ownership by year 2020, with an allocation of RM2.2 billion.
The budget will be used for 17,300 units under the People’s Housing Programme (PPR), 3,000 units of People’s Friendly Home under SPNB, and 210,000 houses under 1Malaysia People’s Housing Programme (PR1MA) with prices at RM250,000 and below. RM1.5 billion will also be allocated for 25,000 units under the 1Malaysia Civil Servants Housing Programme (PPA1M) and another 600 units under MyBeautiful New Homes (MyBNHomes) scheme for B40 households in Pahang, Terengganu, Melaka, Johor, Sabah & Sarawak, as well as indigenous settlements. The so-called “step-up financing scheme” poses a slight drawback or disadvantage to new homebuyers. Since the lending criteria is relaxed for higher end-financing, developers will most likely take advantage to drive up housing prices fully aware of the financial capability of such new house buyers. This leads to an overall increase in property price for newly-completed properties. Also, to encourage the construction of more affordable homes for the public, this specific scheme introduced by PR1MA would also extend to private housing developers.
The Government also plans to give tax exemptions of 50% on rental income of up to RM2,000 a month. Having a tax exemption would encourage more speculative activities by investors club and also property syndicates. This drives up property prices more, further depriving deserving citizens from owning their own homes. In promoting the rental of residential homes, the government proposes a 50% tax exemption on rental income received by resident individuals not exceeding RM2,000 per month for resident individuals. The exemption takes affect from 2018 to 2020. The formulation of Residential Rental Act (RRA) is to protect the landlords and tenants, and to minimize conflicts between the two parties. The government should take measures to slow down escalating property prices by increasing the entry and exit cost of owners of multiple properties such as increasing the stamp duty as well as the real property gains tax (RPGT).
In Budget 2018, the perennial focus is on short-term bread & butter issues such as slashing income tax, providing financial assistance to lower-income groups, and also increasing the allocation for more affordable housing. The primary focus is on building more than 385,000 affordable homes shows that the federal government is taking firm and positive steps to proactively address the challenge of home-ownership within the lower-income strata or population. The 1Malaysia People’s Housing Programme (PR1MA) step-up financing scheme to private housing developers is a positive step towards encouraging and facilitating affordable homes to the masses. Yet, Budget 2018 lacks specific elements such as relaxation to debt service ratio, and the untimely much-awaited return of the Developer Interest Bearing Schemes (DIBS). These vital instruments could have infused the housing or residential market with a much needed boost or momentum. – HFM