Rethinking our affordable housing policy

LETTER | In the face of the Malaysian property glut and issues regarding affordability to purchase a house, it seems that our plastered-on short-term quick fixes are starting to burst through the seams.

Traditionally, when faced with a problem with low-take up in homeownership, the government will employ two strategies:

1. Building more affordable homes; and

2. Loosening lending regulations and encouraging mortgage uptake.

This is precisely what the government has done to help address the woes of both the public and property developers. But is it sustainable in the long term?

Bank Negara introduced an RM1 billion home loan scheme earlier this year to help make mortgage repayments much easier for first-time buyers. Last year, our Minister of Local Government and Housing Zuraida Kamaruddin called for Bank Negara to extend the mortgage loan tenure to 40 years.

Not to mention, there is also the Home Ownership Campaign 2019, where properties are given a discount and property buyers will have a stamp duty exemption. The Housing Ministry has also touted about how successful the campaign is in achieving RM17.66 billion worth of sales for about 28,000 houses.

However, what I see, is about RM15 billion worth of debt accumulated amongst the B40 and M40 group. By making mortgage finance much more accessible, debtors might lead to a risk of over-leveraging.

Recently, Bank Negara Malaysia has announced that our non-performing loans for residential property-backed mortgages have reached an all-time high since 2011. It was reported that bad loans for residential properties hit RM6.83 billion in October 2019, a 4.76 percent increase from the month before.

Public Investment Bank has even come out and said that the mortgage portfolio was only RM240 billion in 2011. Currently, it is about RM600 billion, so the hike in the non-performing loan figure should not be viewed in isolation (or should be downplayed).

Conversely, I was even more shocked at how fast we are accumulating mortgages for the past decade, which is about a compound annual growth rate (CAGR) of 12.14 percent across eight years. Meanwhile, our annual salary increment is not growing nearly at the same amount.

I believe that the reason why Malaysians can still manage to afford properties this past decade is because we have transitioned into a dual-income economy. Now, it is common to see both spouses chipping in for the monthly loan instalments. But it also means that we are slowly stretching our capacity to service loans, unless you would like your children to chime in as well.

Coupled with a high debt-to-service ratio, it is not hard to see the figures for non-performing loans inflating in the near future. In fact, our household debt-to-gross domestic product (GDP) ratio is above 80 percent, which is higher than that of our regional neighbours.

Meanwhile, the government has also initiated the National Affordable Housing Policy, pledging to flood the property market with one million affordable houses. One might ask, does flooding the market with more properties help solve the property glut issue, and tackle the problem of ever-increasing debt accumulation among the lower-income group?

Even recently, with Bandar Malaysia being officially greenlit, part of the deal was to have IWH CREC Sdn Bhd build 10,000 affordable houses within Bandar Malaysia, 5,000 more than initially planned.

What is more likely to happen...

It might be wishful thinking to believe that 10,000 low-income families will purchase such properties to work in Klang Valley. What is more likely to happen is that these properties will be bought as investment vehicles to be rented out for passive income, unless strict guidelines are in place.

So what exactly is the core issue here? Is it that residential properties, at the current state, are highly unaffordable?

There is nothing much the government can do to lower property prices without artificially injecting monetary incentives. Land prices only constitute about 15 percent of the overall cost of property development, while construction and building costs are outside of the government's control.

Hence, this is why I advocate not controlling property prices at all. Let the property market be subjected to market forces - pure supply and demand - and leave the property developers to fend for themselves.

If catering to the low-income group is a priority, have the government play in a field that they have more control of, but severely lacks attention - People's Public Housing (PPR) and rental laws.

PPR policies are in dire need of more enforcement. You have a PPR resident flying business class, claiming that she didn't know that her flat was meant for the poor. Our enforcement regarding PPR guidelines are seriously lax, and this high-flying lady is by no means the only one taking advantage of the situation.

Why not upgrade and expand existing PPRs, and evict tenants who are definitely overqualified to live in such spaces? Why haven't we established a proper tenancy law to tackle racism among tenant selection and landlord abuse? Surely these are much more pressing issues for the lower-income group than buying a house?

In fact, why are we so gung-ho about pushing the homeownership agenda amongst the lower-income groups anyways? The capital can be better used for career and educational opportunities that can push them up the income class, rather than raising debt that they can barely afford.

In fact, now would be the best time to embrace the rental agenda. Urban millennials are much less inclined to own a property and would rather much rent a property, to free up capital for other options. They are starting to view properties as just another investment tool, not much different from the surge of financial technology (fintech) investment platforms available on the market.

As for the rural and unprivileged folks, we should focus on giving incentives for renting, rather than forcing them to take up a huge commitment that they may or may not be able to afford.

In fact, why not incentivise investment firms and real estate investment trusts (REITs) to own and manage residential properties, to lease them out to underprivileged tenants? Why not offload the risk of running PPRs to other private entities?

While the present government is currently sitting in hot water for a multitude of other issues, it should focus on long-term, sustainable policies that solve real issues, regardless if these are popular or not.

Because, at this point, I am not entirely certain if pushing forward the affordable housing agenda is going to be a cost-effective and proven way to elevate the quality of lives of the rakyat.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.