The Dire Need for Cheaper Homes

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Properties are unsold because of their “ridiculous” prices, where even RM9,000 income a month is not enough to buy a house.

  • Prices of homes increased 3 times more per year between 2009 and 2014 than annually from 2000 to 2009
  • Affordable range is 3.0 but average national house prices are 4.4 times of median income
  • Less than 30% new housing launches in 2015-2016 were for houses priced less than RM250k

The National House Buyers Association (HBA) says the real reason many Malaysians are unable to afford property is the “ridiculous” prices, with even households having an income of RM9,000 struggling to buy a house.

In an interview with FMT, HBA’s honorary secretary-general Chang Kim Loong dismissed the suggestion that banks were to blame for unsold properties.

Real Estate and Housing Developers’ Association (Rehda) had cited end-financing issues and loan rejections as the main reasons for unsold properties, with rejection rates as high as 60%.

“If you look at Bank Negara Malaysia’s 2016 annual report, you’ll see that since 2012, the increase in prices of houses has outstripped the rise in income levels,” Chang said.

He said this showed that average Malaysians just couldn’t afford to buy a house based on their income.

The affordability rating – the recommended benchmark for the affordability of homes endorsed by international bodies, including the World Bank and the United Nations, as well as Bank Negara – is derived from dividing the price of a house by the borrowers’ annual household income.

“Essentially, according to this benchmark, an affordable house shouldn’t cost more than three times a borrower’s annual household income.

“So if the borrower’s annual household income is, say, RM10,000 per month or RM120,000 per year, then the borrower should only be eyeing properties priced RM360,000 and below,” Chang explained.

He said according to Khazanah Research Institute, the prices of homes increased three times more per year between 2009 and 2014 than they did annually from 2000 to 2009.

It is said that the oversupply of properties has led to prices dipping by as much as 30 percent in recent years, but Chang said prices were still beyond the affordability of most people.

The Association of Banks Malaysia had previously explained that many loan applicants failed to secure loans because of their high debt service ratio, bad credit history, insufficient income, and repayment ability.

Chang said the banks were right to only approve loans from those who could afford them, and that relaxing the lending criteria would only spur housing developers to increase property prices which will have domino effects such as higher ancillary costs.

He said Malaysia was already experiencing an economic slowdown due to the drop in oil and commodity prices, while Bank Negara’s annual report showed that property prices were beyond the reach of most Malaysians.

“By calling on banks to relax the lending criteria, we could be courting a potential financial disaster, which could cause the collapse of the banking sector. So it’s important, perhaps now more than ever, that banks do not relax their lending criteria,” Chang said.

Last month, The Sun Daily reported Bank Negara Malaysia (BNM) as saying that access to financing was not the primary issue in affordable housing with a stable housing loan approval rate of 74% and about RM40 billion housing loans approved in the first five months of the year.

BNM was responding to calls by some quarters to review housing loan criteria for potential buyers of affordable houses.

It was of the view that there is a need to address the shortage of affordable houses and the high house prices relative to income.

BNM said housing affordability has not improved significantly where average national house prices remained at 4.4 times of median income while the affordable range is 3.0 and below. It urged housing developers, authorities and relevant stakeholders to intensify efforts to reduce costs and accelerate supply.

Based on National Property Information Centre’s data, less than 30% of new housing launches in 2015-2016 were for houses priced less than RM250,000, compared with 70% during the 2008-2009 period.