BUKIT LANJAN: Fast rising property prices - stop the finger-pointing, get down to serious action to remedy woes

Up, up and away …
 BUKIT LANJAN: Fast rising property prices - stop the finger-pointing, get down to serious action to remedy woes

Much has been written, reported and debated on the the fast rising property prices in Malaysia and the growing majority of Malaysians who can ill-afford to own a home.

Online news portal Free Malaysia Today (FMT) has quoted the National House Buyers Association as saying properties were left unsold today because of the “ridiculous” prices, not the banks’lending criteria.

“Well, if it is not the bank’s lending criteria, then the banks are surely guilty as hell for perpetuating the housing woes of buyers,” Gerakan Deputy Speaker Syed Abdul Razak Alsagoff said.

He asked: “Who are the ones providing the funding or loans to developers to continue constructing the million and multi-million ringgit properties that are beyond the reach of the majority of Malaysians?

“Aren’t they helping to perpetuate the problem by encouraging such developers to reap huge profits by selling such properties to the super rich and foreigners?”

Syed Razak said by right, if banks were caring and nationalistic, they should be encouraging developers, especially the smaller ones, to build more affordable housing units that cost below RM1 million.

“So, are banks and developers to blame for the current housing woes of the rakyat (people)?”

“Not really!”

It’s also up, up and away for costs …
Syed Razak, who is Gerakan’s nominee to contest N.37 Bukit Lanjan in the coming 14th General Election (GE14), said the state and federal governments were also to be blamed significantly for the problem.

“The governments’ housing policies and guidelines for approving housing projects must be tightened to ensure that the majority of projects are affordable to the rakyat.

“They (governments) must also step up their monitoring to ensure housing projects are not abandoned or come up with some guarantee or insurance that the buyers of such ‘sick’ projects are fully protected,” he added.

“Yes, this a free market. So property prices should be left to the market forces of supply and demand.

“But, why are Malaysians unable to afford to buy houses but foreigners, like Singaporeans, can afford to do so?”

“That’s because they have the buying power. Their country’s currency is stronger. Why? Their earnings or income have also been growing in tandem with rising costs of living or inflation.

“Can we say the same for Malaysians? If yes, they too should be able to afford to buy million or multi-million ringgit homes or properties. No?”

Syed Razak said: “The fact remains that the earnings and salaries of Malaysians had been growing that much slower than the cost of living and inflation in the past six decades.

“This is also one real and strong reason why the majority of Malaysians cannot afford to buy houses anymore. Why did the governments not act to check the deteriorating financial woes of the majority of Malaysians?”

Yes, it’s time for the governments, developers and banks to hold round tables to seriously tackle the housing woes of the rakyat instead of beating around the bush with statements and point fingers at one another.

Here’s what FMT reported and a The Star Online related report::

"When even RM9,000 a month isn’t enough to buy a house
Robin Augustin
| August 11, 2017

National House Buyers Association says properties are unsold because of their 'ridiculous' prices, not the banks' lending criteria, adding that banks should not relax their lending criteria.

PETALING JAYA: The National House Buyers Association (HBA) says “ridiculous” prices are the real reason many Malaysians are unable to afford property, to the point where even households earning RM9,000 struggle to buy a home.

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

This was after the Real Estate and Housing Developers’ Association (Rehda) 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 of income levels,” Chang said.

He said this indicated that average Malaysians just couldn’t afford a home based on their income.

Chang explained the affordability rating concept, the recommended benchmark for the affordability of homes.

This rating, he said, was 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 said this benchmark had been endorsed by reputable international bodies including the World Bank and the United Nations, as well Bank Negara and local think tanks such as Khazanah Research Institute.

Breaking down the maths

“To give you an example of how unaffordable houses are now, you just have to look at the numbers. Based on figures from the Department of Statistics, you’ll see that the median monthly household income in 2014 in Kuala Lumpur was RM7,705

“Say, on average, this person saw an annual increase of 6% in the monthly household income from 2015 to 2017. This would mean their median monthly household income in 2017 should be RM9,177.”

Chang said if one were to multiply RM9,177 by 12 months and then multiply this by three, a property that would be considered affordable would cost RM330,372. Anything more than this would be realistically unaffordable.

“Some might argue that prices of homes are way more expensive in KL, but the truth is salaries outside of KL are also lower. Using the same formula and statistics, we can count what is affordable in Negeri Sembilan.

“In Negeri Sembilan, the median monthly household income in 2014 was RM4,115. Factoring in the same increase in the median monthly household income in 2017 would make it RM4,900, meaning an affordable home would be in the range of RM176,400.”

Chang said even a home which cost RM294,000 would be unaffordable for a household earning RM4,900 a month.

Are banks the bad guys?

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

Last month, The Sun daily reported Bank Negara Malaysia as saying that access to financing wasn’t the problem with the affordability of houses, and that the loan approval rate of houses for the first five months of 2017 stood at 74%, accounting for some RM40 billion in housing loans.

Chang said the banks were right to only approve loans from those who could afford them, and that relaxing the lending criteria would only encourage housing developers to price their properties higher.

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.

According to some industry experts, the oversupply of properties has resulted in property prices dropping by as much as 30% in recent years, although Chang said they were still beyond the affordability of most.

Relaxing credit criteria has other domino effects

Chang also said if banks were to relax their lending criteria, owners of existing properties, especially those who were part of the property speculators and investors “club”, would also follow developers in increasing their selling prices.

“So, new property prices in prime areas such as Damansara will eventually push up property prices as far as in Semenyih and Seremban.”

Chang added that higher property prices would also lead to higher ancillary costs such as stamp duties, which are normally charged based on a percentage of the property value.

More importantly, Chang said, relaxing lending criteria would lead to banks giving loans to those who weren’t creditworthy.

This, combined with over-priced properties and an economic slowdown, could result in a sub-prime crisis like the one the United States experienced in 2008.

He said Malaysia was already experiencing an economic slowdown due to the drop in oil and commodity prices, while Bank Negara Malaysia’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.

Low wages plus high prices equal unaffordable housing, says BNM

Less than 30% of new housing launched in 2015-2016 are priced below RM250,000, National Property Information Centre data shows. – The Malaysian Insight pic by Seth Akmal, August 16, 2017.
THE average Malaysian’s inability to own a home is not due to lack of access to credit, but to a compound of low income and high prices, said Bank Negara Malaysia (BNM) governor Muhammad Ibrahim in a The Star Online report.

He said what was touted as affordable housing was in reality unaffordable.

"Even the World Bank has characterised our houses as severely unaffordable.

“It is an issue of not having enough income and houses being too expensive," said Muhammad.

He said that last year, only 35% of new homes put on the market were truly affordable.

"The remaining cost above RM500,000."

Bank Negara recently brought to public attention National Property Information Centre data showing that less than 30% of new housing launched in 2015-2016 were priced below RM250,000, compared with 70% in 2008-2009.

The central bank demonstrated through financial simulations in its 2016 Annual Report that those with monthly earnings of RM3,000 could afford to finance a home costing up to RM176,000; RM5,000 up to RM283,000; and RM10,000 up to RM515,000.

This puts almost three quarters of the available homes for sale out of the range of affordability, the report concluded.

Muhammad said the problem was not about credit access and accountants must not be afraid to say so.

“As accountants, we look at the problem in a dispassionate way. We look at data and see that the problem is not about access to credit and we must have the courage to say it loudly and clearly to the public," he told the 2017 National Conference of Public Sector Accountants in Penang yesterday.

The audience of 450 public sector accountants were told to resist “pandering to popular opinion and short-termism”, the latter financial-speak for excessive focus on short-term results at the expense of long-term priorities. – August 16, 2017.



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