Let’s face it – House prices in Malaysia are unaffordable

Let’s face it - House prices in Malaysia are unaffordable

HBA has been raising alarm bells for years over the prices of property in Malaysia which have risen beyond the reach of the majority of the rakyat. Also, unless serious measures are taken by the government, an entire ‘Homeless Generation’ comprising mainly of the lower and middle-income groups as well as the younger generation will not be able to afford to buy their own homes. This is turn, can bring about various social problems for the country.

For too long, the government has listened to the advice from business groups with a vested interest; that there is no problem with the housing sector in Malaysia and prospective house buyers are still able to afford their dream homes. These business groups have openly touted that property prices of up to RM500,000 are deemed affordable for first-time house buyers and for those who are upgrading their existing property, the price that is deemed affordable is up to RM1 million.

The aforementioned report also confirms what HBA has been highlighting in the past – that the issue of housing affordability is only a recent phenomenon as there were much fewer complaints about property affordability compared to say 12 years ago in 2004.

According to KRI, the Malaysian all-house price had grown at a compounded annual growth rate (CAGR) of 3.1% from 2000 until 2009. However, between 2009 and 2014, it grew at a CAGR of 10.1%, which is almost 3 times more than the growth from 2000 to 2009. The government must conduct an in-depth analysis and investigate what caused the sudden spike in property prices during this brief period.

There is a direct relationship between prices of completed properties (subsale properties) and prices of new properties launched by developers. Whenever there is an increase in the prices in the secondary market, developers will launch new properties at a premium to the prices offered in the secondary market. Conversely, whenever developers launch new projects at premiums compared to the secondary market, the prices of sub-sale properties will be pushed up further and this creates a vicious cycle.

The price increase in one area can spill over to the surrounding areas and in turn push up property prices in these areas too. Thus an increase in property prices in central Kuala Lumpur can push up prices in say Cheras which can push up prices of properties as far as Kajang and beyond. As a result of the sudden spike in property prices between 2009 to 2014, the lower and middle-income group find it very difficult to buy their own homes in many locations, and not just in Kuala Lumpur.

The government should also define what constitutes as “Affordable Property” and the type of property. Affordability should be benchmarked against the annual household income of the respective buyers and the international accepted ratings of “Affordability Rating” used by various reputable bodies such as World Bank, United Nations and even Khazanah Research, as shown in Chart 1.

HBA recommends that “Affordable Property” should be those priced between RM150,000 to RM300,000 with a minimum build-up of 800 sq ft (2-bedrooms ) to 1,000 sq ft (3-bedrooms). This is in stark contrast with what housing developers have been touting as affordable which ranges from RM400,000 (for first-time house buyers) and up to RM1 million (for upgraders).

The Household Income and Basic Amenities Survey 2015 done by the Department of Statistics revealed that Median Monthly Household Income for 2015 in Kuala Lumpur and Selangor were RM7,620 and RM6,214 respectively. Annualized, this translates to RM 91,440 for Kuala Lumpur and RM74,568 for Selangor. The affordability rating for property priced between RM150,000 and up to RM1 million benchmarked against said median annual household income is outlined in Chart 2.



What housing developers claim to be affordable is definitely not affordable. Even HBA’s recommendation for properties costing up to RM300,000 slipped to the category of ‘Moderately Unaffordable’ to ‘Seriously Unaffordable’, albeit slightly. Hence there is a pressing need for affordable properties to be priced at between RM150,000 to RM300,000 to cater to the larger needs of the rakyat whom mostly fall in the lower and medium income groups.

After the main reasons for properties becoming unaffordable has been identified and the affordability range determined, the government must implement concrete, holistic and sustainable measures to resolve this problem. KRI had made the following preliminary recommendations to resolve this issue of property affordability:


1. Develop measures to improve the efficacy of the construction industry’s delivery system to supply housing at affordable prices. This involves improving the efficiency and efficacy of the property developers so that it is more cost efficient and profitable to build affordable properties.
2. Developing measures to reduce pressures leading to rapid house-price escalation. This involves imposing a moratorium period whereby house buyers cannot sell their affordable properties within the first 5-years of ownership.
3. Developing measures to plan for a steady supply of housing at affordable prices. This is to ensure that the right numbers are built at the right places at the right time. In order to match this steady supply to demand efficiently, detailed information on demand and supply of housing at specific locations will be required.

Conclusion

We understand that the ‘Making Housing Affordable’ report represents the first of a series of reports which aims to investigate and resolve the issue of housing affordability and more recommendations will be put forth by KRI. Hence we shall refrain from commenting on the proposed measures until we see a complete picture.

In conclusion, although this honest assessment of the current situation is a few years late; it is never too late and represents a good start. After all, it is said that the first step towards solving any problem is to first admit that there is a problem that needs to be fixed rather than burying our heads in the sand, i.e. denying it exists. It is hoped that more recommendations will be put forth and the government will have the willpower and courage to do what it takes to tackle this problem.

 

Share