13 November, PETALING JAYA – The government needs to take a second look into the Peer to Peer (P2P) financing for house purchases before implementing the mechanism, as it is originally meant for investment and not property ownership, said Khazanah Research Institute (KRI) Director Dr Soraya Ismail.
She said in her opinion, the principle mechanism of P2P does not fit in the property market as it would only push the property market further up and put home ownership into uncertainty.
“We have to understand the basics of purchasing. In this P2P case, there won’t be any proof of ownership as it is a shared property and if the system collapsed, the so-called buyers will be at a loss compared to the investors that had made their money somehow,” she said on the sidelines of the Asian Tiger: A New Journey Budget 2019 Commentary by Real Estate and Housing Developers’ Association Institute here today.
She said that P2P should not be implemented on big ticket items, especially housing, and policymakers needed to understand that making credit loan easier would cause house prices to inflate further.
“What we need to do now is to ensure whatever price we bring into the market is affordable. House price must be affordable first. Do not use the financing to make houses appear affordable,” she said.
The P2P financing for houses was announced by Finance Minister Lim Guan Eng to boost home ownership.
Under this model, the buyer would be able to acquire a selected property for 20 per cent of the price of the property, while the balance 80 per cent would be fulfilled via potential investors who are interested to fund the acquisition in exchange for the potential value appreciation of the property over a particular period of time.
Meanwhile, Soraya said that household income has not grown on par with the increase in property price, hence it leads to unaffordability.
She pointed out that if industry players do not understand the problem behind rapid price escalation, it could lead to a subprime mortgage crisis.
“This cycle is backed by financial institutions. We do not want this to happen,” she said, adding that excessive profiteering on property should not be allowed as it would lead to price inflation.
In May, Bank Negara Malaysia said affordable houses should not be priced more than RM282,000 but REHDA argued that the price should be between RM300,000 and RM500,000.
There are three components in measuring house affordability. The median multiple, house cost burden and residual income. If all these do not fit, it is not affordable,” she said.
Median multiple means a median house price of three times or less than median annual household income, while housing cost burden is based on housing expenditure that is less than 30 per cent of the household income.
On the other hand, residual income is based on whether it is sufficient to survive the monthly mortgage obligations.
In October, a study by KRI showed that the real residual household income for households earning less than RM2,000 is only RM76 a month in 2016 which was described as worrying.