According to Bank Negara Malaysia, the reason why Malaysians are unable to afford a home is not due to strict lending rules on housing loan.
The reason is simply: houses aren’t affordable.
With the launch of its microsite, Housing Watch, the central bank has compiled the data to debunk the common misconception that access to financing was the main deterrent to home ownership in the country.
The data on the website showed that loan approvals for key cities are near 70% or higher.
This further supported the central bank’s decision to not loosen mortgage lending, but to divert the effort to the property industry to cut costs and accelerate supply.
“It’s a tricky situation,” said Wan Saiful Wan Jan, chief executive officer of the Institute for Democracy and Economic Affairs in Kuala Lumpur. “I don’t think it’s right to say that there’s no problem with financing. But lending rules have to be both strict and balanced at the same time, otherwise we’ll have more non-performing loans and that is not good for anyone in the country.”
According to the 2015 report released by Khazanah Research Institute, the median house price in Malaysia was 4.4 times the median annual household, making the housing market “seriously unaffordable” compared to global standards.
The standard for affordable market is one with a median multiple of 3 times.
However, properties in Malaysia are still cheaper than many other markets, where Kuala Lumpur was ranked the eighth best housing affordability out of 18 metropolitan regions around the globe, according to the latest Demographia study. Hong Kong homes cost 19 times income, while Beijing is 14.5 times.
Bank Negara’s new site aims to reach a balance between transparency in the housing market and lenders sticking to its stricter financing criteria, which was introduced since 2010 to curb speculation. These criteria also promote responsible lending amid elevated consumer debt.
Despite household debt falling to 88.4% of gross domestic product (GDP) last year, from 89.1%, it is still one of the region’s highest. The central bank has left borrowing costs unchanged at 3 per cent since July last year.
With only 20% of new Malaysian housing launches in the first quarter were priced below RM250,000, down from 33% between 2010 and 2014, there is a vast gap between supply and demand in the market. The median annual household income is estimated at around RM63,000.
“It is an issue of not having enough income and houses being too expensive,” Governor Muhammad Ibrahim said.
Only about half of people living in Kuala Lumpur own a home, while nationwide the number was 72.5% at the last census in 2010. Demand is set to rise: the median age of Malaysia’s 31.7 million people is 28 years and the nation’s urban population is growing at an average 4% a year, among the fastest pace in East Asia, according to the World Bank.
The Prime Minister may announce an increase in the number of affordable homes built by state-linked companies, tax relief for private developers and subsidies for affordable home buyers, RHB Research Institute Sdn said last month.
Developers should focus on building houses which people can afford, not building expensive houses and then trying to push them, and then complaining that the banks are not giving loans,” said Paul Selvaraj, secretary general of the Federation of Malaysian Consumers Associations.
“The reason people are having problems getting loans is because the houses are not affordable. It’s beyond their repayment ability,” he added.
Unchecked, the problem will only grow over time. There is currently a shortage of 960,000 units of affordable housing in Malaysia, with the number projected to reach 1 million units by 2020, according to the central bank’s estimates.
“It’s a very important issue for Najib to address,” said Wan Saiful. “I’m just really wondering what more can Najib do other than provide heavy subsidies, at a level that maybe even the government cannot afford to do.”
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