‘Relaxed’ Housing Loan Policy Is Not The Best Solution, IDEAS said
The government’s plan to relax housing loan requirements may not be the best way to help the M40 and B40 segments of the society to own houses, said the Institute for Democracy and Economic Affairs (IDEAS).
A ‘relaxed’ housing scheme could worsen the problem, says an IDEAS senior fellow, Dr Carmelo Ferlito, in response to the Housing and Local Government Minister Zuraida Kamaruddin’s announcement early this week that Bank Negara Malaysia (BNM) is formulating a ‘relaxed’ housing loan scheme which would ease up the loan process for the M40 and B40 households and reduce the number of unsold properties in the country.
“It is good that the ministry and BNM are working together to tackle housing problems, due to a higher number of unsold properties in the property market. However, this specific measure of ‘relaxed’ housing loan may not be a move in the right direction,” Ferlito said in a statement.
“Tackling this problem from the demand side by promoting credit policy is not viable and may worsen the problem. Every sector in the economy will experience business cycles and the property market in Malaysia right now is at the stage of contraction. While the market is contracting, encouraging households to borrow more will not solve the problem in the property market; rather it will prolong the property bubble.
“The property sector in Malaysia is bloating, and the evidence is clear that there is a mismatch between demand and supply in the market. Implementing a favourable credit policy risks delaying a property crisis and making it worse when it does arrive. Lack of affordable housing is a serious problem, and the government should consider how to ensure the private sector is best placed to start building cheaper homes,” he added.
As proven by the Nobel-winning economist Vernon Smith, a general economic crisis are likely to occur whenever a property crisis comes in.
“In such a scenario, a higher degree of financial exposure will put an already fragile household debt situation at risk,” Ferlito added.
He concluded that it is crucial for the government to always be mindful when it comes to a policy decision that involves the property market. Instead of endorsing credit policy, the government should increase Malaysian financial literacy by encouraging Malaysians to rent and to promote the virtue of saving, as the real source for sound investment.