Financial aid

THE government is certainly aware of the widening gap between the affordability of properties and household income. And it has been trying to tackle this thorny issue.

Already it has indicated that it may announce a new scheme in Budget 2017 to facilitate loan transactions between first-time house buyers and financial institutions. Last week, Second Finance Minister Datuk Johari Abdul Ghani disclosed that his ministry was in the midst of discussions with the Employees Provident Fund to raise the withdrawal limit of Account 2 to 40% from the present 30% for first-time homebuyers.

In fact, the country is probably not short of measures to help potential first-time homebuyers.

A quick glance at the national budgets for the past five years reveals that the government had announced at least eight affordable housing programmes and financing schemes for first-time homebuyers (see information below).

This raises the question of whether this group needs another scheme in the upcoming budget.

The existing schemes appear to be underutilised, according to industry observers.

“We feel that there are already too many schemes. Thus, the government must give a precise account and provide transparency as to how each has been utilised — whether wholly or partially,” National House Buyers Association secretary-general Chang Kim Loong says in an email to The Edge.

“A new scheme is introduced every time because the previous ones were not [well] thought out.”

He says house buyers are confused as to which of the schemes can help them purchase a home.

In the past five budgets, several programmes to build more affordable homes were announced. Among them were My First Home Scheme, Perumahan Rakyat 1Malaysia (PR1MA), Program Perumahan Rakyat, Rumah Mesra Rakyat and Perumahan Penjawat Awam 1Malaysia.

Citing PR1MA as an example, Chang says the developer has priced its products too high. The company was established to build houses for the masses on government land.

“They should only be charging construction costs and other compliance fees. The question is, whether PR1MA has been properly implemented,” he adds.

CBRE-WTW managing director Foo Gee Jen concurs that properties are getting unaffordable. According to his analysis, affordable homes should be priced at between RM100,000 and RM200,000.

Generally, affordable homes are properties priced at below RM300,000. A 90% loan would require monthly instalments of about RM1,500. The Department of Statistics has estimated that the median monthly salary of Malaysians in 2014 was RM1,700. This shows that the monthly instalment of RM1,500 will remain a pipe dream.

Hence, it may be reasonable to assume that the critical segment is households earning less than RM4,000 a month. For them, even a home priced at RM300,000 is not affordable.

In Budget 2015, the government introduced the Rent-To-Own scheme for individuals who are unable to obtain bank financing. Then, in Budget 2016, it allocated RM200 million for the First House Deposit Financing Scheme under the Ministry of Urban Wellbeing, Housing and Local Government to help first-time buyers of affordable homes pay the deposit.

“We expect the government to introduce more home financing schemes or increase the allocation for existing funds,” Foo says in an email reply.

“It is acknowledged that high prices are the primary problem facing first-time house buyers. Unfortunately, many of the measures [taken] are akin to adding oil to the fire. They are trying to solve the housing problem on the demand side — easier financing and housing subsidies.

“Consequently, the measures are counterproductive and unsustainable as they only served to push up prices as demand continues to outpace supply.”

Chang opines that the answer to the problem is not so much of giving out financial aid but increasing the supply of affordable homes.

Some quarters say that while the government steps up efforts to promote homeownership, it should be mindful of the rising financial risks.

According to Bank Negara Malaysia, although households earning less than RM3,000 a month have a relatively low share of the total household debt (22.6% last year), they have a leverage ratio of seven times their annual income on average.

The US subprime crisis that triggered the 2007/08 global financial crisis highlights the importance of risk mitigation policies as part of affordable housing schemes, according to Rajiv Biswas, IHS Markit’s Asia-Pacific chief economist.

“Both government and private-sector insurance schemes have an important role to play to ensure that financial risks from such affordable housing programmes are managed,” he tells The Edge in an email reply.

He says insurance schemes that cover first-time homebuyers for risks such as unemployment and illness are important to ensure that households do not lose their homes and such insurance schemes can improve the access to housing loans.

According to Biswas, special government savings schemes can also help first-time homebuyers put up collateral for their purchase.

To prevent the risk of moral hazard, he believes that households should provide collateral equivalent to at least 20% of the value of the loan.

 

Property measures for homebuyers in the last five national budgets

 

2012

● Expands the My First Home Scheme (MFHS), which was launched in March 2011; increases the limit of house prices from a maximum of RM220,000 to RM400,000.

● Establishes Perumahan Rakyat 1Malaysia Bhd (PR1MA) as the sole agency to develop and maintain affordable and quality homes, specifically for the middle-income group.

● Continues to implement the Program Perumahan Rakyat (PPR) by building 75,000 affordable homes nationwide under the 10th Malaysia Plan.

● Continues the Rumah Mesra Rakyat (RMR) programme, which is managed by Syarikat Perumahan Negara Bhd (SPNB), to help the low-income group own decent homes.

● Allows the withdrawal of Employees Provident Fund savings for house purchases.

 

2013

● Allocates RM1.9 billion for the building of 123,000 affordable homes in strategic locations. The initiative will be implemented by PR1MA, SPNB and Jabatan Perumahan Negara (JPN).

● PR1MA to spend RM500 million to build 80,000 houses in major locations nationwide. The prices of the homes are between RM100,000 and RM400,000.

● PR1MA to provide a housing facilitation fund totalling RM500 million to build houses in collaboration with private developers. The house prices will be 20% lower than the market price.

● Allocates RM320 million through SPNB to build 22,855 residential units, including low and medium-cost apartments under RMR and Rumah Mampu Milik. The units will be sold at RM120,000 to RM220,000.

● SPNB to build 21,000 houses under RMR and develop houses priced at RM65,000 each with a subsidy of RM20,000 as well as a 2% subsidy on interest rate.

● Provides RM543 million to JPN for the implementation of 45 housing projects involving 20,454 units under the PPR. The homes will be constructed using the Industrialised Building System (IBS) and sold at between RM30,000 and RM40,000, much lower than the market price of about RM120,000.

● Improves MFHS by increasing the income limit for individual loans from RM3,000 to RM5,000 per month or joint loans of husband and wife of up to RM10,000 per month.

● Extends the 50% stamp duty exemption for instruments of transfer and loan agreements for the purchase of the first home of up to RM350,000 to Dec 31, 2014, with the price limit on properties raised to RM400,000.

 

2014

● Build about 223,000 new homes with the private sector and allocates RM578 million for JPN to implement PPR, which involves the construction of 600 units for Program Perumahan Rakyat Disewa and Program Perumahan Rakyat Bersepadu with an allocation of RM146 million.

● PR1MA to provide 80,000 housing units with an allocation of RM1 billion. The prices of the homes are 20% lower than the market price.

● SPNB to build 26,122 affordable homes — 15,122 houses, 3,000 units of Rumah Idaman Rakyat and 8,000 units of RMR.

● Introduces a new category of RMR priced at between RM45,000 and RM65,000, for which the government will provide a subsidy of between RM15,000 and RM20,000 per unit.

● Provides RM4 billion for PR1MA’s housing facilitation fund to promote private, high-strategic impact projects.

● Allocates RM1 billion to the housing facilitation fund under the Public Private Partnership Unit (UKAS).

 

2015

● Builds 80,000 residential units under PR1MA with an allocation of RM1.3 billion. The ceiling of household income is raised from RM8,000 to RM10,000.

● Introduces the Rent-To-Own scheme for individuals who are unable to obtain bank financing.

● JPN to build 26,000 units under PPR with an allocation of RM644 million.

● SPNB to build 12,000 units of RMR and 5,000 units of Rumah Idaman Rakyat and 20,000 units of Rumah Aspirasi Rakyat on private land.

● Extends the 50% stamp duty exemption for instruments of transfer and loan agreements and increases the purchase price limit from RM400,000 to RM500,000 until Dec 31, 2016.

 

2016

● PR1MA to build 175,000 houses, which will be sold at 20% below market prices, with an allocation of RM1.6 billion. About 10,000 units are expected to be completed in 2016.

● SPNB to build 10,000 units of RMR with a subsidy of RM20,000 for each house through an allocation of RM200 million.

● Build 100,000 houses, priced at between RM90,000 and RM300,000, under Perumahan Penjawat Awam 1Malaysia (PPA1M) by 2018. A facilitation fund of up to 25% of the development cost is provided.

● Build 22,300 apartments and 9,800 terraced houses under PPR with an allocation of RM863 million to the Ministry of Urban Wellbeing, Housing and Local Government (KPKT).

● Allocates RM200 million to establish the First House Deposit Financing Scheme under KPKT to help first-time buyers of affordable homes to pay their deposit.

● Build 5,000 units of PR1MA and PPA1M houses in 10 locations in the vicinity of light rail transit and monorail stations, including in Pandan Jaya, Sentul and Titiwangsa.

 

This article first appeared in The Edge Malaysia on Oct 10, 2016. Subscribe here for your personal copy.

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