By FARA AISYAH / Graphic by TMR
The government should restrain from providing more credit support for homebuyers, said Institute for Democracy and Economic Affairs (IDEAS) senior fellow Dr Carmelo Ferlito.
He said the easing of housing loan requirements proposed by the government will only prolong the property bubble that is expected to burst soon.
“If the government pushes through the policy of relaxing loans as it promised a few weeks ago, it will only prolong the bubble and keep property prices high. Developers will think the government is supporting them and that people would not mind to buy properties, so they don’t have to hold the price,” Ferlito told The Malaysian Reserve yesterday.
“The bubble will burst later anyway, but when it finally does, things will get worse because Malaysians will be highly in debt. Currently, 84% of the country’s gross domestic product is household debt, so they are already in fragile financial situations,” he added.
Ferlito added that by lending more money, people who are in debts would be even more at risk when the financial crisis hits the country.
Unsold residential properties in Malaysia rose to a record high of 24,738 units in 2017 — valued at RM15.6 billion — as the country continues to grapple with the overhang issue that could negatively impact the financial system.
The value of the unsold homes — which do not include service apartments and SOHO (small office/home office) units — is 82.8% higher than a year ago, risking the sector to systemic impact in the event of financial shocks.
Bank Negara Malaysia had also sounded its alarm bells over the property glut. In its 2017 annual report, the central bank said there were 129,052 unsold housing units at the end of the third quarter of 2017 compared to 146,497 units at the end of the first half of 2017.
More than 80% of the unsold units were priced at RM250,000 and above.
Meanwhile, Ferlito said in a statement on Tuesday that the high involvement of government agencies in the affordable housing market risks crowding out private initiatives and preventing the necessary restructuring from taking place.
“It is important to let the bubble to burst; too much credit will only delay the bursting, keeping prices artificially high and putting at risk the financial solvency of buyers.
“Without credit support, the crisis will happen faster and force both capital restructuring and prices to move downwards,” he added.