Property prices hinder home ownership, says KRI

‘Innovative’ financing schemes will not solve the problem of overblown home prices in the country


THE real issue when it comes to home ownership in Malaysia is property prices and not access to home loans, Khazanah Research Institute (KRI) chairman Dr Nungsari Ahmad Radhi (picture) said.

Nungsari also said “innovative” financing schemes offered by local lenders will not solve the problem of overblown home prices in the country.

“The failure of this is actually the price discovery…that is the real issue. How do you price property? Some people say let supply and demand sort it out, but (the reality is) they don’t sort it out because of the valuation process,” he told a news conference after the launch of KRI’s report titled “Rethinking Housing: Between State, Market and Society” in Kuala Lumpur yesterday.

“We should not ‘innovate’ on the financing side to enable the purchase of that (unaffordable homes), which is what is happening now,” Nungsari added.

According to the report, the country’s overall housing affordability worsened for all states between 2012 and 2016, with the median multiple increasing significantly from four in 2012 to 5.1 in 2014. The latter categorises Malaysia’s housing market as “severely unaffordable”.

Citing data from the Construction Industry Development Board and the National Property Information Centre, KRI said house prices in Malaysia have almost doubled since 2008, while construction costs have increased only slightly in the same period.

However, it said due to the lack of housing development cost data, the difference between normal profits and excess profits gained by developers could not be determined.

The report also said the deterioration of housing affordability stemmed partly from the unresponsiveness of housing supply to effective demand.

In 2014, the price of an “affordable house” in Malaysia was RM165,060 and in 2016, the figure was 14% higher at RM188,208. Between the two years, new housing units that were priced below RM200,000 made up less than 20% of total units launched.

On financing, KRI said the banking system remains as the main avenue for Malaysian households to access credit to finance house purchases. Data by the central bank as at end2016 indicated that more than half of RM1.1 trillion outstanding household debts were related to housing costs.

This meant that the overall housing loan approval rate remained stable at an average of 74.1% between 2012 and 2016.

KRI director Dr Suraya Ismail, who is also lead researcher of the report, said financing should not be the means to make home ownership affordable.

“The sharp rise in house prices in recent years has accelerated the increase in household debts, largely due to housing loans. Government financing schemes should focus on low-income households, specifically those who have the financial capacity to pay, but are not able to access the commercial credit market.

“Meanwhile, efforts to assist middle-income households should be done by ensuring an adequate supply of houses that are affordable, and not by implementing credit easing,” she said.

Suraya said while the government has an established assessment method based on income criteria to estimate total housing requirements, no specific assessment has been undertaken to identify incidences of core housing needs within the population.

This, she said, leads to an overestimation of the total population who qualify for affordable homes.