By Lillian Wee
Most Malaysians cannot afford Malaysian housing anymore, which is ironic, given that the nation’s housing supply glut is at an all time high. What’s more, while Malaysian GDP shrank by 5.6% in 2020 during the onslaught of COVID-19, house prices increased by 0.3% on average. How can it be that at a time of an unprecedented health crisis and economic downturn, average house prices are still rising?
Historically, Malaysians spend about 30% of their household income on affordable housing. This percentage has gone up over the past decade for most, however, as the increase in home prices has exponentially exceeded that of real income.
Between 1990 to 2019, average home prices have increased by 5.6 times, or a 460% capital appreciation. In contrast, real GDP per capita income has grown by only 2.8 times, or 180%.
Where in 1990, the price of the average home was equivalent to about 4.7 years of per capita income, today it has nearly doubled to 9.5 years.
In the midst of all these, the availability of low cost housing is sluggish at best. Of a total of 117,766 new housing units built in 2020, only 14,094 units or 12% are low cost, or priced below RM 400,000. This figure fails to meet the National Affordable Housing Council’s target of building 100,000 units of low cost housing annually. On the flip side, 13,622 overhang units across Malaysia are priced above RM500,000.
Essentially, it has become much more expensive for the average Malaysian to own a home, whether through purchase or rental, given that the rise in per capita income trails soaring house prices. This is symptomatic of a policy problem that has rippled across the economy, transforming homes into commodities and “asset-class investments”, making the inequalities in housing affordability ever more acute.
COVID-19 has further exacerbated the housing affordability crisis. Increasing unemployment and decreasing household incomes have prevented some from finding a roof over their heads and threatened others to lose theirs. In January 2021, the number of unemployed individuals stood at about 782,500– a 52.7% increase from the 512,200 unemployed at the end of 2019. What’s more, median salaries in 2020 fell for the first time since 2010 from RM2,933 to RM2,062.
Against this backdrop, the idea that one can duduk rumah or stay at home during the numerous iterations of lockdowns is, in many cases, increasingly not an option. In this light, we need to address Malaysia’s housing crisis now. There is no more crucial time to ensure that affordable and adequate housing is available and accessible to all. Additionally, holistic, people-first, and sustainable government protection schemes are crucial to resolve Malaysia’s housing crisis.
Closing the gap – How to ensure secure housing for all
Urgently, government, policymakers, financial institutions, developers, and related stakeholders must have a clear and purpose-driven strategy that is focused on the outcome of ensuring secure housing for all. With this in mind, we need to address three fundamental questions. First and foremost, how can we mitigate the effects of COVID-19 on housing security?
Since the beginning of last year, government aid on housing was manifested primarily through loan moratoriums and extensions on the Home Ownership Campaign (HOC). These incentives, while beneficial to homeowners and those with sufficient capital, neglect others who do not have a loan to begin with, such as renters and the poor.
Moreover, the problem with the loan moratorium is that payments are merely delayed, not cancelled, which could create a debt overhang in the future. This has the effect of keeping borrowers in debt for longer, and may keep some in impoverished situations even after the pandemic.
More importantly, the government should urgently look into providing relief to renters, targeting vulnerable populations through a combination of rent moratorium and subsidies and grants. Additionally, arrears accrued during this period should not be used as grounds for eviction at any point.
In Australia, for example, rent moratorium and rent arrears grant schemes are provided to those struggling financially to meet rent payments after the end of the emergency period and are accessible to those who have less than AUD 10,000 in savings and those who pay more than 25% of income in rent per week. Malaysia needs to take cues and follow suit.
Secondly, why are property prices not adapting to the market flows of excess supply? How can we mitigate this mismatch between housing supply and demand? To answer this, we need to understand how the Malaysian property market got here in the first place. There are many systemic factors at hand, but two main issues require immediate action.
First, according to a cover story by Edge Prop, many private developers in the country have been artificially inflating house prices stated on the Sales and Purchase Agreement (SPA), which is then used by the banks to determine the size of the mortgage. The real price paid by the purchaser is usually substantially discounted. This forms a powerful incentive for potential homebuyers, because this way they can effectively obtain 100% financing.
There is a dark side to this seemingly “win-win” situation: Artificially keeping prices high prevents the market from adjusting to demand-supply dynamics. Under normal circumstances of excess supply, prices would fall to re-establish a new equilibrium. However, this process is distorted in Malaysia, and increasingly puts homeownership out of reach for many people.
Second is the expansion of international residential property development through the Malaysia My Second Home program (MM2H). MM2H works by capitalising on off-shore investment, which incentivises developers to build units above the RM 600,000 minimum pricing threshold.
One example is Iskandar Malaysia, which regularised the construction of an international zone in Iskandar Puteri with more than 25,000 upscale residential units built for a speculative market of ‘border-crossing living’ between Singapore and Southern Johor.
The pandemic, however, has exposed the instability and vulnerability of this business model, as exacerbated by the closure of borders and movement restriction orders. As a result, we are left with empty properties that are beyond the reach of many ordinary Malaysians.
These are systemic challenges that require long-term solutions. To restore equilibrium in the property market requires policies that are focused on social equality and an overarching public purpose. This is far from impossible. Government can address these distortions in the property sector through well-judged regulation, such as mandating market-based valuations for mortgages or reducing the appeal of the MM2H programme (as it stands, there are ongoing discussions to revise the MM2H criteria), while addressing issues of property overhang.
Additionally, stricter conditions can be attached to loan guarantees and tax rebates given to developers, such as requiring them to reinvest their profits back into affordable housing which benefits society.
Lastly, how can we increase the supply of affordable housing, and more broadly, ensure everyone has a roof over their head?
Essentially, Malaysia needs to ramp up its supply of affordable housing and ensure that selection procedures are coherent and transparent.
Regulation on the rental market needs to be improved and protected, with the aim of balancing legal power from landlord to tenant. As it stands, renting is generally much less secure; many tenants are restrained from making their house their home and tenants miss out on the tax and welfare benefits of home ownership. In this light, government and policymakers should consider protective measures such as removing ‘no-grounds’ evictions, extending minimum notice periods, and creating a different regime for long-term leases.
For those who are already homeless or live in overcrowded homes, temporary emergency accommodation with basic hygiene facilities should be provided. This goal can be accomplished by leveraging and converting under-utilised private buildings, such as abandoned shopping malls and hotels, and repurposing community assets like schools and community centres that are currently closed as short-term solutions for the urban poor or homeless people.
Indeed, COVID-19 has magnified the deficiencies and divide of Malaysia’s housing affordability crisis. However, it has given us a unique chance to rethink, replan, and redesign key policies that will shape the future of our livelihoods. When the outcomes of a skewed property market are locked-down cities filled with homeless people, a stalled economy, and most devastatingly of all, the loss of homes, basic amenities, and essentially lives, we can no longer afford to wait. Now is the time to take action.
-Published in Business Today on 16 August 2021.
The great divide in Malaysia’s housing market
By Lillian Wee
Most Malaysians cannot afford Malaysian housing anymore, which is ironic, given that the nation’s housing supply glut is at an all time high. What’s more, while Malaysian GDP shrank by 5.6% in 2020 during the onslaught of COVID-19, house prices increased by 0.3% on average. How can it be that at a time of an unprecedented health crisis and economic downturn, average house prices are still rising?
Historically, Malaysians spend about 30% of their household income on affordable housing. This percentage has gone up over the past decade for most, however, as the increase in home prices has exponentially exceeded that of real income.
Between 1990 to 2019, average home prices have increased by 5.6 times, or a 460% capital appreciation. In contrast, real GDP per capita income has grown by only 2.8 times, or 180%.
Where in 1990, the price of the average home was equivalent to about 4.7 years of per capita income, today it has nearly doubled to 9.5 years.
In the midst of all these, the availability of low cost housing is sluggish at best. Of a total of 117,766 new housing units built in 2020, only 14,094 units or 12% are low cost, or priced below RM 400,000. This figure fails to meet the National Affordable Housing Council’s target of building 100,000 units of low cost housing annually. On the flip side, 13,622 overhang units across Malaysia are priced above RM500,000.
Essentially, it has become much more expensive for the average Malaysian to own a home, whether through purchase or rental, given that the rise in per capita income trails soaring house prices. This is symptomatic of a policy problem that has rippled across the economy, transforming homes into commodities and “asset-class investments”, making the inequalities in housing affordability ever more acute.
COVID-19 has further exacerbated the housing affordability crisis. Increasing unemployment and decreasing household incomes have prevented some from finding a roof over their heads and threatened others to lose theirs. In January 2021, the number of unemployed individuals stood at about 782,500– a 52.7% increase from the 512,200 unemployed at the end of 2019. What’s more, median salaries in 2020 fell for the first time since 2010 from RM2,933 to RM2,062.
Against this backdrop, the idea that one can duduk rumah or stay at home during the numerous iterations of lockdowns is, in many cases, increasingly not an option. In this light, we need to address Malaysia’s housing crisis now. There is no more crucial time to ensure that affordable and adequate housing is available and accessible to all. Additionally, holistic, people-first, and sustainable government protection schemes are crucial to resolve Malaysia’s housing crisis.
Closing the gap – How to ensure secure housing for all
Urgently, government, policymakers, financial institutions, developers, and related stakeholders must have a clear and purpose-driven strategy that is focused on the outcome of ensuring secure housing for all. With this in mind, we need to address three fundamental questions. First and foremost, how can we mitigate the effects of COVID-19 on housing security?
Since the beginning of last year, government aid on housing was manifested primarily through loan moratoriums and extensions on the Home Ownership Campaign (HOC). These incentives, while beneficial to homeowners and those with sufficient capital, neglect others who do not have a loan to begin with, such as renters and the poor.
Moreover, the problem with the loan moratorium is that payments are merely delayed, not cancelled, which could create a debt overhang in the future. This has the effect of keeping borrowers in debt for longer, and may keep some in impoverished situations even after the pandemic.
More importantly, the government should urgently look into providing relief to renters, targeting vulnerable populations through a combination of rent moratorium and subsidies and grants. Additionally, arrears accrued during this period should not be used as grounds for eviction at any point.
In Australia, for example, rent moratorium and rent arrears grant schemes are provided to those struggling financially to meet rent payments after the end of the emergency period and are accessible to those who have less than AUD 10,000 in savings and those who pay more than 25% of income in rent per week. Malaysia needs to take cues and follow suit.
Secondly, why are property prices not adapting to the market flows of excess supply? How can we mitigate this mismatch between housing supply and demand? To answer this, we need to understand how the Malaysian property market got here in the first place. There are many systemic factors at hand, but two main issues require immediate action.
First, according to a cover story by Edge Prop, many private developers in the country have been artificially inflating house prices stated on the Sales and Purchase Agreement (SPA), which is then used by the banks to determine the size of the mortgage. The real price paid by the purchaser is usually substantially discounted. This forms a powerful incentive for potential homebuyers, because this way they can effectively obtain 100% financing.
There is a dark side to this seemingly “win-win” situation: Artificially keeping prices high prevents the market from adjusting to demand-supply dynamics. Under normal circumstances of excess supply, prices would fall to re-establish a new equilibrium. However, this process is distorted in Malaysia, and increasingly puts homeownership out of reach for many people.
Second is the expansion of international residential property development through the Malaysia My Second Home program (MM2H). MM2H works by capitalising on off-shore investment, which incentivises developers to build units above the RM 600,000 minimum pricing threshold.
One example is Iskandar Malaysia, which regularised the construction of an international zone in Iskandar Puteri with more than 25,000 upscale residential units built for a speculative market of ‘border-crossing living’ between Singapore and Southern Johor.
The pandemic, however, has exposed the instability and vulnerability of this business model, as exacerbated by the closure of borders and movement restriction orders. As a result, we are left with empty properties that are beyond the reach of many ordinary Malaysians.
These are systemic challenges that require long-term solutions. To restore equilibrium in the property market requires policies that are focused on social equality and an overarching public purpose. This is far from impossible. Government can address these distortions in the property sector through well-judged regulation, such as mandating market-based valuations for mortgages or reducing the appeal of the MM2H programme (as it stands, there are ongoing discussions to revise the MM2H criteria), while addressing issues of property overhang.
Additionally, stricter conditions can be attached to loan guarantees and tax rebates given to developers, such as requiring them to reinvest their profits back into affordable housing which benefits society.
Lastly, how can we increase the supply of affordable housing, and more broadly, ensure everyone has a roof over their head?
Essentially, Malaysia needs to ramp up its supply of affordable housing and ensure that selection procedures are coherent and transparent.
Regulation on the rental market needs to be improved and protected, with the aim of balancing legal power from landlord to tenant. As it stands, renting is generally much less secure; many tenants are restrained from making their house their home and tenants miss out on the tax and welfare benefits of home ownership. In this light, government and policymakers should consider protective measures such as removing ‘no-grounds’ evictions, extending minimum notice periods, and creating a different regime for long-term leases.
For those who are already homeless or live in overcrowded homes, temporary emergency accommodation with basic hygiene facilities should be provided. This goal can be accomplished by leveraging and converting under-utilised private buildings, such as abandoned shopping malls and hotels, and repurposing community assets like schools and community centres that are currently closed as short-term solutions for the urban poor or homeless people.
Indeed, COVID-19 has magnified the deficiencies and divide of Malaysia’s housing affordability crisis. However, it has given us a unique chance to rethink, replan, and redesign key policies that will shape the future of our livelihoods. When the outcomes of a skewed property market are locked-down cities filled with homeless people, a stalled economy, and most devastatingly of all, the loss of homes, basic amenities, and essentially lives, we can no longer afford to wait. Now is the time to take action.
-Published in Business Today on 16 August 2021.
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