Housing affordability is an income issue, what's with the fuss?

Success story: The Pinnacle@Duxton, a HDB public housing estate, in the Tanjong Pagar district of Singapore. The HDB programme provides the government with an effective means to ensure targeted housing supply meant for community dwelling. – Bloomberg

Best practices from from HDB should be carefully studied

IT is increasingly a cause for concern to see the rising cost of living leading to a significant erosion of income. This results in more youths and job entrants unable to afford decent dwelling, be it in urban or sub-urban areas.

Therefore, it has become a pressing policy matter to find an effective solution to keep real estate prices in check. Many governmental agencies have been set up, but affordability remains a problem.

> Current state of health

From property developers to banks offering mortgages, the real estate sector supply chain has a high correlation with domestic economic performance.

According to the National Property Information Centre (NAPIC), the Malaysian House Price Index growth has been moderating since 2014.

The index had eased to 7.2% in the fourth quarter last year, down from a 7.4% expansion in the previous quarter. It is the fifth consecutive quarter of slower pace of growth.

Similarly, Malaysia’s gross domestic product (GDP) growth had tapered to 4.0% in the second quarter this year, down from 4.2% in the previous quarter.

Notwithstanding the current sluggish economic conditions, the pertinent issue surrounding the real estate segment is affordable housing.

>Severely unaffordable

Even though broad property prices growth have plateaued, the high absolute price to own a house continues to be out of reach for the common Malaysian.

According to the report “Making Housing Affordable” by Khazanah Research Institute, the overall Malaysian housing market is ‘seriously unaffordable’.

Using the “median-multiple ratio” standard by the United Nations Centre for Human Settlement at the World Bank, a housing market is considered “affordable” if the house price to household income ratio is below 3.0 times.

The study conducted by Khazanah Research Institute, following the latest available data by the Department of Statistics, indicated that the overall Malaysian median-multiple in 2014 was 4.4 times.

More worryingly, the median multiple ratio for Kuala Lumpur (5.4 times), Penang (5.2 times), Terengganu (5.5 times) and Sabah (5.1 times) are considered to be ‘severely unaffordable’.

According to NAPIC data in the first quarter of the year, the median residential property sale transaction price in Kuala Lumpur was within the range of RM400,000 to RM500,000.

Assuming that the property price is RM450,000, after paying the 10% down payment deposit and taking a 35- year tenure housing loan at 4.5% interest per annum, the monthly mortgage repayment comes up to slightly over RM1,900.

Meanwhile, the surveyed salary of a four-to-five-year experienced sales manager with a university degree was reportedly at between RM5,000 and RM8,000 per month, according to a local recruitment specialist report.

Effectively, this means that the manager is looking at a house-to-individual income ratio of 4.7 to 7.5 times if he or she were to purchase the Kuala Lumpur property on his or her own capacity.

Property price and value to Income per country in SEA 20014

Moreover, given Department of Statistics’ expectation of 1.2% annual population growth rate between 2016 and 2020, Malaysia’s demography will have to accommodate a projected 1.6 million more people by the end of the decade.

Housing is a pressing socioeconomic issue for the long term not only in Malaysia but also worldwide. It has to be sustainable and affordable.

 >Focus on sustainable supply side dynamics

Fundamentally, housing affordability is an income issue.

Given the high absolute value of real estates, household income – at a much lower base – would have to multiply much higher to catch up to the affordability threshold.

To extrapolate it further, even with higher income growth, would real estate ever be considered ‘affordable’?

A conventional profit maximisation motive could mean that property developers would eventually price their units in tandem with income growth rates, therefore creating the ever elusive ‘affordability’.

Keep in mind that there is no lack of demand for housing in Malaysia in light of the relatively young demographic.

In 2016, the estimated age group younger than 24 years old of around 13.4 million people makes up 43% of total population.

Besides, the average household size is expected to shrink from 4.6 people in 2000 to an estimated 4.0 people by the end of the decade, according to Khazanah Research Institute.

>More residential units would be required for dwelling.

Essentially, policy makers should focus more on the supply side dynamics to tackle the issue of home ownership and also on sustainable policies to ease the cost of ownership – especially for first- time home buyers.

Under the 11th Malaysia Plan, the government has already outlined the need for affordable housing – especially for the bottom 40% of households – to alleviate the increasing cost of living.

The government targets to provide 606,000 new affordable houses during course of the 11th Malaysia Plan spanning from 2016 to 2020, introduce an integrated database to match supply and demand dynamics and also establish a land bank for future affordable housing projects.

This would be a continuation of the Program Perumahan Rakyat 1Malaysia (PR1MA), Ruman Idaman Rakyat and Rumah Mesra Rakyat initiatives.

The government looks set to establish a land bank for houses and an integrated database for all relevant stakeholders to match demand and supply dynamics.

Across the straits, the Singapore Housing and Development Board (HDB) is often cited as a success story in providing affordable and quality homes.

The HDB programme is a comprehensive nationwide strategy that aligns the government’s legal powers to acquire land for public housing purposes, act as a central authority on township development, while leveraging on the Central Provident Fund as a financing means to ensure affordability.

Moreover, there is a holistic township planning whereby the development of physical HDB flat infrastructure is complemented by socioeconomic integration that promotes a cohesive society.

No doubt there are studies that indicate Singapore’s median multiple ratio is around 5.0 times in 2015, thereby classified as ‘severely unaffordable’.

The scarcity of land in the island state limits the potential for competitive supply of land.

Nevertheless, the comprehensive central planning that the Singapore government employs allows it to have a firm grip on keeping property prices in check.

In short, the HDB programme provides the government with an effective means to ensure targeted housing supply meant for community dwelling.

Given that Singapore’s home ownership rate has increased from 29% in the 1970s to close to 90% in 1990 and a vibrant resale market for the private sector, it is a considerable success story for providing quality living standards for the nation.

While it would likely be a gigantic task for other countries to emulate Singapore’s public housing policy from scratch in light of the legal matters of land and elements of socioeconomic welfare distribution, the best practices from HDB should be carefully studied.

>Housing matter should be top on policy priority

In Malaysia, land matter is a state matter. For a comprehensive public housing plan to take off, the government would have to put up an economically viable proposal to develop new townships across the nation with a cost effective structure.

The Urban Wellbeing, Housing and Local Government Ministry is mulling over the idea of developing a ‘Youth City’ township to cater to the young population.

Perhaps that could be a platform for the government to walk the talk and deliver value-added townships for affordable housing.

On the other end of the equation, besides providing dwelling space, real estate is also an asset class that yields cash flow from rental and also capital appreciation through time.

Therefore, it is imperative that the housing market price should never be trapped in an asset class bubble.

The 2008 United States’ sub-prime mortgage crisis serves as a grave reminder of the dire consequences and the impact on the real economy.

Fortunately, Bank Negara has already in place various macro-prudential policies since 2010 such as limiting loan-to-value ratio to 70% for home financing, and increase in real property gain tax to 10% for sales of real estate within two years to stem real estate market speculation activities.

In light of these, the recent consideration to allow property developers to offer home buyers financing at a much steeper financing cost of 12% interest rate per annum should be deliberated properly.

It is one matter to provide easier credit facility to own a property but it is an entirely different matter to compromise on the people’s capabilities to service the loan in the longer run and the spillover impact on real estate prices.

In short, housing is a necessity and it is imperative for authorities to have a policy interest in the issue.

The policy challenges going forward would only be more challenging as demand for housing continues to surge. It would be interesting to take stock of the plan that government has in mind come Budget 2017 on 21 October.

By Manokaran Mottain

Manokaran Mottain is the Chief Economist at Alliance Bank Malaysia Bhd

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Malaysia’s residential housing market ‘severely unaffordable’, said Demographia

Chang: 'For the past few years, HBA has sounded the alarm on the risk of a homeless generation.'

WHEN middle income professionals are unable to afford their own home based on a single income and have to team up with either a spouse or another person to qualify for a mortgage loan, then it is a sign that the unaffordability of our housing market has become critical.

A finding by US-based urban development researcher Demographia reveals Malaysia’s residential housing market is “severely unaffordable”, even more out of reach than residents in Singapore, Japan and the United States.

Demographia’s finding, cited by Singapore’s Straits Times in a report on Oct 14, rates housing as severely unffordable if the median of house price to annual income is 5.1 times.

Malaysia clocked in at 5.5 times, showing many Malaysians continue to be locked out of the housing market, compared with Singapore’s 5.1 times, while the United States’ and Japan’s housing markets were found to be “moderately unaffordable”.

Public interest group, National House Buyers Association (HBA) honorary secretary-general Chang Kim Loong says Demographia’s report supports HBA’s own finding that house prices, especially in the urban and sub-urban areas, have risen beyond the reach of many average Malaysians.

“For the past few years, HBA has sounded the alarm on the risk of a “homeless generation” made up of a growing number of young Malaysians especially the lower and middle income groups who are unable to afford their own home. When this homeless group grows in number, it can give rise to many other social problems,” he warns.

Siva: 'The fact that salaries have not kept up with the upswing in property prices have further worsened ... the situation.'

Chang says when even middle income professionals are unable to afford their own home based on a single income, the situation has become critical.

He says unless one is willing to be tied down by a long-term or back-breaking mortgage or mortgages, the high residential prices have rendered buying a house an increasingly uphill task, if not an impossible feat for the many lower income and average Malaysians.

“The skyrocketed prices have driven house buyers to take back breaking mortgages and many needed to combine their income in order to qualify for a mortgage, thus leaving them with very little or no savings after paying the monthly instalments and other basic necessities.

“This will place families at risk as they could fall into a deficit situation if any sudden emergencies happen to either of the borrowers,” Chang says.

He points out the possibility that in the event these borrowers cannot afford to pay their instalments and the banks are forced to auction off their properties, “there is a risk of a property bubble bursting, just like what happened during the sub-prime financial crisis in the US.”

“The borrowers and their dependents will also be faced with financial and emotional crisis that befalls their foreclosed property. Foreclosures can devastate a family’s economic and social standing, leaving them poorer instead,” Chang laments.

Chang says just six years ago it was still possible for a single middle level manager earning RM5,000 a month to buy a new double-storey link house in Kajang for less than RM250,000, and for a single executive earning RM3,000 a month to buy a new condominium in the Old Klang Road area for about RM200,000.

“Today, a new house in Kajang are in excess of RM700,000 but a middle level manager is just earning RM6,000 or thereabout a month. Recent launches of condominiums around Old Klang Road area are in excess of RM600,000, while the average salaries of executives are still around RM3,500 a month,” he laments.

He believes the maximum price that households with an monthly income of RM10,000 should purchase is only RM360,000 (RM120,000 x 3x).

“HBA has always stressed that affordable housing should be priced around RM150,000 to RM300,000, and not more then RM400,000 even for prime locations. Given that annual household income uses the assumption of two working spouses, there is a critical need for properties priced at RM150,000 to cater to single families and adults.

“We urge the government to further lower the threshold of affordable house price to between RM150,000 and RM300,000, and not more than RM400,00 even for prime locations,” Chang adds.

Chang says these houses, with minimum built-up of 800 sq ft and three bedrooms, need not come with fanciful finishing, but have just the bare necessities for a family’s comfort.

Stemming the greed

Malaysian Institute of Estate Agents (MIEA) president Siva Shanker concurs that the unaffordability housing issue has become critical over the past three to four years due to the sharp upswing in house prices.

“It was driven by the low entry costs with schemes such as no need for downpayment, developer interest bearing schemes and free stamp duty and legal fees, Although the Government has introduced various cooling measures and more responsible bank lending guidelines which has brought down the number of housing transactions, prices or value of houses still remain high.

“The fact that salaries have not kept up with the upswing in property prices have further worsened the unaffordability situation,” Siva explains.

HBA’s Chang points out the risks posed by “Investors’ Clubs” or “Millionaires Clubs” which are basically syndicated speculators incorporated by some ingenious individuals.

“They work in cahoot with developers, valuers and banks. Speculative buyers may be caught by the latest round of cooling measures. How the situation will pan out will depend on the holding capability of these speculators of which most of them may not have. Come hand-over time when it is time for these “investors” to flip their purchases, there may be a shortage of buyers for these properties, most of which were transacted at inflated and not real market value prices,” he warns.

Siva opines that the imposition of real property gains tax (RPGT) to tax gains from property transactions should be counted from the date of completion of the property and not from the signing of the sale and purchase agreement as what is being practised now.

This is given that it takes three years for high-rise residences to be delivered to buyers upon the signing of the sale and purchase agreement, and two years for landed property. Chang says the severity of the housing crisis for many Malaysians today calls for a workable housing delivery model to be put into action urgently before the problem spills over and cause more social problems in the country.

Housing the people has to be made the top thrust of the government and all possible measures need to be put to work fast and bottlenecks must be promptly addressed.

He says much more can be done to ensure a sustainable and orderly housing market for the people, stressing that holistic and concerted efforts need to be adopted.

“However, very often policies adopted are more for political expediency rather than for the betterment of the people.

“We need a single umbrella to monitor, regulate and police the performance of the various agencies that are entrusted with the role to ensure affordable housing index are met and properly distributed to the deserving ones. They must build the right quantity of the right property, at the right location, for the right populace, and at the right price.

“There must be full transparency on the location, number of units, registration and balloting process to ensure fairness to all eligible buyers,” Chang stresses.

A single database will enable individuals to learn about the availability of the affordable housing in their communities or in the communities they planned to move to, and understand financing options avail to them.

Siva also calls for a central planning and delivery agency to plan and coordinate all the affordable housing needs of the people. “The whole process should be totally transparent with a master registry to record all the database of applicants and successful candidates. There should also be a moratorium period of up to 10 years to ensure that the successful candidates offered these affordable housing will not be able to dispose these homes for quick profit.

“The federal and state governments should provide the land and other forms of incentives to encourage private developers to lend their support for these affordable housing schemes,” Siva says.

Chang agrees that giving incentives to developers that build affordable housing will motivate them to throw in their support to build more of such housing units, adding that building up the infrastructure connectivity to the still relatively undeveloped areas will make these places more accessible and improve demand for property in those places.

“HBA has proposed to the government to take the lead by unlocking more of its vast land banks to build affordable housing for the people.

“The reason why developers are not chipping in to build more affordable housing units is because of the so-called profit maximisation by industry players. It is either high-rise multiple hundred units or high-end luxury units. Very often it is a combination of both - luxurious high-end units.I have not heard of developers building single-storey terrace houses that were so prevalent in the past. Developers are refusing to build such price and low margin items and will rather focus on higher margin items. With land being a scarce resource, developers will maximise the value of their land banks.

“If the land comes from the federal and state governments, private developers will be more willing to throw in their support to develop affordable housing for those in need,” Chang concludes.

Source: ANGIE NG The Star/Asia News Network


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 Malaysian homes more unaffordable than Singapore, Japan and US; Budget 2015 brings little joy

Malaysian homes more unaffordable than Singapore, Japan and the US; Budget 2015 brings little joy

File picture shows houses under construction in Kuala Lumpur. Malaysia has a ‘severely unaffordable’ residential homes market, according to researcher Demographia.— AFP

KUALA LUMPUR, Oct 13 — Malaysia has a “severely unaffordable” residential homes market, with housing even more out of reach for its residents than in Singapore, Japan and the United States, according to US-based urban development researcher Demographia.

Demographia’s report was cited today in a report in Singapore’s Straits Times newspaper to highlight how many Malaysians continue to be locked out of the residential housing market despite the federal government’s attempt at helping first-time house buyers.

According to the ST report, Demographia rates housing as severely unaffordable if it is 5.1 times median annual income. Malaysia clocks in at 5.5x, higher than Singapore’s 5.1x, while housing in the United States and Japan is “moderately unaffordable”.

Government data cited by the ST report shows that since 2012 median monthly household income has risen eight per cent annually to RM4,258, slower than the average housing price increase of 10 per cent to RM280,886.

The country’s consumer price index has risen by an average of 3.3 per cent this year and Putrajaya had warned it may spike by 5 per cent next year, tripling the 2013 average.

In presenting Budget 2015 last Friday, Prime Minister Datuk Seri Najib Razak introduced a Youth Housing Scheme that will waive down-payments and subsidise ownership by up to RM10,000 for 20,000 married couples under 40.

Najib also said the government would provide another 80,000 new homes priced at RM100,000 to RM400,000 under the 1Malaysia People’s Housing Programme (PR1MA).

Both schemes, including the existing My First Home (MFH) scheme are only for households with a combined monthly income of less than RM10,000.

According to Bank Negara only a third of My First Home applicants received loans in the first year, as banks refused to take risks.

And PR1MA has seen just 761 buyers for the 160,000 units launched since 2013.

“We earn just over that but it’s not enough for savings. We can convert rent into loan repayments but we can’t pay the 10 per cent deposit,” lawyer Puteri Mohamad told the Straits Times in commenting on the Budget proposal to help households earning less than RM10,000 monthly to buy homes.

Office administrator Mimie Azriene Mohd Zin, 32, has no children but she and her technician husband have applied for a PR1MA home.

But she told the Straits Times they have not figured out how to afford the down payment on their combined income of under RM4,000 a month that leaves them with little savings living in expensive Kuala Lumpur.

“We might not even be able to afford the repayment but we have to try before prices go up further,” she told the daily.

Source:  http://www.themalaymailonline.com/

Malaysia's budget aid brings little joy to house hunters

Despite being a partner in a law firm just outside Kuala Lumpur, Ms. Puteri Mohamad, and her fiance, can only watch as apartments in the area where she lives spiral above 500,000 ringgit (US$153,334).

When the government proposed measures in its 2015 Budget — released on Friday — to help households earning less than 10,000 ringgit (US$3,067) monthly to buy homes, she was not at all elated.

“We earn just over that but it's not enough for savings. We can convert rent into loan repayments but we can't pay the 10 percent deposit,” said Puteri, 33, who lives in a rented flat in Petaling Jaya.

Many Malaysians like her find themselves locked out by a combination of what U.S.-based urban development researcher Demographia rates as a “severely unaffordable” residential market and accelerating inflation.

Malaysia's consumer price index — which includes many subsidized goods — has risen by an average of 3.3 percent so far this year and the government warns it may spike by 5 percent next year, nearly triple the 2013 average.

Government data shows that since 2012 median monthly household income has risen 8 percent annually to 4,258 ringgit, slower than the average housing price increase of 10 percent to 280,886 ringgit.

Demographia rates housing as severely unaffordable if it is 5.1 times median annual income.

Malaysia clocks in at 5.5x, higher than Singapore's 5.1x, while housing in the United States and Japan is “moderately unaffordable.”

Prime minister Najib Razak said in his budget speech the government would provide another 80,000 affordable homes (priced at 100,000 ringgit to 400,000 ringgit) under the 1Malaysia People's Housing Programme (PR1MA) and introduce the Youth Housing Scheme that will waive downpayments and subsidize ownership by up to 10,000 ringgit for 20,000 married couples under the age of 40.

Both schemes, as well as the existing downpayment waiver under the My First Home scheme, are only for households with a combined monthly income of less than 10,000 ringgit.

The National Housebuyers Association lauded the moves to help aspiring homeowners in financing but criticized the lack of new measures to cool rising prices that are the root of the problem.

Its secretary-general, Chang Kim Loong, said speculators have taken advantage of the low entry cost of buying a property at the expense of genuine buyers.

Office administrator Mimie Azriene Mohd Zin, 32, has no children but she and her technician husband have been unable to even think of home ownership until these schemes came along.

They applied for a PR1MA home, which the government says is priced 20 percent lower than comparable units, worth about 200,000 ringgit three months ago.

But they have not figured out how to afford the downpayment on their combined income of under 4,000 ringgit a month that leaves them with little savings living in expensive Kuala Lumpur.

“We might not even be able to afford the repayment but we have to try before prices go up further,” she said.

That is, if she can get a loan in the first place. The central bank reported that only a third of My First Home applicants in the first year received loans as banks refused to take the risk.

Tellingly, even PR1MA saw just 761 buyers for the 160,000 units launched since 2013.

BY By Shannon Teoh, The Straits Times/Asia News Network

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Annual DhiDemographia International Housing Affordability Affordability Survey: 2014

PDF]10th Annual D hi Demographia International Housing ...

http://www.demographia.com/dhi.pdf

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