Minimizing the Affordability Gap
The Malaysian economic indicators painted a fairly rosy picture for 2006. The country’s economy grew at 5.7% in the first half of the year. Domestic demand remained strong and expanded during the period compared to the previous year and private investment also registered a healthy growth rate. To top it all, it was reported that Consumer Sentiments Index (CSI) improved whilst the Business Confidence Index (BCI) was stable, as businesses remained optimistic.
In theory, it sounds like a good year for the property sector. But unfortunately, reality seems to indicate the contrary. Against the backdrop of such positive macro-economic indicators, property market activities were reported to have slowed down across all sub-sectors. Lower housing transactions were recorded during the first half of 2006, both in primary and secondary markets. On the supply side, an indication of greater caution among developers was notable as fewer new housing units were approved in Jan-Sept 2006 compared to the same period last year.
Whilst we still argue that sales figures reported in authoritative publications may not accurately reflect the true market activities, feedback from the ground reinforces the bleak market outlook as new housing demand continues to struggle against poor housing affordability.
In the present situation where electricity tariffs, water rates, petrol prices, toll charges and other consumer goods have escalated, more and more would-be purchasers would find a RM1,500 installment for a RM250,000 house a burden. And those who can afford to buy are in no hurry to commit, as the market remains practically flat.
Ideally, houses in Malaysia should be more affordable to the majority of the target population, but weaknesses and leakages in the delivery system tend to inflate costs and pricing. Financing plays a key role in stimulating demand, and easier and cheaper access to financing will make a huge difference to the decision making of potential home buyers.
REHDA had in the past advocated for a special 100% financing package for first time buyers at subsidized interest rates, with deferred principal repayments to help enhance their affordability. In addition, REHDA also proposed stamp duty rate for transfer of properties costing RM250,000 and below to be reduced to 0.5% to keep home ownership at affordable levels. Unfortunately, our proposals have not been given favourable consideration. Perhaps it is time for the authorities to reconsider REHDA’s proposals from a longer term perspective, as the positive impact of a thriving property market resulting from such levers may well outweigh the initial financial losses to the banks and the government.