IN recent weeks, Bank Negara Malaysia (BNM) spotlighted
a major concern – housing loans could strain the repayment capacity of a
small segment of borrowers, particularly low-income earners without
sufficient savings to weather unexpected contingencies.
Source from (The Sun Daily): http://www.thesundaily.my/news/782879
Published: July 29, 2013
Although BNM's directive to banks to cap the tenure of housing loans
at 35 years and personal loans at 10 years while prohibiting
pre-approved loans is timely, it sidesteps a key issue – the urgent need
to ensure a growing supply of affordable houses for the average
salaried Malaysian.
Admittedly, this supply issue is beyond the central bank's purview;
BNM's mandate is to ensure responsible borrowing and lending as well as
to buttress the country's financial system.
Responsibility for facilitating the supply of affordable mass housing
lies with the federal government, state governments, municipalities and
land officers – a challenging task almost all have failed to respond
adequately.
BNM's concern is prompted by two factors.
First, a likely rise in US interest rates. Last month, Ben Bernanke
caused a brief but sharp drop in share markets worldwide when he
indicated for the first time the US Federal Reserve could begin scaling
back its quantitative easing (QE) later this year.
Although he subsequently reiterated this timetable wasn't set in
stone, cutting back QE could cause interest rates to rise in the US and
worldwide.
Last week, 10-year Malaysian bonds fell for the third successive week
as indications of a growing recovery in the US economy spurred
expectations the Fed could start reining in QE soon.
An initiative in which the Fed buys American government bonds to
stimulate economic growth, QE has helped push US interest rates close to
zero. Labelled quick and easy money, QE has been pilloried because it
has enabled the Fed to print vast quantities of money.
Second, Malaysians' household debt compared with their annual incomes
is both worryingly high and ballooning rapidly. While most households
have sufficient assets to provide a buffer, statistics suggest BNM
doesn't have the option of remaining complacent.
A Standard Chartered report said Malaysian households are the most
indebted in Asia – with debt at a stratospheric 182% of annual income.
Singapore households were a surprising second – with debt at 151% of
annual income and property borrowings accounting for 111% of household
income.
According to credit rating agency Moody's, Malaysia's household debt
as a proportion of economic output or gross domestic product (GDP) has
swelled rapidly and relentlessly – from 60.4% in 2008 to 80.5% in
December 2012.
Standard Chartered estimates Malaysia's household debt to GDP as at end-March 2013 is 83% of GDP.
Fuelled by the ready availability of mortgages with 45-year tenures
and 25-year personal loans and pre-approved loans, this growing debt
burden isn't in the interest of both borrowers and lenders.
Shorter tenures for mortgages will undoubtedly mean slightly higher
monthly repayments for borrowers. However, BNM has emphasised households
with the financial capacity to borrow will continue to enjoy access to
financing.
With the country's borrowers and lenders in good hands, can the same be said for wannabe homeowners?
Instead of attempting to limit demand, policymakers should focus on
expanding supply – an approach that is likely to be far more effective
in lowering housing prices to more affordable levels.
Demand for housing is likely to grow. According to the Statistics
Department, 56.4% of Malaysians in 2011 were younger than 30 years old –
a demographic cohort that suggests any attempt to dampen demand is
likely to be futile.
Making houses more affordable is critical. Using civil servants as a
benchmark, a vast segment of salaried Malaysians appear to be
effectively shut out of the housing market.
According to a study by the Congress of Unions of Employees in the
Public and Civil Services (Cuepacs), 45% of the country's 1.4 million
civil servants cannot afford to buy a house and are forced to rent or
stay in government quarters.
Approvals to change land ownership or its usage as well as the
paperwork needed to build houses are two critical factors in boosting
the supply of affordable houses.
For this reason, all key players – including the federal government,
state governments, municipalities and land offices – must speed up their
efficiency.
While implementation of the one-stop centre for housing several years
ago was a step in the right direction, has this helped to shorten
significantly the approval process? Can more be done to speed up the
process?
Another option is to consider building more pre-fabricated houses.
This could offer the dual benefit of reducing construction time and
cutting the cost of houses.
Priority should also be given to building more affordable apartments by
the federal and state governments as well as the private sector.
In short, providing a safe place to stay – whether purchased or
rented – should be a key performance indicator of effective governance
for Putrajaya and all 13 state governments.
Opinions expressed in this article are the personal views of the
writer and should not be attributed to any other organisation she is
connected with. She can be contacted at siokchoo@thesundaily.com
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