How unaffordable are Malaysian homes?

As we know, affordable housing is a big issue in Malaysia. Housing affordability has sparked many a heated debate among the working class. Most rakyat have a pretty negative sentiment over homeownership and millennials especially, have numerous concerns over the issue.
Iproperty has given some 5 questions and answer about this issue . Read this :-

1) How unaffordable are Malaysian homes in a global context ?
UBS’ data shows that the number of years a skilled worker needs to work to be able to afford a 650 sq ft apartment near the city centre, is just over 20 years.

In a study of least affordable cities, Hong Kong is followed by:

a) London,
b) Paris,
c) Singapore,
d) Tokyo,
e) New York,
f) Amsterdam,
g) Vancouver,
h) Syndey,
i)Munich

Kuala Lumpur or any other major Malaysian city is not even in the Top 20. When you look at the least affordable housing markets in Asia, you will find, in addition to Hong Kong, Singapore and Tokyo; there are other cities like Mumbai, Beijing, and Shanghai. Kuala Lumpur or any Malaysian city is nowhere to be found.

Numbeo, the world’s largest user-contributed database on countries and cities, released a Property Price Index for 2019. In this list which takes into account property price-to-income ratio, Kuala Lumpur is ranked #105. To give some context, our nearest neighbours were ranked much higher –Phnom Penh at #7, Bangkok at #16, Singapore at #19 and Jakarta at #20.

It is fairly evident that in the global context, Malaysia is not among the least affordable property markets, and the problem is more severe in many other countries. It can be argued that one must look within Malaysia as this is a local problem. This is a fair argument.

2) How bad is the housing situation in Malaysia today?
With the publicity that this subject has been receiving since 2015, it would appear that affordable housing is a recent problem. It is not. We are led to believe that property prices have increased, and wages are not keeping up.

By looking at past data, this problem is not a new one. In fact, things may be better now than 16 years ago, believe it or not.

Taking data from Khazanah’s The State of Households 2018 report, the average household income in 1993 was RM1,703. Statistics derived from CEIC Data (an economic database) shows that the average house price at the time was about RM100,000.

If the average buyer took a 30-year mortgage with the prevalent interest rate of about 8% then, the monthly instalment would be RM660 per month, assuming a 90% margin of financing. That’s almost 40% of the average household income at the time.

In comparison, the average household income in 2016 was RM6,950. Interest rates in this period were about 4.5% and the average price of a house was RM426,000. A buyer taking a similar mortgage under these conditions would be paying RM1,942 in monthly instalments. This is nearly 30% of the average household income.

Clearly, the income-to-price ratio for properties has not gotten worse. It would seem that our perception of the problem has changed because of the prominence that affordable housing has been getting in the media.

3) Why current affordable housing does not really help ?
Most affordable housing is far away from the city or town centres. That means people have to live further away from their work location to buy an affordable home. Public transportation helps, but Malaysians are not fully reliant on public transportation. The toll, fuel and time costs therefore, goes up with affordable housing which, is then not a very affordable solution.

We do have government affordable housing initiatives like PR1MA. But at the point of writing this article, PR1MA’s website indicates that there are only 73 projects available across all of Malaysia with most of them in “limited units” status.

In Kuala Lumpur, there are 4 PR1MA projects of which only 3 are still open with limited units.

Residensi PR1MA Alam Damai is about 5.9KM by car from the nearest MRT station.
Residensi PR1MA Brickfields is about 2.8KM from KL Sentral
Residensi PR1MA Bukit Jalil is about 5.7KM away from LRT Bukit Jalil
As a benchmark, a distance of 500 meters is considered “walking distance”. PR1MA projects outside of the Klang Valley do not have access to LRTs or MRTs. Residents may have to rely on buses or more likely, cars.

This brings us to another problem.

4) Why are our household expenses so high ?
A large portion of the Malaysian working population rely on cars as their main mode of transportation. This is perhaps one of the biggest household expenses, after housing of course.

Just as an example, a Honda City in Malaysia will set a family back by about RM74,000. The same car in Australia would cost AUD $16,000 or RM46,000. The exact same car is 60% more expensive in Malaysia.

As a result of taxes that make the cost of cars unnecessarily high, the average Malaysian is burdened with significantly higher transportation cost. The monthly instalment for the Honda City with current prices would work out to RM960, as compared to RM597 in Australia. That’s a saving of nearly RM3,000 on down payment and RM363 per month on instalments.

This saving alone, would allow a family to go from a RM320,000 house to a RM400,000 house (assuming they could afford the additional down payment and incidental costs).

This brings us to another important question about house prices – we all want depreciating property prices, but is this a good thing? Well, you know what they say about free lunches; there’s always a catch.

5) Why are lower property prices not necessarily a good thing ?
While most first-time home buyers want house prices to reduce, they may not be in a rush to buy a house if the Housing Price Index (HPI) went negative for the next 5 years. In fact, most people would be sceptical about buying in such a scenario.

Would you take a RM300,000 mortgage to purchase a home if you knew that 5 years later, your home would have a value of RM200,000?

In fact, there is research that indicates that under certain conditions, supply eventually becomes restricted when property prices decline. This is because most homeowners will not want to sell their properties when prices fall. The majority who can afford to hold on to their properties will choose to wait for prices to pick up again. In this scenario, supply in the sub-sale market will reduce.

When supply is limited, prices move up again. So, unless our population is declining, it may be difficult to keep prices from dropping forever. It is bad for the economy, it is bad for investment, it is bad for homeowners, and it is bad for first-time home buyers. This also explains why most property recessions or bubbles are followed by very sharp rises in property prices.

In conclusion, housing being unaffordable is not a new phenomenon in Malaysia. It has been severely unaffordable since 1993 at least or even further back. The coverage that this subject is getting in the media in recent times may have contributed to a biased perception that the problem has become serious only recently.

Source :-IProperty

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