Easing mortgage rules not the answer: MARC

PETALING JAYA: Malaysian Rating Corp Bhd (MARC) said loosening mortgage lending to boost home ownership is not an option for a country with high household debt.
The rating agency said in a report entitled “Affordable Housing Woes: Holistic Long-Term Policies Necessary”, that it is important to assess the potential adverse consequences before proposals aimed at encouraging home ownership through easy financing, are considered.
Malaysia’s household debt stood at 88.4% of gross domestic product (GDP) as at December 2016, which is among the highest in the region.
In addition, about 43% or RM467.1 billion of total household debt, according to Bank Negara Malaysia’s (BNM) Financial Stability Report 2016, is held by those with annual income of RM60,000 or less.
MARC said financial stability is unquestionably a critical ingredient in any high-performing market economy and BNM has done well in keeping the financial system stable and resilient.
It stressed that the housing affordability problem needs to be tackled from a quality of life development issue perspective using holistic long-term policy measures.
“A solution to the problem would require, among other things, a rebalancing of the supply-demand dynamics of the housing market and effective implementation of medium- and long-term development measures to accelerate household income growth.”
Considering the complexity of the housing affordability issue, the rating agency noted that loosening mortgage lending requirements alone will be insufficient to solve the problem. More importantly, it is not a long-term policy measure and should not be treated as one.
MARC said Malaysia’s housing problem revolves around low income and expensive houses.
“For one, house prices have escalated in recent years. Over the 2010-2016 period, prices surged by an average of 9.3% per annum, compared to only 3.6% per annum over the 2002-2008 period.”
It is noteworthy that since 2012, the growth pace of house prices has outstripped that of income levels, partly because the supply of new housing has increasingly become concentrated in the higher-priced categories.
According to the central bank website, 80% of new Malaysian housing launches in Q1 2017 were priced above RM250,000. Between 2010 and 2014, the proportion of the higher-priced category had been significantly lower at 67%.
In urban states, more than half of unsold units are in the high-end high-rise segment.
While both total incoming and planned supply of new residential properties have been seeing quarterly decline since at least 2H2015, that for high-end high-rise units have continued to rise. This has led to an acute oversupply situation in the high-end segment at a time when there is a shortage in the affordable segment.
With the median annual household income of Malaysians standing at around RM63,000 based on the “Household Income and Basic Amenities Survey 2016”, MARC said many find the bulk of the newly launched homes unaffordable.
“A house is considered affordable, according to the World Bank-recommended median multiple methodology used to evaluate urban housing markets, if it can be financed by less than three times a household’s median annual income.”