EPF: Higher withdrawals could fuel housing bubble risk

KUALA LUMPUR: The Employees Provident Fund (EPF) yesterday cautioned that higher withdrawals from the pension fund could create a housing bubble risk.
“While it is okay to open up a bit (withdrawal) to allow first house purchase, if you open it up too much, it will fuel the housing bubble where you encourage people to buy assets that they may not be able to afford,” the fund’s CEO, Datuk Shahril Ridza Ridzuan, said.
Hence, he said, the newly proposed end-financing scheme will only be available for 1Malaysia People’s Housing (PR1MA) homes, which are priced below RM300,000 each. It is strictly for first-time house buyers only.
“We’re in the midst of finalising the scheme, “ he said, noting that it will be implemented on Jan 1, 2017.
Under the scheme, Shahril said, the banks will lend more money judging from the future income that will be going into borrowers’ EPF Account 2.

“Those who intend to come for this scheme in 2017 must make sure they are aware that they are trading off long-term ability to draw down Account 2 for short-term ability to buy a house.”
For example, an applicant with a monthly income of RM3,000 will be eligible for a loan of only about RM187,000. However, through the special scheme, the applicant will be able to borrow more than RM295,000.
Upon choosing the facility, all other pre-retirement withdrawals under Account 2, namely medical, education, Age 50 and Hajj withdrawals, will no longer available until the PR1MA loan is fully settled.
Commenting on the possibility of higher interest rates charged for the end-financing scheme, Shahril said it will depend on the banks.
“There are four banks (Maybank, CIMB, RHB and AmBank) working on the scheme. Basically it’s up to the banks to make the offer. Again, it will be based on their credit assessment. If you have a strong credit, then you should get a better rate,” Shahril said.
In the event of a loan default, he opined that the Account 2 money will be utilised eventually even though it cannot be used until the loan is settled. “The bank has to foreclose on the house first. For Account 2, when we say ring fence, it’s not a charge on Account 2 to force the members to take out their money. (But) the member will definitely use the money to avoid bankruptcy.”
Shahril said there is no plan at the moment to extend the end-financing scheme to other affordable housing schemes, such as Rumah Selangorku. “PR1MA is a nationwide housing scheme. So I think it is sufficient to cater to the market,” he added.