IN 2019, Malaysia’s median income was  RM5,873. It grew by 3.9 per cent per year in 2019 compared with 6.6 per cent in 2016. Based on these, the prices of affordable homes are RM211,000 and below.

This indicates that the country’s housing prices are under the “seriously unaffordable” category (based on Demographia International Housing Affordability report) to average buyers.

For the first half of 2021, the total number of new residential property launches was 16,660 units, about half of the average amount recorded during the same period between 2016 and 2019 (The first half of 2016-2019 averaged 32,465 units; the first half of 2020: 25,227 units).

The share of new homes priced at below RM500,000 remained high at 71.6 per cent in the first half of 2021 (2016-2019 average: 70.3 per cent). But, a majority of people, especially those in the Middle 40 income group, still struggle to own a home.

As at the second quarter of 2021, the number of unsold residential properties stood at 181,460 units (first quarter, 2021: 163,612; second quarter, 2020: 169,896 units), more than twice the average unsold units from 2004 to 2015 (71,472 units).

Although the government has initiated housing schemes to support low- and middle-income households to buy homes, they are inadequate in addressing housing affordability issues.

Real estate development, being the fourth largest industry, is pivotal in spurring economic growth.

We must review certain regulations that give an advantage to private housing developers and investors. All parties stand to benefit from progressive, fair and balanced policies.

Primarily, policymakers should focus more attention on deflationary periods since they lead to rapid increases in house prices. A rise in property price is good for owners, but it will make housing less affordable for first-time buyers. Thus, the government should control the inflation rate in tandem with the affordability of homes.

Next, money supply can stimulate demand as current results show that more liquidity persistently explains the price increase. Rapid monetary growth may come with a strong economic prospect.

When strong economic growth is sustainable, this increases the demand for housing. Thus, Bank Negara Malaysia must control the supply of money to solve high housing prices. The government can develop a more efficient capital market to promote a healthier property market.

Furthermore, to reduce buyers’ speculation, we should tighten requirements for housing loans for people planning to buy their second house and above, per family. The recent measure to limit buyers of third properties to a 70 per cent loan-to-value ratio is not enough.

The ratio should be limited to a much lower level to curb excessive investment. State governments need to build an affordable housing scheme using the special scheme of land alienation.

In Malaysia, through state governments, the federal government can acquire land and designate areas for public development purposes. Through this, the construction cost of a house is lower because instead of paying the landowner a higher amount to buy land, the developer need only pay a small premium.

This will help address housing affordability issues and sustain the market. Besides, as the ageing population rise and the labour force decline, changes in Malaysia’s demographic structure should be factored in. This means homes must not only be affordable but also improve the standard of living of older adults.

The development histories of the housing market in Japan and the United States show that changes in the population and structure affected housing demand the most.

During rapid population growth, this will lead to a rise in housing demand, driving the real estate, construction and other related industries, as well as the economy, into a period of fast growth.

Moreover, the new demographic situation will change housing construction trends. It is necessary to improve relevant policies to fulfil the residents’ housing needs based on the new housing demand, demographic changes, and population flows.

We need to pay attention to factors, such as the ageing population and the need to improve housing quality and living environment. The increasing property price has raised the attention of home buyers, investors, researchers, policymakers and economists.

Policymakers must carefully design policies that factor in the need for affordable homes as well as increasing housing prices.

Source: NewStraitsTimes, Dr. Paul Anthony Mariadas and Dr. Uma Murthy/November 25, 2021