By Khairie Hisyam
Recently property developers appealed, yet again, for the government to relax lending guidelines to enable more people obtain a mortgage and buy a home. Perhaps they may try adapting to the new reality at hand instead of asking for it to be changed.
At the Real Estate and Housing Developers Association’s (Rehda) annual dinner on Nov 18, Urban Wellbeing, Housing and Local Government Minister Abdul Rahman Dahlan spoke well on a number of pressing matters.
Among other things, he flatly stated that a decent shelter is a basic human right and that there is no justice in society if there are some who are homeless. He also reminded developers that the real demand in the market is in affordable housing, continuing a stand he had made in his first speech as housing minister in 2013 when he argued that there exists a 40% gap between affordable housing supply and demand.
But one important matter also touched on was the matter of lending curbs imposed by Bank Negara Malaysia in recent years, which developers have argued that curbs have raised loan rejection rates and are hurting developer sales.
Rehda president Fateh Iskandar Mohamed Mansor, more commonly referred to as FD Iskandar, implored in his welcoming speech that the government introduce positive measures to help the property development sector amidst turbulence from various cooling measures imposed by Bank Negara Malaysia over the past few years.
“The cooling measures introduced, particularly the tightening of lending guidelines have held down buyers’ eligibility to secure home loans. Feedback from members reported that loan rejection has reached almost 50%,” said FD Iskandar. “I would like to stress again and again that property investment is the biggest wealth creation and should continue to be encouraged.”
Fateh Iskandar Mohamed Mansor
In his speech, FD Iskandar again expressed Rehda’s hope that the government could “consider relaxing the tight lending guideline to enable more people to benefit from this ‘profitable’ investment in property”.
In that sense, the Rehda chief has it right – property ownership is a good form of investment if you can afford it. But that’s the crux of the matter: what if people cannot afford the investment in the first place?
The housing minister responded well in his own speech. He said that while his ministry would love to see more people take ownership, Bank Negara has a different KPI: to ensure household debt levels remain reasonable.
To be clear, the measures implemented by Bank Negara have been working. Not only is the household debt growth slowing, but they have also slowed house price increases compared to runaway growth rates seen just a few years ago, squeezing many Malaysians out of affordability as income has not grown at similarly crazy levels.
One effect is normalisation of the property market. House prices are growing at slower, more sustainable levels now, according to Bank Negara’s Financial Stability and Payment Systems Report 2014, compare this to doubling of secondary property prices in certain areas in the Klang Valley based on anecdotal stories by investors and real estate agents.
Meanwhile, stricter requirements for banks mean there is a closer scrutiny on the ability of applicants to service their loans.
As an aside, property speculation has noticeably lessened: “The number of borrowers with at least three outstanding housing loans – used as a proxy for speculative purchases – moderated further (by growth rate) during the year, increasing by 2.9% (2013: +5.3%; 2010: +15.8%),” said Bank Negara in the report.
But this is not entirely about speculation. At the heart of it, it is arresting the unsustainable growth of household debt including mortgages that borrowers may not be able to service. Some people call this sort of mortgages subprime – it brings back shades of what happened right before the 2008 global financial crisis where in the US subprime mortgages boomed in the run-up to the implosion.
Back to Rehda’s call for positive measures to help property developers, it is difficult to see how the government may do so in direct intervention vis-a-vis the lending curbs.
At the end of the day, options such as relaxing the lending guidelines do not quite address the whole problem and may undo what progress has been made over the past few years towards keeping speculation in check and injecting realism into house price growth, among others.
That leaves indirect options such as reducing costs of doing business and reviewing how the problematic bumiputera quota system raises costs further for developers for relatively little purpose. Recall that Budget 2016 mentioned a RM200 million allocation to help aspiring homebuyers with their downpayments, though more details would only be available next year, said the housing minister.
But developers also need to do their part. Statistics are readily available on median household income levels of Malaysians, for example. It is high time that developers at large look into ways of matching their products with what people can afford under the current reality of lending guidelines.
No doubt developers would argue in response that they are already doing that, citing high costs of land and other issues in the way. But there are still those who insist on a certain price range, clearly out of reach of most Malaysians, yet branding such a range as “affordable” based on good take-up.
At the end of the day, you simply can’t force expensive properties unto buyers who simply cannot afford them.
Bank Negara had made its stand clear that the lending curbs are not going away anytime soon. Some critics feel it should be in place permanently, even. Ultimately, the lending curbs are not only about mortgages but also the financial system and household debt levels at large.
Abdul Rahman Dahlan
As the housing minister stated at the dinner: “I have realised that in recent years we tend to over-spec our houses because we are selling lifestyle. But there are also those who are simply looking for decent, basic houses. Don’t forget them.”
Property developers would do well to heed the advice and adapt as best they can to the current reality. The government would surely be accommodative in addressing other industry issues Rehda brings up since, as the housing minister says, his “door is always open”.
GRRRRR!!!
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