Is Home Ownership for every Malaysian a ‘Mission Impossible’?

See Kok Loong, Executive Director of Metro Homes Realty Berhad and Deputy President of Malaysia Institute of Professional Estate Agents and Consultants (MIPEAC) doesn’t believe so and argues for the use of EPF monies to pay for monthly home loan instalments for the B40 group as a temporary solution for the affordability issue.

Q1 Based on the National Property Information Centre (NAPIC), as of 3Q18, the number of unsold homes in Malaysia has reached a new high of 30,115 homes worth about RM 19.54 billion. (The above figure is the unsold homes completed 9 months from CCC and exclude residential properties built on commercial land like serviced apartment, SoHo, etc.) Do you think there is an oversupply in the current property market or merely a mismatch situation?

See: It is both. There is a mismatch of the type and price for certain locations. Generally, there is an oversupply in the market e.g. in certain parts of Johor. (based on the population and number of units completed).

Q2 Recently, the government has come out with many initiatives such as:

  1. Launch of the National Housing Policy (DRN) 2018-2025
  2. KPKT’s first Home Ownership Campaign (HOC) in March 2019
  3. Bank Negara Malaysia (BNM) RM1 billion fund for Affordable Homes for two years
  4. Ministry of Finance (MOF) announcement on Stamp Duty waiver during the HOC for six (6) months
  5. Real Estate and Housing Developer’s Association Malaysia (REHDA) offer of 10% discount and more
  6. KPKT setting the lower ceiling price of affordable houses at RM300,000, etc.

What’s your view on all the above initiatives?

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See: Personally, I appreciate the initiatives of the Pakatan government to resolve the mismatch and oversupply issues but it might not solve the home ownership problem for the B40 and M40 groups. For me, the above initiatives are merely to push up the demand so that the buyers would make their decision earlier. This is because in general the incentives are short term in nature and for immediate gains if you lock in during the relevant period. The real solution is to have sustainable demand by raising our country’s productivity and have wages go up gradually. Therefore, more initiatives such as an economic transformation plan, etc, are required to boost disposal incomes.

Q3 The 2019 research findings from the Department of Statistics Malaysia (DoSM) categorised Malaysians into three different income groups: Top 20% (T20), Middle 40% (M40), and Bottom 40% (B40). The T20 group is defined as those with the median household income of at least RM13,148 while the M40 and B40 groups’ median household income have moved their bars up to RM6,275 and RM3,000 respectively. What is the real reason for the B40’s difficulty in owning a home?

See: The real reason is the real residual household income of B40s earning less than RM2,000
per month is merely RM76 per month as per Khazanah Research Institute (KRI)’s report. Its report back in 2015 found that Malaysian housing is severely unaffordable.

Q4 How do we control supply in the housing market?

See: Land-related matters fall under the jurisdiction of states. Because of political reasons, it is almost impossible to control the incoming supply. As the federal government or KPKT

can only manage supply using laws and policies such
as the Housing Development Act (HDA), Town and Country Planning Act, etc. The federal government can only monitor the incoming supply. One of the ways to monitor the incoming supply is by gazetting the local plans. By gazetting the local plans, incoming supply will be more predictable. Every few years, the local governments spend millions to engage consultants to prepare the draft local plans. But what’s the point if we prepare and don’t gazette them? For example, because of the non-gazetting of DBKL draft plan 2000-2020, TRX land obtained higher than normal plot ratio of 1.15 as compared to the draft plan of 1:8. The increase would create other social problems such as traffic congestions, poor living quality, etc.

Q5 Other than gazetting the draft local plans, are there any other effective methods?

See: Yes, we should implement the Build-Then- Sell (BTS) concept promoted strongly by the National House Buyers Association (HBA) – particularly now since we have record highs of unsold properties. By implementing BTS, we will lower the incoming supply for a few years and at the same time resolve the other housing issues like project delay, poor workmanship, inferior product and abandon projects. Currently, a few hundred million or billions of ringgit are wasted in legal battles, tribunal hearings and every year, the government needs white knights to rescue abandoned projects.

Q6 Based on the feedback from some industry players, BTS will create situations such as shortage of homes and rising prices due to escalating costs. Smaller developers will be eliminated, etc. What is your opinion?

See: The current “oversupply” situation has negated all these consequences. Selling price is determined by demand and supply and not cost. As for smaller developers being eliminated, the short answer is we should not protect the developers at the expense of the house buyers. Furthermore, I believe our banking system is dynamic enough to come out with new ways of financing for developers and land owners.

Q7Is affordability an issue in the Malaysian housing market?

See: Yes, based on KRI’s report, our homes are unaffordable for the B40 group. To overcome the affordability issue, we should adopt state-based affordability levels as proposed by KRl and monitor it on a yearly basis. Maybe we should even go into more detail like each local district’s housing affordability e.g. Majlis Daerah Sabak Bernam (MDSB) would have different affordability levels compared to Majlis Bandaraya Petaling Jaya (MBPJ). Based on the above affordability levels, the government should set appropriate policies to ensure supply meets demand.

Q8 Can developers build affordable housing priced below RM300,000 and can this price still be profitable for them in view of the high land cost?

See: Yes, it is possible. As mentioned, the land cost depends on demand and supply. When there is no demand for the land, the land price will come down especially if the plot ratio or density is fixed (gazetted local plans). Profit is the balance price less cost. In an open economic and good governance environment, developers should compete by reducing cost to earn profit. The biggest part of the cost of building is construction cost, therefore developers must adopt new construction methods like IBS or 3D printing to bring down cost.

Q9 In the last few years, industry players have been blaming the banks for being too strict in approving housing loans. Your thoughts?

See: My view is that banks are like any profit- oriented entity and need to be responsible to their stakeholders like deposit holders, BNM, etc. It is very common for them to choose higher quality customers than the low real residual income B40 group that might have repayment issues. However, if there is a mechanism that enables guaranteed or secure repayment, most banks are willing to finance the purchase.

Q10 In your view, what role should the government play?

See: Personally, I believe in market economics- when the market is working/performing, the government should not interfere and should remain as the “gate keeper” that is to ensure the law is being followed. The current situation of “oversupply” or “mismatch” is created by the previous government which decided to come into the market to add in supply with many housing schemes like 1Malaysia People’s Housing Programme (PRIMA), Federal Territories Affordable Housing scheme (RUMAWIP), 1Malaysia Civil Servants Housing Project (PPA1M), etc. When the government starts supplying the houses, it creates an unfair competition and affects the equilibrium. Past authorities tried to produce millions of units of PRIMA and others that eventually pushed the price up because PRIMA set the benchmark of RM300,000 with basic facilities, whereas private developer units come with more facilities and are priced around RM500,000 – it gave the wrong information to the market.

Q11 What are the real reasons why B40 cannot own a house?

See: The real reason is the Low Real Residual Income of the B40 Group.

So, is it mission impossible to achieve the vision of every Malaysian owning their home?

See: No, it is possible but we need to adopt the New EcoSystem for Home Ownership for Malaysians. Let us look around the world for the most successful home ownership country. The highest percentage of home ownership is Singapore. But HDB flats are only part of the answer. For me, the other part of the answer is because Singapore is the highest savings nation and its government encourages home ownership from day one. Besides that, they also have an Ecosystem that works for them that I am proposing Malaysia adopts.

What’s the New EcoSystem?

See: The proposed New Eco-System is your own Employees Provident Fund (EPF) to be used for monthly housing loan instalments. Our B40 or M40 do have high savings but the money went into Employees Provident Fund Account. Around 24% went to EPF (11% from Employee and 13% from Employer). The solution for all Malaysians to own a house before retirement, free from encumbrances would be to allow the EPF monies to pay for the monthly housing instalments so that they can free up some income by not having to pay the current monthly rents. With EPF paying for monthly housing loan instalments, the buyer can stay at his own house. So long as he is working, he will contribute to the EPF which will then channel the money [to the bank] to pay the monthly instalments.

Q12 Isn’t it risky to fund housing loans with EPF funds since it is a forced savings plan for retirement?

See: Not really as buying an affordable home for own stay for the long term is the safest investment.

Q13 If EPF savings is used for home loans, what happens to the reduced retirement savings?

See: This plan should be restricted only for first home buying and should target the young generation that come into workforce in their 20s. By the time he or she is 45 years old, he should have a mortgage-free home. His other savings can come from 45 till 60 years old or the rise in monthly income over the years. Government policies must also be introduced to ensure proper implementation.

Q14 How does the mortgage work then?

See: If the monthly payments come directly from the EPF monies, many banks would be willing
to finance the purchase even for the B40 group because the instalment is secure for the long term as long as the borrower is employed.

Q15 What else should we need to know about the new EcoSystem?

See: The New Ecosystem proposes to achieve three objectives:
1) Home Ownership.
2) Begins at a young age like 20-25 years old.
3) Get extra disposable income from rental savings.

It is good for the entire property market as it increases liquidity in the market and will benefit other related industries. Bank business can go on as usual, developer units can move because the new Ecosystem solves the real residual income issue.

Q16 Other issues of buyers using EPF monies:

What if he sold the property before the loan is fully paid?

See: Monies go back to his EPF account like unit trust investments.

He will not get his EPF dividend?
Yes, but he doesn’t have to pay monthly rental and his real residual income went up.

What if he is unemployed?

See: The proposed scheme should only apply 6 months after his work confirmation when his career is more stable. The scheme can also structure in an insurance policy that will pay the instalments for a certain period when he is out of work.

Q17 Based on your calculation, what is the value of the property that the B40 group can afford to buy?

See: Based on the DoSM, the median household income of B40 group is RM3,000 per month. EPF savings is 24% of RM3,000 = RM 720 per month At an interest rate of 4.4% for a 25-year loan, the B40 with EPF fund of RM720 per month can afford a loan of RM135,000. It means he can buy a property priced at RM150,000 with 10% downpayment and 90% financing.

Q18 Based on your calculation, what is the value of property that the M40 group can afford to buy?

See: Based on the DoSM, the median household income of M40 group is RM6,275 per month. EPF savings is 23% of RM 6,275 = RM1,443 per month At interest rate of 4.4% for a 25-year loan, the B40 with EPF fund of RM1,450 per month can afford a loan of RM270,000. It means he can buy a property at RM300,000 with 10% down payment and 90% financing.

Q19 What are the other options available for Home Ownership for every Malaysian?

See: Personally, I feel that the above is a new solution for Home Ownership for all Malaysians. Without using the EPF savings fund, it is almost impossible for home ownership in the short term for the B40 group because of the low Real Residual Income. For the long term, we still have to go
back to the fundamentals, that is increase in wages and productivity levels like Singapore or China (where for the last 20 years, wages kept going up). Investing in education is the only way to move the entire society to a high income society.


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