Media Statement by Yeo Bee Yin, State Assemblywoman for
Damansara Utama on Friday 9 September 2016 in Petaling Jaya.
Putrajaya should abort
the proposed plan that enables property developers to become the loan sharks to
home buyers.
I read with great concern the
announcement by the Urban Wellbeing, Housing and Local Government Ministry that
there will be an initiative from Putrajaya that allows property developers to
give out loans to home buyers at interest rate as high as 12 to 18%[i].
More worryingly, under such scheme the developers have the autonomy to decide
who to give the loan to and not only restricted to the first home buyers. The
minister Tan Sri Noh Omar said that such initiative is a win-win situation for
both the developers and home buyers. I beg to differ. I believe that this will
only create “win” to the developers but leave the home buyers unnecessarily and
heavily in debt.
Firstly, the proposed new
scheme will cause artificial property price hike that does not reflect the real
economic growth, similar to the effects brought by Developer Interest Bearing
Scheme (DIBS), which was abolished in 2014. The newly mooted scheme enables the
developers to loan to the buyers who can’t afford to buy in conventional way.
The third (or more) house buyers, who can only obtain 70% loan or less from the
banks, will now be able to get additional loans from the developers. The influx
of easy loan from the property developers will enable them to sell their
properties at artificially high price. Easy loan couples with artificial high
price will in turn encourage speculative behavior, pushing the property price
even higher and making housing even more unaffordable.
Khazanah in its report “Making
Housing Affordable” reported that together with multi-generational loan of 45
years, DIBS inflated property prices by as much as 30%[ii].
The House Price Index (HPI) of the National Property Information Center (NAPIC)
has shown clearly that while Malaysian all-house price grew steadily at
compound annual growth rate (CAGR) of 3.1% between 2000 to 2009, the CAGR of
HPI during DIBS implementation (2009 to 2014) was as high as 10.1%.
Comparatively, the economy grew at only half the growth rate of housing price in
this period of property boom. As a cooling measure, the government abolished
DIBS in 2014. However, why now Putrajaya introduces another scheme that will
fuel another round of unhealthy artificial price hike?
Secondly, the interest rates
that can be charged by the developers, 18% without collateral and 12% with
collateral, are simply too exorbitant. Is Putrajaya trying to make the
developers to be the “loan sharks” to the home buyers? The Bank Negara Malaysia
decision to tighten the loan approval requirement for banks according to
debt-to-income ratio is to ensure that Malaysian household debts are at
controllable level as our household debts have already reached record high with
the total household debt to gross domestic product ratio of 89.1%. According to
Khazanah report “The State of Household II”, only 10.8% the households in
Malaysia were resilient to financial shocks such as unemployment, injury,
death, divorce and changes in interest rates and more than a fifth of those would
not be able to sustain for more than 3 months after their incomes were cut off.
Allowing developers to loan to home buyers, especially at such high interest
rates, will only further exacerbate Malaysian household debts problems, making households
even more vulnerable to economic shocks.
All in all, does the new scheme
really help ordinary home buyers? No, allowing buyers to borrow more is not the
solution to unaffordable housing as the home buyers will still need to take up
loans to buy houses that they can’t afford. Perhaps the real intention of the
scheme is to help the developers to clear their unsold units? (It was reported
that there is an increase of 16% of unsold units in the first quarter of 2016
with 18,908 out of the 81,894 residential and commercial units launched remained
unsold.)
The proposed new scheme will
enrich the property developers at the expense of the ordinary home buyers in
long term. It enables developers to sell their properties at higher price (or
to clear their stagnant housing stocks) and opens up another channel of income
for them through financing the purchase of their own products, while the
ordinary Malaysians need to take up huge debt burden with unfavorable interest
rates. With such system, the Barisan Nasional government has become the
government only for the top 1 percent of the economic pyramid.
Affordable housing is a
structural issue caused by unresponsive housing sector to market demand. It is
unsustainable to fuel housing growth with debts, especially debts at high
interest rates, and speculations. This is a slippery road that we should never
take.
With that, we call upon
Putrajaya to abort the proposed new scheme that allows property developers
to become the loan sharks to home buyers. Lastly, I sincerely hope that the
minister will take some time to read Khazanah’s report “Making Housing Affordable”, which has proposed much
more sensible policy recommendations than this to enable more Malaysians to own
a house at a price affordable to them.
