The problem of unaffordable houses | KINIBIZ

Middle-income urbanites and young adults are increasingly confronting the dilemma of unaffordable houses as prices move beyond their means. KINIBIZ examines the dilemma and asks what qualifies as affordable housing to the average Malaysian household.  

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If you have just started a young family, and along with your spouse are wage earners in the Klang Valley, and are currently scouting for your first property, you are likely to find yourself encountering a number of problems. Where can you find the right property with the right location, the right price and the right attributes?

You may despair but you are not alone in facing the Malaysian housing dilemma.

First-time homebuyers, especially those from the younger generation and those from lower- and middle-income group, constituting about 50% of the Malaysian population, are not able to purchase their own property today, according to the National House Buyers Association of Malaysia (HBA).   

That’s how it feels for Alya (not her real name), 28, who recently welcomed her twins. Together with her husband, her household earns between RM6,000 to RM8,000 a month but she finds that prices for houses that suit their needs are too high.

“The right ones are too expensive, while the ones we can afford are not suitable,” said Alya to KINIBIZ. “Often the affordable ones are too small and in poor locations.”

Kevin, 26, agreed, saying that he and his wife just want a safe house in a location that fits nicely between their respective workplaces. “Prices are unbelievable. Some intermediate houses are up to RM450,000 at where we’re looking.”

So what could we deem as affordable housing which falls within the means of first-time homebuyers?

“Affordable housing” is a buzzword much thrown about lately due to the increasing urgency of the matter, but the term itself may well imply different things to different groups of people.

To policy makers, financial institutions and even property developers alike, “affordable housing” simply means that you can “afford” to buy a property and can qualify for the mortgage loan based on your projected income level.

However, such definitions fail to take into account that, for homebuyers, “affordable housing” does not just mean qualifying for mortgage loans in the initial stage, but also the ability to maintain a minimum standard of living after apportioning a significant chunk of their household income for the monthly repayment of a 30-year housing loan.

Note that this is even before a car mortgage, another expensive purchase, and other forms of spending are inserted into the equation, which may then distort both Alya’s and Kevin’s ability to qualify for a house mortgage in the first place.

Defining ‘affordability’

An objective benchmark to measure the affordability of property prices is to compare it against the annual household income, a method that is commonly used to determine the affordability of property prices especially in urban markets. This method is endorsed by the World Bank and the United Nations.

When property prices are measured as multiples of the annual household income, a multiple of 3.0 or less is considered affordable, a multiple between 3.1 and 4.0 is perceived to be moderately unaffordable, a multiple between 4.1 to 5.0 is seriously unaffordable, and a multiple of 5.1 and above is deemed severely unaffordable.

The optimal target for homebuyers is to purchase a property priced at a multiple of three times their annual household income or less.

With a national median annual household income of RM55,020, an affordability ratio of three means that half of the Malaysian population can only afford to buy a house that is under RM165,000. But houses affordably priced within this range, as both Alya and Kevin could attest to, are increasingly hard to come by.

Realising that this may be difficult to achieve, homebuyers should try to reach for the lower-hanging fruit – a multiple of no more than four times annual household income, according to HBA secretary-general Chang Kim Loong.

But what is the reality on the ground in the housing market? We compare the above affordability index to prices of intermediate double-storey linked houses and condominiums at selected locations to find out.

Based on the affordability index, it is clear that all the property prices in areas like Kajang, Kota Damansara and Puchong come under the category of being either “seriously unaffordable” or “severely unaffordable”, with their affordability index ranging from 5.41 to 9.85, based on the median household income in Kuala Lumpur and Selangor.  

The situation is similarly bleak for condominiums in the same areas, with their affordability index ranging from 4.61 to 6.36, effectively locking most aspiring first-time homebuyers out of the property market.  

“Price increase in one area can spill over to the surrounding areas and cause the prices of such nearby locations to be pushed up.

“Thus an increase in property prices in central Kuala Lumpur can push up prices in say, Cheras, which in turn can push up prices of properties as far as Kajang and beyond,” explained Chang.

The annual household income used in the affordability index also assumes the combined income of both working spouses. In the case of individuals, single parents or households with a single income stream, the situation is compounded, and it therefore becomes more cumbersome for these groups of people to own their first homes.

The issue of housing unaffordability is substantiated by a piece of research by Khazanah Research Institute called ‘State of Households Study’ published last year, which found that house prices in general are not affordable at 5.1 times of the median annual household income.

In fact, it would be wrong to assume that the situation of housing unaffordability is only privy to urban folks in the Klang Valley.

Institut Rakyat’s Malaysian Housing Affordability Survey 2014, which ranks states in Malaysia according to the affordability of an average house to the typical family, shows that the most severely unaffordable state is Sabah, with an affordability ratio of 11.41, followed by Sarawak (9.04), Kuala Lumpur (8.22), Selangor (5.88) and Penang (5.83).

The three most affordable states are Malacca (3.16), Negeri Sembilan (3.71), and Johor (4.20). However, average house prices for these states still exceeded three times the annual income of each state’s median household income.

The same research projects Malaysia’s national housing affordability index at 5.79 times the annual median household income, which is also considered “severely unaffordable”.

“Sabah and Sarawak suffer from a combination of weak household incomes and house prices that are far higher than the national average, with average prices comparable to that in Selangor,” Institut Rakyat’s executive director Yin Shao Loong told KINIBIZ.

Elaborating further, Yin said there are a lack of affordable houses being built in Sabah, with the supply of properties in general being geared towards higher-end buyers.

What can the average household afford?

KINIBIZ illustrates what an average Malaysian household can afford given the current property market.

Using the annual median household income statistics of Kuala Lumpur as the benchmark citing an annual income of RM91,440 or RM7,620 a month for instance, we are able to assume the following: (a) homebuyer maximises loan repayment which is said to be one-third of gross income, (b) homebuyer takes 90% margin of financing after making a 10% downpayment, (c) homebuyer takes a 30-year housing loan, and (d) interest rate at base rate (currently at 6.85%) less 2.5%.

The homebuyer will then be eligible to take a mortgage loan amounting to RM567,000, with a monthly loan repayment of RM2,540.

The property value in total would be RM630,000, constituting a bank loan of RM567,000 and a 10% downpayment of RM63,000.  

“On its own, such a property may still seem affordable to the homebuyer. However, after factoring in the basic household expenses of the current sandwich generation (referring to couples with young children and aging parents), the financial situation of the homebuyer could reach distressing levels,” said Chang.

A property of RM630,000 is 6.89 times the household income of RM91,440, falling under the “severely unaffordable” category according to the affordability index.

“The above expenses are actually really basic without much leisure pursuits being factored in. Still, the family is left with only RM194 per month or 2.55% of gross income in savings and they will not have enough cash reserves to cater for any unexpected emergencies,” explained Chang.

Therefore he true “affordable housing” benchmark for a household income earning RM7,620 per month lies within the range of RM300,000 (3.28 times the annual household income) to RM400,000 (4.37 times the annual household income), leaving homebuyers with more cash reserves or savings every month, he added.

If we go by such standards, first-time homebuyers who are single, or households which depend on a single income stream, can only afford properties worth half the above amount, ranging anywhere between RM150,000 and RM200,000.

This is not too far from the national average, where half of the Malaysian population can only afford properties costing no more than RM165,000. Nevertheless, when was the last time we saw a property launched at this price tag bearing a Kuala Lumpur or Selangor address?

“I hope house prices can be more affordable for those who are just beginning to work or start their own families,” said Alya. “Because these are the people who need houses but most cannot afford to buy one.”

A Bursa-listed property developer that KINIBIZ spoke to revealed what it considers as “affordable housing” – below RM500,000, an apparent gap with what the average household could comfortably afford, and clearly without taking into account various other monthly household expenses to maintain a minimum standard of living.  

It is no wonder that average urban folks like Alya and Kevin are unable to afford their dream homes that do not require either taking up a back-breaking mortgage, or moving out to a distant and bland housing estate far from their urban workplaces which would then involve mind-numbing daily commutes.  

Source

Malay groups want PTPTN loan exemption for Bumis only - The Malaysian Insider

Ibrahim Ali suggests that a high number of non-Bumiputera students are leniently graded in private universities and colleges, so as to get First Class Honours and exempted from repaying their PTPTN loans. - The Malaysian Insider pic by Afif Abd Halim, November 23, 2014.A coalition of Malay rights groups, led by Perkasa, today urged Putrajaya to consider allowing only Bumiputeras to be exempt from repaying their National Higher Education Fund (PTPTN) loan schemes.

They noted in their National Unity Memorandum that the majority of PTPTN borrowers exempted from repaying their loans were Chinese, and this could anger the Bumiputeras.

"The Malaysian government must take immediate action over the phenomenon of many non-Bumiputeras being exempted 100% from PTPTN, compared with the Bumiputera students," read the memorandum, which was drafted by a committee headed by Perkasa chief Datuk Ibrahim Ali.

"In this context, the Malaysian government should review whether PTPTN exemptions should be given to Bumiputeras alone, in line with Article 153 of the Federal Constitution."

The current PTPTN systems allows for all its debtors who graduated with first-class honours to be exempt from repaying their loans, regardless of race.

But the memorandum by the Malay groups today warned that the rising trend of Chinese students enjoying the loan exemptions could jeopardise national unity.

They noted that in 2011, 8,818 Chinese students were exempted from repaying the PTPTN loans, compared with 2,347 Malays, and 456 Indians.

"If this issue is not handled wisely, it could result in Bumiputera students getting angry with PTPTN and upset with the Malaysian government.

"At the same time, this issue could potentially create anger among Bumiputera students towards non-Bumiputera students."

The memorandum also suggested that more non-Bumiputeras earned first-class honours compared with Bumiputeras because private higher education institutions (IPTS) were more "lenient" and had a "hidden agenda".

"Firstly, how and why are Bumiputera students unable to compete with non-Bumiputera students?

"Secondly, are PTPTN's actions caused by the lenient marking systems and curriculum of the IPTS, to the point that many non-Bumiputera students gain first-class honours, so that they need not repay their PTPTN loans?

"Thirdly, are Bumiputera students in the IPTS and IPTA not the cream of the creams? Fourthly, is there a hidden agenda by certain quarters in IPTS to allow many non-Bumiputeras to become exempted from repaying their PTPN?"

The memorandum was debated among over 300 Malay NGOs at the National Unity Convention in Kuala Lumpur today, before it was approved later in the evening.

The groups intend to send the National Unity Memorandum to the government, the Yang DiPertuan Agong and the Council of Rulers. – November 23, 2014.

Source

Why, have we been educating ungrateful Malaysians? - Theantdaily

My thoughts: Here's an article about PTPTN. I too have borrowed from PTPTN and currently repaying it. However I wuld not blame its receivers for not repaying rather the PTPTN institution itself. They are now going after their loan defaulters. They never call them, or send them any letters. If I were in charge of PTPTN, I would have a dedicated team ensuring that loan takers pay back their dues. After you graduate, do keep your promise to settle the National Higher Education Fund (PTPTN) loan so that others can also benefit from the facility. When you give others the opportunity, you are also helping yourself to be more successful. Enjoy the article :)

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QUICK TAKE: It is not a happy testimony of our current situation when the authorities concerned with dispersing student loans have to repeatedly remind students who had taken loans from the government that they must repay their loans after they have successfully completed their studies.

At the recent 19th Convocation of University Malaysia Sarawak (Unimas), Vice-Chancellor Professor Dr Mohamad Kadim Suaidi told the 464 graduates that – “After you graduate, do keep your promise to settle the National Higher Education Fund (PTPTN) loan so that others can also benefit from the facility. When you give others the opportunity, you are also helping yourself to be more successful.”

He also encouraged the graduates to continue to pursue their studies to the highest level possible.

But what has gone wrong here – when he had to repeat the reminder that students have to make good the loans they have taken, or will take in the future for higher studies?

Have we simply been loaning money to ungrateful students and freeloaders who had, when in dire need, came begging for loans to further their studies? Upon graduation, they have callously turned their backs and have either refused to pay back or have made lame excuses, like asking for easier terms in the form of instalments or deferred payments?



Have they for a minute thought about what the repercussions are from their action and on how it will affect negatively on other students who are now applying for the same loans that they once had benefited from?

In terms of a revolving cash fund, and if the fund is based on such a system, it would mean that the fund would very quickly run dry, thus depriving others the opportunity to secure the loan when their turn comes.

What in effect does this show us?

It shows that a majority of those who had not paid up their loans, or have made excuses, are actually an ungrateful lot. They are a selfish bunch, never sparing a single thought for others. Did these people benefit at all from their ‘education’, and if they did, are simply too arrogant or unwilling to part with their new found income after they started work.

But there could be a few who may have problems in securing employment and have no resources to settle the loans. In such cases, perhaps they could seek the help of family members to help them make partial payments as a stop-gap measure until they have found work.

A good education is still the backbone and the basis of our egalitarian society, and we must be able to hold our heads up high, and make good a simple promise like repaying a loan that we have taken out for our further education.

Well, is that too difficult a task to handle?

Link to source: http://www.theantdaily.com/Main/Why-have-we-been-educating-ungrateful-Malaysians

High earnings do not translate into more savings | New Straits Times

I REFER to your front-page report, “Do you have enough to retire?” (NST, Nov 18).

The statistics furnished by Employees Provident Fund (EPF) chief executive officer Datuk Shahril Ridza Ridzuan are frightening.

He said that only 23 per cent of EPF members aged 55 had minimum savings of RM196,000 in their account to sustain themselves until the age of 75.

As a human resources consultant, I worked with a multinational firm in an outplacement programme where the company was giving out its mutual separation scheme due to poor business and loss of market share of its product.

Our course of counselling and giving lessons in financial planning covered what they could do with their lump sum payout.

Despite the fact that Malaysians are earning more, their capacity to save has not improved, and many are still not prepared for retirement.

The other aspect is that many are still unaware of financial planning, and even if they are, many rely on the savings that they have in their fixed deposit accounts or returns from their unit trust investment.

But sometimes, these are not enough to sustain them through their retirement, for the cost of living has gone up by leaps and bounds.

I discovered that at least 60 per cent of them have huge debts on their credit card, car loan, housing loan, health bills and children’s education bills.

Worse, some resort to loan sharks or even gambling, and they are trapped in this vicious cycle.

It is good that EPF has introduced the retirement advisory service at eight branch offices on how to do retirement planning to ensure contributors have enough in their golden years with a basic amount of RM820 at least.

There are also private wealth advisers, and Private Retirement Schemes (PRS), a voluntary long-term investment scheme designed to assist individuals to accumulate savings for retirement, recommended by the Securities Commission.

n C. Sathasivam Sitheravellu, Seremban, Negri Sembilan

Link to source: http://www.nst.com.my/news/2015/11/112389/high-earnings-do-not-translate-more-savings

So, who’s to blame for our economic woes? - The Malay Mail

NOVEMBER 17 ― During a lecture the other day, we revisited the role of money in the economy. Naturally, no such discussion can take place without considering the views of the father of classic economics, Adam Smith. In his view, the real price of a commodity is relative to the number of hours of labour necessary to achieve or produce it.

For example, assuming a worker is paid RM10 a day, while the price of 10 eggs is RM5. This means that the worker has to put in half a day’s worth of labour to be able to buy 10 eggs. In other words, the value of 10 eggs to the worker is half a day’s work.

Which brings us to the important question. How many hours of labour would a fresh graduate or average Malaysian living in Kuala Lumpur have to put in in order to survive a day?

According to a recent Nielsen survey, an average salary for a fresh graduate in Kuala Lumpur is RM2,100 (excluding EPF and SOCSO deductions for the purposes of our illustration).

Assuming he works eight hours a day every week day in November, his hourly wage would be RM12.50. Based on the Ministry of Domestic Trade and Consumerism’s website, the controlled price of chicken is RM7.50 per kg. Based on an average weight of 1.6kg a bird, the price of an average-sized whole chicken would be RM12. Thus, a fresh graduate in Malaysia would be able to afford one chicken with his hourly wage of RM12.50.

In London, however, the price of one whole chicken at my local Tesco’s is £3.50 (RM23.30). As the national minimum wage is £6.70, this means that an unskilled worker in London would be able to afford almost two chickens compared to the Malaysian with a university degee.

Not only does the Malaysian graduate have to work twice as hard for the same amount of food compared to an unskilled worker in London, he is also likely to work extra hours without extra pay (as is common in our culture, punching out on time is usually frowned upon).

And this does not take into account his PTPTN loan, car loan and the toll that he has to pay to get to and from work. Would all this not only deflate the value of his wage?

If the story above sounds depressing, imagine how it is for Malaysian workers who don’t have any tertiary qualifications. It is no wonder that two-thirds of our population is reliant on BR1M handouts.

But, is 1MDB to blame for the country's economic woes?

To date, the sovereign investment fund has accumulated debt of over RM42 billion. Critics have zoomed in on the company’s auditing problems, such as the RM8.24 billion said to be hiding somewhere in the Cayman Islands, the controversial bond issuance programmes, and allegations of overpayment for power assets, essentially bailing out politically connected companies with expiring contracts.

Most recently, Malaysians were given a glimmer of false hope (of getting to the bottom of the whole issue) in the form of a highly anticipated public debate between 1MDB’s chief critic Tony Pua and the sovereign fund’s CEO Arul Kanda.

Just as the nation prepared itself for a nationally televised debate that would hopefully answer the many questions on people’s minds, the Speaker of Parliament took the unprecedented move of warning Pua that he would have to remove himself from the Public Account Committee’s investigation of 1MDB if he proceeded with the debate.

The Minister of Communication and Media quickly dismissed the offer of a replacement debater in place of Pua.

As the economy continues to slow down, the public mood will continue to slide down with it. One thing for sure, the multi-billion ringgit 1MDB scandal has not helped to elevate confidence. Even if everything is all well and dandy as the government assures, the fact remains that the perception is that there is something very fishy going on.

Unfortunately for the government, perception rules and the public verdict is that 1MDB is nothing but bad news, as proven by the falling ringgit and the capital flight that has occurred.

Is 1MDB to blame for all our economic woes? Such a conclusion is simplistic, but when no answers are forthcoming, it only succeeds in raising even more questions. And when questions go unanswered, people jump to conclusions.

*This is the personal opinion of the columnist.

Link to source: http://www.mmail.com.my/opinion/dyana-sofya/article/so-whos-to-blame-for-our-economic-woes

In debt? Try Najibnomics – Terence Tang - The Malaysian Insider

Most of us regular Malaysians have faced financial challenges at some point in our lives. Some maxed out their credit cards (one swipe of the Visa and that iPhone is yours); others had business ventures where profits avoided their year-end revenue reports like how gastronomically unadventurous Westerners react to durian.

Or it could be the increasing cost of living (no pay rise to combat inflation). The list of reasons goes on and on.

But have you ever had to settle a RM42-billion debt?

Prime Minister Datuk Seri Najib Razak, who also holds the Finance Ministry portfolio and chairs the government-owned company’s board of advisers, has pledged to solve its problems before the end of 2015.

Based on the positive cash flow recorded in the past five months, "Najibnomics" may just about salvage 1MDB as well as Najib’s political standing. For Malaysians forget easily, and history is about to repeat itself.

Despite the outcry by opposition politicians and certain news portals, the 1MDB issue is expected to fade away from public memory, similar to the outcomes of the nation’s past financial scandals (such as the RM15.5 billion loss during the 1980s international foreign exchange speculation and annual bailouts of Malaysia Airlines).

Malaysian courts have never prosecuted the individuals responsible for these misconducts.

So, we could actually learn several lessons from how 1MDB is settling its woes.

The prime minister’s methods could just as successfully be applied to solving the common man’s debts.

1. Implement your own GST (goods and services tax)

Charge your friends and family for every favour. Used to picking up your neighbours’ children after school for a minimal fee? Well, force them to pay more for the petrol usage and car maintenance costs. Also, make your 14-year-old son attain a part-time after-school job if he wants the new tablet that badly.

A 6% hike in payment ala Najib’s GST may seem insignificant, but take heed of the proverb “Sedikit-sedikit lama-lama menjadi bukit”,  which translates into “Even pennies when constantly accumulated over time will become a fortune”.

Over two months since the GST implementation on 1 April 2015, the Customs Department has already collected more than RM6 billion. They expect to collect a total of RM23.7 billion by year-end.

2. Liquidate your assets, get the most bang for your buck

Sell the family home, second car and jewellery to obliging, more affluent friends. If your friend owes you a favour, it’s time to call it in. 1MDB received RM255 million from Affin Bank for the sale of 1.79% of the land it owns in the Tun Razak Exchange (TRX). That is equivalent to 1.25 acres.

Affin Bank purchased 1.79% of the land 1MDB owns in the Tun Razak Exchange (TRX) for RM255 million. That is equivalent to 1.25 acres. Imagine the amount 1MDB will recoup once they sell off the rest of their 70 acres.

3. Own a business? Bring in new investors

Promise them handsome returns once your ailing business makes a profit. According to 1MDB’s president and group executive director Arul Kanda Kandasamy, he expects the company’s deal with Abu Dhabi’s International Petroleum Investment Company (IPIC) to raise RM16 billion.

The Malaysian economy has seen better days, but the next time you start to worry over your debts or other financial obstacles, here’s a way to cheer yourself up: view the latest YouTube video or photo of our prime ,inister.

Look closely and you'd notice the tiniest of twinkles in his eye. He knows there's a light at the end of his RM42 billion debt-laden tunnel, that this too shall come to pass.

So why shouldn’t we emulate him? Stay positive and practise "Najibnomics". – November 18, 2015.

* Terence Tang reads The Malaysian Insider.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.

Link to source: http://www.themalaysianinsider.com/sideviews/article/in-debt-try-najibnomics-terence-tang

CTOS credit score card roll-out in Q1 2015

So a FICO like credit score system will be introduced in Malaysia. This is good news for the consumer credit industry as people will better know if they are good or bad with their credit.

Source here.

KUALA LUMPUR: Credit reporting agency CTOS Data Systems Sdn Bhd will roll out credit scorecards by the first quarter of 2015 in a bid to benchmark credit profiles of individuals. Details of the credit scorecards are yet to be finalised.

The scorecard will provide a three digit number that measures the probability of repayment of a borrower through information gathered by CTOS.

“But we hope to launch it earlier, because I believe that there is a need in terms of consumers understanding of their credit worthiness,” CTOS CEO Eric Chin told reporters at a media briefing here.

He explained that the scorecard, called CTOS-FICO score, will be a more sophisticated way of evaluating credit worthiness of individuals and SMEs in a bid to promote a positive credit culture in Malaysia.

CTOS in collaboration with FICO, which is a pioneer in credit bureau scoring technology, will be the provider of bureau scores to credit grantors in Malaysia.

Through that, Chin said, one with a strong score could potentially leverage for better interest rates from banks, transforming the credit market to be more consumer-driven.

CTOS, which is registered with the ministry of finance, collects and processes information from public resources and its subscribers in relation to credit worthiness of individuals and businesses. It also provides business intelligence and credit risk management solutions to businesses with banks, financial institutions, law firms, utility providers and telecommunication companies as clients. Chin said the credit reporting agency industry in Malaysia is in its infancy, with substantial opportunity to grow its products and service offering.

“Malaysia stays at the data and information provision level, but should move up to analytics and decision support level,” he noted.

Eric said CTOS is looking to grow its SME customer base by five-fold from the current 3,100 to 15,000 and increase its product range such as credit score, fraud score and credit capacity index to banks.

Chin is optimistic on the loan growth in the banking industry, whereby access to credit is a fundamental element that fuels economic growth.

“This year there is a bit of moderation, but with the ETP (economic transformation programme) projects coming in, we’re definitely optimistic on the loan growth,” he added.

Creador is the largest shareholder of CTOS with a 70% stake and a total investment of over RM200 million.

Creador founder and CEO Creador Brahmal Vasudevan stressed that Creador is a long-term investor in CTOS and will stay on for at least five to 10 years.

He expects CTOS, which posts about RM60 million revenue annually, to register 20% growth in profits and revenue, helped by its strategic plans.

Creador is a private equity firm and its investment portfolio includes Bonia Corp Bhd, GHL System Bhd and Oldtown Bhd, to name a few.

When asked of new investment targets, Brahmal said Creador’s focus will still be on the consumer sector, citing that the group “is working on a few things”.

“Hopefully by early next year, we can share something … We would like to look at areas like retail, consumer products and so on,” he added.

Brahmal said there is an intention to list CTOS in the future, but it won’t happen within the next one to two years.