Matching house price hike with pay

BUDGET WISH LIST: Properties show double-digit growth while salary increases remain in single digits

EVERY Malaysian knows that Tunku Abdul Rahman Putra Al-Haj was instrumental in obtaining independence for (then) Malaya from British rule 55 years ago.

Right after chanting "Merdeka" together with the rakyat in the newly-built Stadium Merdeka on August 31 1957, Tunku, the country's first prime minister, went straight to work on the implementation of development programmes for the-then Federation of Malaya. Central to his programme was improvement of the rakyat's well-being and it was his aspiration to see the rakyat have a roof above their heads and food on their tables.

Fast-forward and five-and-a-half decades later, Malaysians today are better educated and enjoy higher standard of living. The poverty rate has also been significantly reduced, accompanied by sound economic growth.

Malaysia has grown by leaps and bounds, yet some issues affecting the rakyat remain to be solved. One of them is housing.

Currently, people in the middle-income segment, especially those in the Klang Valley, Penang and Johor Baru, are finding it more difficult to own houses as the prices are beyond their reach.

Some five years ago, mid-range houses catering for the middle-income people and first-time home buyers in urban areas ranged between RM250,000 and RM400,000. But today, the prices for these types of properties have doubled while some crossed the RM1 million mark!

High property prices translate into higher rentals, which means urban dwellers who can't afford to buy their own houses have to spend a lot to pay the rent. This is in addition to the current high cost of living such as car ownership as well as rising prices of food, products and services.

Thus, it is not surprising that affordable housing and concerns of skyrocketing house prices top the wish-list of Malaysians for the upcoming 2013 Budget. These were highlighted in the public feedback for the Budget, submitted on Prime Minister Datuk Seri Najib Razak's blog in July.

While the government continues to address home-ownership issue for the low-income people, housing needs for the other segments of populations are left to the market forces.

Ideally, market forces determine the right price based on supply and demand. However, speculative activities - where people buy properties from developers during a launch and flip or sell the properties upon completion - have distorted the house prices and pushed them upwards.

This artificial rise in demand is the concern of many parties as the high prices are not sustainable and it could lead to property bubble to burst, a situation where there is a sharp drop in house prices and the property value falls. This would affect the balance sheets of households, developers and banks, and eventually, the whole economy.

And we shudder to think how this would jeopardise the health of the banking sector which in turn will affect the economy as seen in the 1997/1998 Asian financial crisis. In fact, many developers went bust during the crisis, owing to the bubble burst at that time.

Being profit-driven, developers continue to build more houses based on speculative and investment demands. However, should the supply outstrip demand, there will be a property glut, which would also negatively affect the economy.

Lately in the news, developers say that houses in Malaysia are still affordable and they attribute the rise in property prices to high land prices and cost of building materials.

However, we must remember that the rise in the land and building material prices does not match the higher rise in house prices. It was reported that in 2010, property prices in Penang and Kuala Lumpur rose by up to 40 per cent in 2010. Last year, prices of terraced houses in Bangsar Baru, Kuala Lumpur, appreciated by 158 per cent from 1999.

Compare the double-digit growth in house prices in the urban areas in the past couple of years to the low single-digit rise in the average salaries in the country, then you have an idea how affordable houses in Malaysia are.

The rakyat and developers alike are eagerly waiting for the Budget 2013, which is to be tabled on September 28, to see how the government addresses these issues.

According to economists, the government can adopt fiscal measures such as tightening lending guidelines, further increase the real property gain tax and lower further the loans-to-value ratio for the purchase of second or more houses. The government can also work with developers to build affordable homes on government-owned lands.

As for the interest rate, there is small room to manoeuvre as the current rate is supportive of the domestic economic activities, given the uncertainty in the external economy.

As we will celebrate Hari Malaysia on September 16, let us hope that more Malaysians will have their own roof above their heads, and not just a rented ones.

By Business Times