Financing Schemes in Support of Homeownership, Distort the Market by Supporting High House Prices
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Financing schemes such as rent-to-own programmes could distort the market by supporting high house prices, said Khazanah Research Institute (KRI).
This is on the premise that the homes placed into such programmes — essentially unsold units — were possibly not taken up because their initial prices were high, said KRI research director Dr Suraya Ismail. “If house prices are too high and different from proper market demand efficiency, we shouldn’t support that pricing."
“We should not create or innovate the financing side to enable the purchase of [those products], which is happening now,” said Suraya after the launch of a KRI publication, Rethinking Housing: Between State, Market and Society.
KRI, said Suraya, maintains that there is no issue in terms of access to financing provided by banks now, which is ample and stable for “eligible house borrowers”. “[But] when houses see rapid price escalation, backed by financing, this creates a problem. We see that financing and house prices have strong correlations,” she said.
“What we don’t want is incidents of rapid price escalation backed by macro-prudential that try ostensibly to make housing more affordable, [or] we will have a problem later,” she added. The assumption is that property developers usually initiate a development after securing a 70% take-up rate. “If the final 30% is unsold, they will go to home ownership schemes telling people there is supply but no one is buying — but essentially the [original] pricing was [already] very high,” she said.
“The problem is house prices being supplied to the market are too expensive because they are following the trajectory [of appreciating faster than income],” she added. Under schemes like rent-to-own, said Suraya, financiers treat a buyer earning a certain amount as a borrower that earns more than the said income.
“You then commit to buy something beyond your affordability, but financial products point to that direction,” she added. The KRI report underlined that there is a movement to encourage Bottom 40 (B40) to own homes and that M40(s) are unable to own homes because developers are unable to offer the right house prices.
“Some policies [were made to encourage] the B40 to own their houses. But is it social justice to have them to own houses as well, when we have another option for shelter, which is renting? On Middle 40 (M40), why does the government want to come in to develop housing [affordable to them] when it is the role of the private sector?” she asked.
“The government should only regulate the private sector. Its resources are better off used for other purposes for the B40, such as strata maintenance.”