/// West Malaysia Property News
Affordable Housing: The Buzzword
The term “affordable housing”
means different things to different
people. To policy makers and
financial institutions alike, “affordable
housing” means that you can “afford”
to buy a property and qualify for
the mortgage loan based on your
income level. However, for house
buyers, “affordable housing” not
only means being able to “afford” to
buy a property and qualify f or the
mortgage loan based on the income
level but also, it indicates being able
to maintain a minimum standard of
living.
An objective benchmark to measure
the affordability of property prices
is to compare it against the annual
household income. This method
is widely used as a benchmark to
evaluate the affordability of property
prices, especially in urban markets
– as it is also endorsed by the World
Bank and Harvard University.
The optimal target is to purchase a
property priced at a multiple of three
times your annual household income
or less. Realising that this may be
difficult to achieve, house buyers
should try to achieve a multiple of the
property price as a multiple of annual
household income of not more than
four times. But, what is the reality
on the ground? We compared the
above “affordability index” to prices
of intermediate double-storey link
houses at selected locations to find
out.
Based on international standards,
all the above property prices can be
classified as “seriously unaffordable”
to “severely unaffordable”. The
situation is equally bleak even
for condominiums. The above
“affordability index” has also been
compared to prices of condominiums
(excluding penthouses) at selected
locations.
We should also point out that the
annual household income assumes
that it is the combined income of
both working spouses. For single
individuals and single parents, the
situation is even worse and it is
almost impossible for these groups
of people to own their own houses.
As mentioned, “affordable housing”
means being able to buy a house
and sustain a minimum standard of
living. Using the Annual Household
Income statistics of Kuala Lumpur
benchmark citing RM103,032 or
RM8,586 a month for instance, we
can assume the following scenarios:-
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House buyer maximises loan
repayment wh ich is said to be
one-third of the gross income
House buyer takes 90% margin
of financing after making a 10%
down payment
The house buyer takes a 30year housing loan
Interest rate at (BLR) Base
Lending Rate (currently at
6.60%) less 2.50%
The house buyer will be eligible to
take a mortgage loan amounting
to RM592,303 with a monthly
loan repayment of RM 2,862. The
property value in total would be
RM658,114 (loan of RM592,303 plus
10% downpayment of RM65,811).
On its own, such a property may still
seem affordable to the house buyer.
However, after factoring in the basic
household expenses of the current
sandwich generation (couples with
young children and aging parents),
the financial situation of the house
buyer could reach distressing levels.
The above expenses are actually
really basic without much leisure
pursuits being factored in. Still, the
family is left with only RM506 per
month or 5.9% of gross income
in savings and they will not have
enough cash reserves to cater for
any unexpected emergencies.
The true “affordable housing”
benchmark for a household income
earning RM8,586 per month lies
within the range of RM300,000 to
RM400,000. In this scenario, the
house buyer is left with more cash
reserves or savings every month.
As for single house buyers, their
affordability is only half of this
amount, ranging anywhere between
RM150,000 to RM200,000. However,
just ask ourselves, when was the last
time we saw a property launch at this
price which had a Kuala Lumpur or
Selangor address?
There is no denying that the prices
of suitable houses or “affordable
homes” have now reached critical
levels – beyond the grasp of average
wage earners. This is a highly
undesirable situation and if left
unchecked, can lead to adverse and
far-reaching problems. Eventually,
we will end up with a whole
generation of people without their
own houses. Therefore, they will
continue to rent houses, thereby
subjecting themselves to the whims
and fancies of their landlords.
There will also be
those who will
commit an excessive
proportion of
their household
incomes towards
servicing the house
mortgages.
CONCLUSION:The average
household is finding
it ever more difficult
to buy their own
property with the
ever-rising property
prices coupled with
the rising cost of
living. Indeed. The
prospect of buying
a suitable house
is looking bleak.
The average rakyat
is struggling to
purchase his dream
house amidst the
ever-rising prices
of properties which
have far outpaced
the increase in
salaries.
Young adults are
unable to afford a
reasonable, suitable
and liveable house
that doesn’t require
either taking out a
back-breaking bank
loan or moving
out to a distant
and bland housing
estate that involves
mind-numbing
daily commutes.
Young adults are
slowly becoming
a homeless
generation. Mind
you, they are the
future economic
drivers of the
city. Hence, the
Government must
take concrete and
proactive measures to curb the
unbridled escalation of house prices.
HERE ARE SOME SUGGESTIONS:•
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Stem the rapid rise of property
prices due to false demand and
excessive speculation
Ensure a steady supply of
affordable properties to cater to
the demands of the lower-and
middle- income class
Prevent a “homeless generation”
•
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from emerging that will result in
many social problems
Prevent our young from
drowning in debt.
Seriously consider the above
proposals amongst others
to find solutions that can
bring down/regulate/curb the
spiralling effect of rising house
prices.
Chang Kim Loong is the honorary
secretary-general of the National
House Buyers Association (HBA).