The problem with housing loans in Malaysia

Article by Asir - "The reality is that if you can't afford to buy a house, then you can't afford it," - IDEAS

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In Malaysia, there has been questions floating on the reasons why mortgage loans are rejected at a high rate, some might say the rejection rate is between 60%-70%.

The reasoning behind this is due to Bank Negara implementing stricter regulations toward housing loan approvals.

The Independent recently asked a manager from IDEAS, or the Institute For Democracy And Economic Affairs, Azrul Mohd KhalibManager, External Relations regarding this situation.

We asked him, the following questions: Has Bank Negara gone too far in controlling the household debts, and do you think this is impacting heavily on the people applying for housing loans because Bank Negara may have put the bar too high and may have moved the goal post too far for average Malaysians to be able to get their homes?

His reply was BNM is right to attempt to keep household debt under control as housing loans accounted approximately 40%-50% of the total household debt from 2015-2016.

“Household debt is at an alarming rate around 88.5% of GDP in 2016,” he said.

“If we look at other emerging economies, their household debt to GDP is very low. For example, India household debt to GDP is 10.5% in 2016 and Indonesia household debt to GDP is 16.7% in the same year,” Azrul said.

Basically what Bank Negara and also Azrul is saying is that housing loans attribute to the debt of the nation and they are trying to interpret it as its not good to own your own home as it may bring you more debt.

The next question we asked was: What do you think Bank Negara should do in that case, should they reconsider the barriers that they have imposed, given that salary is not increasing in Malaysia?

In his reply, he said consider the US subprime mortgage crisis in 2007 where it all started from the housing sector.

According to BNM, the Average Approval Rate for Banking System Loans Extended to Households for the Purchase of Residential Property for 2015-2016 is around 75.8% which is relatively high.

Therefore, there is a possibility that the loans are rejected because the applicant simply does not have the ability to repay it in the long run.

“The reality is that if you can’t afford to buy a house, then you can’t afford it,” he simply said as his final remarks.

However, the problem that The Independent is trying to tackle here is that there is not much houses that the locals here can afford, they however can afford dodgy flats and apartments which are crime ridden.

Comparison with Singapore

There is a huge difference in flats in Malaysia and say, those in Singapore or the US.

Furthermore the Singaporean government is helping its people to be able to afford their homes with higher salaries and sometimes the government may give a S$ 10,000 – 15,000 discount to unmarried people.

That is the question that I ask myself: Income has not increased in Malaysia for a while, thus how can people even afford a home in which the value is increasing every year, and on top of that Bank Negara has imposed stricter regulations?

For example, a bungalow house in a township that is one hour away from Kuala Lumpur would cost about RM150,000 in 2010, and that very bungalow now costs RM500,000 in a short span of 7 years.

But unfortunately the rate of income in Malaysia for the average people has not increased that drastically, and has even stagnated!

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