High price-to-income ratio puts houses beyond reach of young Malaysians

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PETALING JAYA: The high price-to-income ratio has put owning a house beyond the reach of many young Malaysians.

Research groups say the ratio, which is the standard of measurement for housing affordability, is a key reason for the current state of affairs.

Think tank Emir Research head of social, law and human rights Jason S.W. Loh said the present price-to-income ratio was around 4.5 to five times (or six times in some sub-cases).

“A price-to-income ratio of 4.1 times and above is considered ‘seriously unaffordable’ based on the Median Multiple method recommended by the World Bank and the United Nations.

“In 2020, the median house price was at RM295,000 and median annual household income was RM62,508. Our house price-to-income ratio was at 4.72 times that year.

“Affordability is tied to the widening price-to-income ratio (i.e. from the perspective of the buyer),” he explained.

Loh said there was a failure to build enough affordable houses priced at RM300,000 and below, even though it can be done.

“Only recently, the State Development Corporation of Selangor completed the handover of the Residensi Idaman Selangorku affordable housing project in Cyberjaya. This affordable housing project complements the National Affordable Housing Policy.

“Each unit has three bedrooms, two bathrooms and two parking lots, along with a comfortable built-up area of 1,000 sq ft and is priced at only RM232,000.

“In Johor, Malaysia Pacific Corporation Bhd and Real Trend Development Sdn Bhd will jointly develop the Rumah Mampu Milik Johor scheme in three phases.

“With a gross development value of RM85.5 million, the project will feature 570 affordable homes,” he said.

In Penang, the state government has approved 76,365 units of affordable houses (Rumah Mampu Milik), including low-cost housing.

Loh suggested the government consider rent-to-own (RTO) schemes.

However, he noted RTO schemes by the private sector could lead to a financing model that would still not address the widening price-to-income ratio.

“Under an RTO scheme by the private sector, it could be speculated that the financial inducements could take the form of something similar to the Fund My Home scheme introduced in 2018.

“Buyers under that scheme only needed to finance 20% of the house price, with the balance 80% coming from participating institutions or investing entities.

“This represents a kind of a rental arrangement, except that it (the rent payment) is loaded upfront.”

Meanwhile, Khazanah Research Institute research associates Puteri Marjan Megat Muzafar and Theebalakshmi Kunasekaran believe deteriorating housing affordability stemmed partly from the unresponsiveness of housing supply to effective demand.

“To put it into perspective, newly launched housing units that are priced below RM200,000 made up more than 50% of the market in 2009, but that price segment has decreased to less than 20% in 2020. In contrast, houses above RM500,000 made up around 25% of total new launches in 2020.

“The growth of house prices has also outpaced the growth of household incomes. For example, between 2012 and 2014, the median house price increased at a compound annual growth rate (CAGR) of 26% from RM170,000 to RM270,000,” said Puteri Marjan.

Theebalakshmi added: “During the same period, median household income grew significantly slower at a CAGR of 12.4%, or less than half of the rate of increase in house prices.”

The mismatch in demand and supply is partly contributed by a lack of data that assists in analysing the housing market in a particular area.

“To overcome the housing market mismatch, feasibility studies should be conducted by developers to ensure houses are built at the appropriate prices and building standards.

“We propose the establishment of a centralised housing database that must encompass both demand and supply that is comprehensive and at an appropriate spatial level,” Theebalakshmi added.

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