Looks like Urban Wellbeing, Housing and Local Government Minister Noh Omar has not given up on his proposal to allow housing developers to extend loans to potential house buyers. Recently, he said interest rates, if capped at 6 per cent, would be reasonable. As the minister, he also thinks it is within his jurisdiction to set the repayment period.

I am glad Bank Negara Malaysia is sticking to the 35 year limit on repayment periods.

The ability to own a house is ultimately dependent on incomes and prices, not just interest rates and repayment periods. In fact, interest rates and repayment periods, if used or misused excessively, are distortions that could cause price escalations, to the detriment of house buyers.

I have said many times earlier, public policies must benefit the economy and the people in general. What is beneficial to businessmen and developers does not necessarily benefit the economy. We have excessively used low interest rates, ridiculously easy loans and excessively long repayment periods to keep the housing market buoyant for the benefit of developers, but at the expense of house buyers who are saddled with big loans and long repayment periods.

When the housing minister is able to sets interest rates, he has effectively taken part of the monetary policy power out of BNM. When he said he could cap the interest rate at 6 per cent, did the minister really know what he was talking about? Is it 6 per cent flat, daily rest, monthly rest or yearly rest which could lead to very different effective rates? Are there exorbitant processing fees and other charges embedded? Who is suppose to regulate and monitor all these?

The minister has also argued that loans from developers are necessary because banks do not provide the full loan. Usually buyers have to borrow from relatives and friends or take up personal loans from banks to make the difference. Here is the irony: if house buyers have to take personal loans from banks or borrow from relatives to supplement their lack of savings, may I know what difference this would make if developers are allowed to do the same? Essentially, we have not solved the fundamental problem of buyers being unable to come up with 20 to 30 per cent of the money on their own. We must realise this is “low income”, “high prices” and “lack of saving” problems, not just “high interest” or “loan availability” problems.

Now I hear that repayment periods should be further extended from 35 to 40 years, apparently to “lighten” the burden of house buyers. We fail to recognise that it is prices of homes decoupled from general income levels that is causing the problem. No amount of extension will solve the affordability problem. On the contrary, a ridiculous extension is going to cause more indebtedness and a lack of disposable income for many beyond their retirement age.

I think we shouldn’t be talking about extensions any more. A 35-year repayment period is already way too long for most of us. How many years of working life do each of us have? If we can’t pay off for a roof over our head in 25 years, I think it speaks volumes about the dichotomy between incomes and prices of homes.

In the mid-1970s, if my memory serves me right, the maximum housing loans were 70 per cent of the house value and the repayment period was 15 years, maximum 20 years. If everything is relative, why was it feasible then, but not feasible now? Where did the fruits of development go the last four decades? Has Malaysia not become richer rather than poorer?

I think we are trying to solve the problem the wrong way. We are not giving ropes to those in trouble to save themselves; we are giving them ropes to hang themselves. If we take a housing loan requiring 40 years to pay back, I think we are just paying interest in the first 20 years.

True, businessmen and developers must make money, but our system cannot become so lopsided and exploitative. I think Noh Omar and BNM must jointly consider all the factors carefully before creating more distortions and damage to the economy.

TK Chua is an FMT reader

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