Should state governments buy and sell low-cost houses?

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PETALING JAYA: Amanah’s call to the Johor government to buy up unsold low-cost units in the state and resell them to the public is worth considering, says a developer.

This is because those in the low-income group are finding it difficult to obtain loans even for houses under RM50,000, according to Anthony Adam Cho, a former chairman of the Melaka chapter of Rehda (Real Estate and Housing Developers Association).

For buyers of two-and-a-half storey terrace houses in the state – the most popular type of house in Johor in the past year – RM50,000 is around 10% of the total price of such a house.

On average, such houses in Johor can cost between RM450,000 and RM800,000 or more depending on the location.

And according to figures from the National Property Information Centre (Napic), a total of 6,012 two-and-a-half storey terrace houses were sold between the first quarter of 2016 and the corresponding quarter of this year, compared with a mere 1,888 low-cost flats and houses sold in the state during the same period.

In comparison, RM50,000, according to Cho is more than enough to purchase an entire low-cost unit.

Low-cost units, he told FMT, were priced around RM35,000 to RM42,000 and this was way below the market value of the house.

But despite this, Cho said, people who were looking to buy such homes were having trouble securing loans for the low-cost units.

This, he said, was why Amanah’s suggestion to the Johor government to buy up low-cost units and resell them through a Rent-to-Own (RTO) scheme was a good suggestion.

Rent-to-Own the way forward for lower income group

Under a RTO scheme, applicants can rent a house for a specified number of years, before deciding whether to buy the property at the end of the specified time at a pre-determined price, with a portion of the rent going towards the payment of the house.

In Malaysia, one such scheme is the 1Malaysia People’s Housing (PR1MA) RTO programme where applicants can rent a PR1MA home valued at RM100,000 to RM400,000 for up to 10 years before deciding to buy it at the end of the fifth or tenth year at a pre-determined price.

“If the state government purchases these units, they can then implement a RTO scheme,” said Cho.

“It makes sense because if those in the low income group could obtain loans, they’d actually be paying interest rates to the bank anyway, and these interest rates are higher than savings rates.”

Cho said if the state government purchased these low-cost homes, it would not only be a good investment but also assist the poor in having a roof over their heads.

“I can only see one setback and that is with control, in terms of repayment, because you might have people who may feel less obliged to pay back a loan from the government or put the loan repayment as a priority.

“There are also those who may not be able to initially afford the repayment, and perhaps that is where the government can set aside extra funds to help such people.”

Cho said this was where the authorities would need to develop proper guidelines and enforce them to ensure compliance in terms of repayment.

He noted that the National Higher Education Fund Corporation (PTPTN) had done well in collecting on arrears, especially in recent times.

In recent times, PTPTN has resorted to drastic measures to recoup funds owed to it, including listing borrowers who haven’t been paying regularly under CCRIS, (Central Credit Reference Information System) or submitting their names to be blacklisted by the Immigration Department.

According to a report in The Star Online, until January this year, almost 600,000 borrowers owing RM11.6 billion have been blacklisted by the department and can’t leave the country.

Similarly, Cho said if the state opted to buy the houses and implement the RTO scheme, then it had to be stringent as to who would qualify and on the collection of the scheme repayments.

Cho added that this should be implemented by all state governments nationwide, explaining that it would help developers clear unsold Bumiputera low-cost units, giving them the resources to continue with their development projects which include the mandatory construction of low-cost and affordable housing.

Meanwhile, National House Buyers Association (HBA) honorary secretary general Chang Kim Loong said HBA supported the idea that the state government buy the houses by setting up a special vehicle to initiate a RTO scheme.

“Recently, in a dialogue with Bank Negara, HBA mooted to the National Mortgage Corporation (Cagamas) that a RTO scheme be initiated for the affordable housing category, too, apart from taking care of social housing given the current overhang of low-cost properties, as Napic figures indicate.

“In fact, all state governments should look into absorbing unsold low-cost homes for state-driven RTO schemes.”

IDEAS sees problems with the proposals

The Institute for Democracy and Economic Affairs (IDEAS), however, feels Amanah’s proposal can be problematic.

“Firstly, is the tendency to resort to government intervention whenever something like this pops up,” IDEAS external relations manager Azrul Mohd Khalib told FMT.

“That the government will always be there and step up to clean up the mess. This creates unjustified precedence and costly assumptions.”

Azrul said the market remained the best at deciding how and when to construct properties and that Amanah’s proposal might send the wrong message to developers.

He said it might send the message that it was not a problem to build more houses than actual demand because the government would always be there as a buyer.

“Government intervention such as this could end up costing Malaysian taxpayers millions of ringgit as it creates an artificial demand in the market, keeping housing prices higher than they should be and keeping affordable homes out of reach of most.”

Azrul also said more Malaysians were unable to afford houses as salaries and wages had not kept up with the cost of living.

“Housing loans currently account for approximately 40%-50% of the total household debt from 2015-2016. Household debt was at an alarming rate of around 88.5% of GDP in 2016.”

He said there was a reason for the high rate of rejection of mortgage loan applications – reportedly up to 70% – especially from those in the lower income group and this was because many in this group wouldn’t be able to service the loans, and would potentially end up in “serious financial difficulty” if they took on such huge debt.

“If you rent a house, you can move to a cheaper place if things get rotten. If you have a mortgage, you are stuck and could even lose your home through foreclosure if you are unable to service the loan.

“Basically, the reality is that if you can’t afford to buy a house, then you can’t afford it.”

According to a recent Malay Mail Online report, Amanah recently suggested that the Johor government buy the unsold 80,000 Bumiputera properties in the state and then resell them as a way to help the lower income group own houses and also prevent developers from going bankrupt.