Bank Negara Malaysia: Malaysian Houses Are Not Affordable by most Malaysians. The reason why.

Written by: Mikhail Muttaqee Mahayudin

Figure 1: via NST

Bloomberg reported on 11 October, that most Malaysians do not have the capabilities financially to buy houses. As the homes that is sold on the market are too expensive.

“Rising home prices have added to the grievances of Malaysians grappling with the cost of living since a goods and services tax started two years ago, and as the government removes subsidies on daily items including petrol and sugar,” the report read.

Figure 2: via

Based on Bank Negara Malaysians (BNM), Malaysians are unable to afford houses is not due to the strict lending rules on loans but because the houses are not simply affordable. This was also mentioned by the previous government Second Finance Minister Datuk Seri Johari Abdul Ghani speaks about the mismatch between housing and supply demand. Because of the oversupply of high-end properties which as a matter of fact what most Malaysians can’t afford. There is also no demand for it.

BNM with the launch of “Housing Watch” a platform that provides information on the issues of development related to the housing market in Malaysia. Consumers are provided with information that is related to policy measures and home financing assistance, among the platform. The data shown on the website is that loan approvals are for key cities that near 70% or higher. This further shows that the bank does not need to loosen the lending but actually to the effort for the property industry to cut cost according to the supply and demands.

The growth of household income does not tally with the growth of house prices. The demand for housing is greatly affected by the household income. But the household income is so much lower than the house price hence, some Malaysians could not buy a new house.

“It’s a tricky situation,” said Wan Saiful Wan Jan, chief executive officer of the Institute for Democracy and Economic Affairs in Kuala Lumpur. “I don’t think it’s right to say that there’s no problem with financing. But lending rules have to be both strict and balanced at the same time, otherwise, we’ll have more non-performing loans and that is not good for anyone in the country.”

Comparing to global standards Malaysia was 4.4 times the median annual household income in latest available data, which make the housing market majorly unaffordable.  About half of the people living in Kuala Lumpur own a home Demand is set to rise: the median age of Malaysia’s 31.7 million people is 28 years and the nation’s urban population is growing at an average 4 per cent a year, among the fastest pace in East Asia, according to the World Bank.

The issue of not having enough income and houses being too expensive. The developers should focus on building houses which people can afford not building expensive houses and then tries to push the consumers to buy the houses. This is beyond some consumers to pay.

Some developers are slowly starting to fill the demand. Mah Sing Group Bhd, the nation’s third-largest, is selling apartments within 5 kilometers from Kuala Lumpur’s centre with prices starting from RM328,000 for a 650 square foot unit. That’s within the maximum price a family on the city’s median income could afford.

In order to overcome this issue to decrease the affordability, BNM proposed five strategies

  • Centralising affordable housing initiatives
  • Reducing the cost barrier to provide more affordable houses
  • Rehabilitate the household balance sheets by enhancing financial literacy
  • Improve the rental market by strengthening legal framework
  • Setting up a housing database and applicant registry to plan and allocate affordable housing

Therefore, if this problem is unchecked it will grow more over time. Let’s hope the authorities will implement the aforementioned strategies to overcome this issue and make houses in Malaysia more affordable.