Owning A Property

Last two weeks, I watch a local TV program that discussed about the current issue of rising property prices and how unaffordable it becomes to the young working generations. Today, the same topic is reported again in the newspapers. In the past few years, property prices around Klang Valley, Penang, Ipoh and Johor has gone up drastically with Selangor and Klang Valley with the highest increment up to a fold of its initial price, with annually increment of up to 40%.

Just a few years difference, now you can only buy an apartment which is worth a semi-detached house few years back. It's a very alarming issue where the younger generations are unable to afford a house by judging the current increasing rate.

From a Chinese context, it is a necessity for one to own a house before building a family. Having a house is a must, otherwise all the time you spend to work and the money you earned has no meaning in life because you do not have a shelter of your own after all the hard work.

However, by judging the current market trend, how a fresh graduate is able to afford a house within Klang Valley? We are slowly heading to a high priced property era, following the footsteps of Singapore and Hong Kong, but our income has not reach their level at all. Those two countries mentioned previously has high property prices due to lack of land, but in Malaysia, we have enough land to build houses and such but why the price of a property has become so unaffordable?

No doubt that the increasing price of raw materials for construction has gone up over the years, but the main reason is due to speculations from investors that which to gain profit in real estate sector, which in the end, the government is in fault for causing this. Besides local investors, many foreign investors came to invest in property and real estate in Malaysia, mainly from Singapore, China, Hong Kong and Taiwan. These investors and speculators are able to take advantage of the property sector here due to ease and convenience for a foreigner to own a property in Malaysia.

While the government now is alert of this issue, which is a little too late. Counter measures have been taken in order to cope and ease down the increasing trend of property prices. New regulations have been made which involves loans and tax, and also the recent amendments that require foreigners to only purchase properties that worth RM1million and above. However, these new counter measures will not have a huge impact on the speculations in my opinion because:

• These investors have enough cash, a lot in fact, to involve in property sector. By lowering the mortgage loan margin to 70% for third house onwards will only slow down individual investors but not the main players as they can easily purchase a property with cash, and maybe even at a discounted price.
• Increasing the tax/stamp duty for selling a property within 3 years will only let to investors/sellers selling the property at a higher price in order to cover the losses due to tax/stamp duty
• Limiting the price to RM1million for foreigners to own a house is kind of pointless as most properties nowadays, especially the new ones in Klang Valley are around that price.

Therefore, at the end, these so-called counter measures has minimum or no impact at all to the main players and speculators and hurts the lower income layer the most. It is almost impossible for one to own a house with a mere RM3k monthly income, which is considered at the high side for most fresh graduates nowadays, as the current market salary for fresh graduates still lies around RM2.5k. With the living cost increasing day by day and the effort from BNM to decrease the household debt to income ratio, it has become harder to obtian a mortgage loan as the requirement bar has been set higher by considering nett income instead of gross income. As quoted by the newspaper today, for a worker with RM3k monthly income, the bank requires at least 60% of nett income after deducting all the other debts to be qualified for a loan, and even so, the loan amount only equates to RM75k, which is seriously insufficient for a house purchase.

The 1Malaysia program initiated by the government also brings no benefit to society as well because most financial institution thinks that it is impossible to approve such high risk loans as the credit risk or the risk to default among these population is very high.

While some are lucky to be able to buy a "cheaper" house few years back, for fresh graduates like us who just step into the working society and had planned our future ahead, the dream to own a house within 5 years of time will remain only as a dream. By the time we have gathered enough money to pay for the down payment, the property price might have already gone up by another fold. Our salary increment can never catch up with the inflation, let alone the property price. Our future dream house is further and further away from us as time passes.

This is a very unhealthy situation and government must definitely come up with something more effective way to curb it. The current debt situation in Malaysia has gone to a critical level where the national debt over GDP has gone until a critical state of 55% as reported previously and household debt has reach a level of 70% over household income. In order words, every citizen in this country is living in debt everyday, majority of the money we earn through hard work is used to pay off debt and this situation will only get worse day by day if there's no proper action taken.

Therefore, the question raised: What can we do to overcome this issue?

 In my opinion, on the individual side, what can we do if we wish to own a house?

• We have no choice but to opt for a cheaper house. Discard the dream of owning a landed property, shift dreams to a smaller and yet comfy apartment.
• Instead of changing the house type, we can always opt for a area further away from the high demand area, at the outskirts of the city.
• How about if we still insist of the house type and location? Then no choice but to earn more money in order to be able to afford such sky-high property prices.
• How about none of the above? Then we can only hope for a property bubble burst or economy down turn, similar to what happened to the US during the subprime crisis. But of course, this is not what we will wish for as it will affect not only us, but the whole country's economy as well.
• Dream hard (very, very hard) that the government will intercept into this matter and offer affordable property or implement higher wages. However, this is very very unlikely to happen because there's too many factors to consider, and of course, the government don't bother.

How about the government? What can they do to ease the increment rate at least?

• The government can control the speculators by forbidding foreigners to own any property at all, or to purchase it at a much higher price and sell at lower price. I don't care any investment that the foreigners promised, as long as it affects the local people, then it is a no go.
• Setup rules and regulation to monitor the developers to ensure that they don't only concentrate catering high end markets, but also the lower income populations.
• Improve wages and reduce living cost. However, drastically improving wages without increasing productivity will definitely havean impact to the economy and most employers will opt for cheaper foreign labours to reduce cost.
• I think there is much more can be done by the government that I cant think of currently, but I do hope this situation can be contained for the benefit of the citizens.

To wrap up, the increase of property prices is inevitable as it is a global trend due to increasing population, raw material prices and affordability. In comparison, the property price in Malaysia is still relatively cheap if we compared to other developing nations. Often politicians will always compare us to better countries when they want to emphasize cheaper things (e.g. petrol, property, tax), but often compare us to worse countries when they want to emphasize on others (e.g. technology, wages, debts, GDP, competency, etc.), it's just matter of deceiving marketing method they used to tell citizens that we are still OK. The main reason that property becomes unaffordable is our slow catch up pace and low productivity that result in low wages paid off.