FT: Lending rules set to frustrate any affordable housing bid in Budget 2019

Finance Minister Lim Guan Eng will table the Pakatan Harapan government’s maiden Budget at 4pm this Friday. ― Picture by Miera Zulyana
Finance Minister Lim Guan Eng will table the Pakatan Harapan government’s maiden Budget at 4pm this Friday. ― Picture by Miera Zulyana

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KUALA LUMPUR, Oct 31 — Bank Negara Malaysia’s expected persistence with its allegedly strict loan guidelines will likely foil policies towards more affordable homes in Budget 2019, according to the Financial Times.

In a report published yesterday, the London-based outlet noted that while there is anticipation that Finance Minister Lim Guan Eng will include such measures when tabling the federal spending plan, these must still run the central bank’s policy gauntlet.

Among expected measures include subsidised mortgage rates to help the B40 and M40 classes afford their own homes, but FT researcher Tan Siew Mung highlighted fears that a “miscalibrated” attempt risked upsetting the already-weakening property market.

Others include a higher property gains tax or one on capital gains as the federal government is looking to increase its revenue streams to counter its self-professed RM1 trillion of “debt”.

Tan noted that the deceleration of the Malaysian property market was now in its fourth straight year, thanks in part to BNM’s lending guidelines, while the country’s household debt to GDP ratio remained at a high 83.8 per cent.

“The government’s upcoming budget may try to make it easier for lower-income Malaysians to buy housing, but the central bank is likely to remain deaf to calls from developers for easier lending rules so long as household debt levels remain elevated,” Tan wrote.

Tan’s assessment dovetails with the central bank’s standard response to criticism of its 2012 guideline that requires lenders to assess a borrower’s eligibility based on his aggregate repayment obligations, in which it says this was necessary to promote responsible lending.

Groups representing both developers and would-be homeowners repeatedly criticised BNM for refusing to budge on its guidelines, with a Real Estate and Housing Developers’ Association Malaysia survey last year showing loan rejection to be the number one reason behind dwindling home sales.

Property transactions fell by 2.4 per cent in the first half of the year at the same time as a 40-per cent year-on-year surge in the long-standing overhang of residential units, according to data from the National Property Information Centre.

The previous Barisan Nasional (BN) administration had toyed with the idea of letting developers provide “bridging loans” to address the complaint, but this never materialised.

Since then, the Malaysian property market — like much of the world — continues to suffer a clear disconnect between property prices and the ability of ordinary wage earners to afford even homes priced up to RM400,000 and classified as “affordable”.

“Affordability has become a critical social issue because construction has not kept up with demand. In 2014-2016, an average 114,000 new homes were built, compared with 154,000 new households.

“The shortage of affordable housing has been exacerbated by a real estate industry geared towards catering to the higher end of the market,” Tan wrote.

Lim will table the Pakatan Harapan government’s maiden Budget at 4pm this Friday.

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