By TK Chua

The news report, “Luxury homes glut can wreck the economy” is filled with incoherent and “chicken-and-egg” arguments.

The housing market, if indeed there is one, in Malaysia today is too nebulous and complicated to form a position on without proper consideration of all the interrelated factors and policies.

I don’t claim to know better than others. I can only ask questions and it is for the authorities and those in involved in the industry to answer these questions truthfully and comprehensively.

Firstly, why is there a glut in luxury homes ? Why have developers built so many of these homes if there was no potential demand from Malaysians?

We now want foreigners to come in to fill the void. But would this measure create a bigger bubble?

We probably want foreign money to fuel our economy. But foreign money pouring into properties is very different from foreign money going into manufacturing for exports. The former is just a one-time transaction while the latter is to sustain income, jobs and foreign earnings.

How then can massive selling of properties to foreigners help the Malaysian economy in the long run? For sure, the exorbitant profits of landowners and developers are not the same as the benefits to the Malaysian economy. It has marginalised Malaysians, even among the middle class, from getting a decent home.

Secondly, why are housing loans always being singled out as a major problem in the housing industry?

For Malaysians not to qualify for housing loans, two things must happen – their income is too low or the price of houses are too high.

To me, the banks are simply adhering to the principle that borrowers must have the capacity to pay back the loan within a certain number of years. When buyers don’t qualify, the banks do not lend. It is as simple as that. This is also a simple and elegant way to keep the prices in check.

When I first started out a few decades ago, the maximum repayment period for a housing loan was 15 years and the maximum amount one could borrow was 70% of the value of the house. Yes, times have changed, but that’s not the argument, because everything is supposed to be relative.

Say whatever you like, capping the loan amount and repayment period minimises distortion and promotes sustainability in the housing and property market.

But what happens when the housing sector turns speculative and buoyant? We urge and allow the banks to provide 100% loans (and in some instances, more than 100% loans). We also urge them to provide ridiculous repayment periods, some even stretching to two generations.

We should ask ourselves if such measures are really aimed at helping the home buyers. I don’t think so.

I would prefer to look at these measures as a means to helping developers, speculators, and banks to make more profits but all at the expense of home buyers who are now saddled with very expensive long-term loans.

If we need 35 years or two generations to pay off a housing loan, we must be quite foolish. How many years of working life do we have?

Hence, “easier” loans are not always the solution. On the contrary, we need more prudent loan policies to ensure sustainability.

Otherwise, we would end up with most of us having to repay banks and developers for the rest of our life. Is there any wonder why most of us have hardly anything left after paying housing and car loans?

It is my considered opinion that policy interventions in the housing market thus far have always favoured the developers, property agents, banks and speculators.

When weaknesses are detected in the housing market, some predictable responses have been: lower the interest rates, extend the repayment period, allow buying with “no deposit down”, give 100% loans, and now, allow foreigners unfettered entry into our property market.

The argument has always been we must keep the economy buoyant and GDP growth intact. But growth must be sustainable and certainly not at any cost. Unwittingly we have allowed too many ill-conceived policies and distortions which have led to unrealistic prices and heavy debt burdens among Malaysians.

TK Chua is an FMT reader.

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