LETTER | Last Friday, the Minister of Finance Lim Guan Eng lamented the difficulty faced by prospective homeowners in securing housing loans and called out lending institutions to be more lenient in providing financing. While he received a lot of criticisms for his speech, I am personally in agreement with him. Indeed, banks should not simply be rejecting home financing applications. However, certain conditions such as the following must also be put in place.
First, banks should not reject house financing applications from first-time home buyers. However, applications from those who are seeking a second, third, fourth etc. house should be scrutinised in greater detail to ensure that they have capabilities to pay. Since the minister of finance himself is insisting that banks should approve this financing, perhaps the ministry of finance (MOF) can act as a guarantor for the home buyers.
Alternatively, financial guarantees can also perhaps be provided by Cagamas. If the MOF and financial institutions can contribute even a portion of the financial guarantee, the lending financial institutions will not be exposed to an intolerably high risk of default. At the same time, first-time house buyers would appreciate assistance from the government. House price capped at RM200,000 or RM250,000 can be enforced for this scheme to mitigate the effect in case of default.
Second, there should be attempts to counter the root cause of the issue – excessive property prices. Additional efforts need to be made to ensure that the prices of houses price are reasonable in order to reduce the risk borne by the government through the MOF and/or Cagamas. The president of the Real Estate & Housing Developers' Association (Rehda), Soam Heng Choon recently highlighted the high cost of development charges, premiums paid on lands and compliance costs enforced upon the developers which are eventually passed onto the buyers.
As such, for this special affordable housing scheme, the government should also make efforts to waive or reduce charges typically borne by housing developers. Similarly, utility providers such as Tenaga Nasional Berhad and Indah Water Konsortium should only be allowed to charge the costs that they incur for extending infrastructure into the new development area, and not to make a profit from the development initiative for this scheme as argued by Rehda’s president.
Since all other parties i.e. the government and utility providers will no longer make a profit from this scheme, developers should also play their role. The developers must agree to only make a reasonable profit (circa 15%-20%, including profit from land sale) from this initiative. With these conditions in place, house price will significantly be reduced.
For this special affordable housing scheme to succeed, every party must practice open books, showing all their costs and profits. The National Housing Department director-general for the Ministry of Housing and Local Government, has pointed out that the utility providers have already taken the initiative to demonstrate their costs. The onus is now on housing developers to up their game.
Lim Guan Eng’s push for banks to be more active in providing financing for house buyers is a welcome one, but it cannot operate in isolation. The prices of the houses themselves need to be reduced and banks are likely to be more willing to provide financing as more people would be eligible for financing with lower house price.
The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.