The authorities have lowered the moratorium on the sale of PR1MA homes from 10 years to five years of buying it. This shows that they are willing to allow owners to sell their houses within a shorter period, according to Khoo Hsu Chuang, a Contributing Editor at The Edge Malaysia.
However, this move might encourage speculation, especially if property prices largely surpass the purchase cost.
“Also, stretching the qualifying criteria to include purchasers with a combined monthly household income of RM15,000 also means that PR1MA is no longer an avenue for the poor, but is also a vehicle for the moderately wealthy to ‘play’ the property market.”
He also pointed out that PR1MA units are still expensive, with the maximum property price at RM400,000, while the lowest is said to be around RM100,000.
“When did the definition of affordable housing stretch to RM400,000? It was not that long ago that low-cost housing was priced in the region of RM60,000, and with salaries not having increased that much in the last decade, signing up for such a property would be a real stretch for most Malaysians.”
He also said that PR1MA Corporation’s goal is good as it provides much needed funding to people unable to get housing loans from commercial banks. However, the interest rate it charges is higher at 4.75 percent per annum. In comparison, the lending rate by banks to borrowers with good credit scores ranges from 4.3 percent to 4.45 percent.
“The rates reflect the higher risk profile of the ineligible borrowers, but imperil them when their circumstances change, such as when interest rates rise, or if they lose their jobs,” noted Khoo.
Moreover, PR1MA Corporation permit borrowers to defer payments on the principal sum to the sixth year. Although this makes the repayments easier in the early years, the total amount owed will get higher over the long term, as the interest rate is based on the principal.
The company also permits a greater debt servicing ratio (DSR) of 70 percent versus the 50 percent to 60 percent adopted by banks. Given that a higher DSR indicates that a borrower will likely struggle to repay his housing loan alongside other financial obligations, buyers are more at risk of defaulting on their mortgage, especially if they get retrenched or suffer a financial problem.
Consequently, Khoo is worried that many buyers of PR1MA units would be unable to repay their housing loans in the future. This might lead to the Malaysian version of the subprime mortgage crisis suffered by the US, which caused the 2008 Global Financial Crisis.
Based on media reports last year, PR1MA has approved the construction of around 260,000 houses. So far, only 4,500 units have been taken up, but 132,000 are still under construction.
“When these 260,000 homes hit the market in the near future, the possibility of defaults and the subsequent risk to the financial system could be fearsome,” Khoo added.
Image sourced from The Star
Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email radin@propertyguru.com.my
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