Innovative Financing Schemes Could Lead To Higher Home Prices

Pavither July 31, 2019

Innovative financing schemes could lead to higher home prices

Hong Leong Investment Bank (HLIB) Research believes the influx of innovative financing schemes for the property market will result in higher house prices with home buyers getting mortgages that they cannot afford. 

HLIB Research analyst Andrew Lim noted that home prices in Malaysia have been categorised as unaffordable and have become worse over the past years as the rise in median home prices surpassed the increase in annual median income, reported The Sun Daily.

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“With regards to the recent increase in innovative financing schemes to support the sluggish market, we believe it does not solve the fundamental issue as this will not only further push house prices up, but also encourage home buyers to undertake mortgages beyond their affordable means.”

According to him, a speaker at the HiHOME Property Conference 2019 highlighted the advantages of renting compared to home ownership.

Compared to developed countries, Malaysia’s household rental proportion is lower at 33 percent. Germany has a household rental proportion of 49 percent, while the UK and the US have 42 percent and 38 percent, respectively.

This low proportion in the country could be linked to the stigma attached to renting a house which is still apparent in the country despite the benefits of renting such as better flexibility and lower monthly commitment.

“An example given was using a house priced at RM900,000 in SS2, Petaling Jaya, whereby renting the house will cost about RM2,000 per month vis-a-vis monthly instalments amounting to about RM3,700 per month,” said Lim.

“Note that this has not taken into account the huge down payment required when purchasing a house, maintenance cost, renovation cost and others. By renting a home, households will also have the mobility to reside in different locations over the years and additional time to research on potential neighbourhoods before committing to a mortgage.”

 

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