While they are made with good intentions, the government’s plan to roll-out six new home loan schemes could prove to be detrimental than helpful to purchasers in the long run.
Dr Carmelo Ferlito, senior fellow at Institute for Democracy and Economic Affairs, believes the schemes would keep house prices on the higher spectrum and that the added credit is “dangerous at two levels”.
“One, it fuels a credit-oriented mentality, when it is necessary for Malaysians to learn how to live according to actual possibilities, rather than on borrowed money,” he told The Malaysian Reserve.
“Two, it puts Malaysians at risk in the long run, as low-income classes are more fragile from the financial perspective. Further credit will spread in the medium and long run, where the risk of facing difficult moments increases.”
Although having more credit facilities would help support the industry that has over-expanded during the past years, it could be detrimental to the low- and middle-income classes.
According to him, Malaysia’s household debt is currently high at around 85 percent of GDP.
“My fear is that these new measures, while surely good-hearted, might damage the people they want to help. I would rather focus on educational initiatives to improve financial literacy and on affordable rent schemes,” he added.
Kit Au Yong, Asiacap Valuer & Property Consultants Sdn Bhd property valuer, warned that if the new loan schemes would loosen the criteria for financing, it will just raise the loan commitment as against their income.
“With that, this measure will not be addressing the issue of ‘unaffordability’, but instead, it only increases the debt-to-income ratio. It will be good if the government can look deeper by targeting the supply and demand issues and the driving forces that affect those issues,” Au Yong said.
He suggested for the government to look into the supply of land in areas that are “liveable”, compared to areas that are far from amenities such as job opportunities and transportation.
Consumers may also be encouraged to rent instead of purchasing a house, while they build up their financial capacity to acquire a home in the future.
Housing and Local Government Minister Zuraida Kamaruddin recently announced government plans to roll-out six new housing loan schemes in mid-October, following the central bank’s decision to ease home lending rules effective 1 September.
“We would have six different schemes with participation from about 15 different financial institutions like Cagamas Bhd, commercial banks and investors who will be offering various financing models like rent-to-own schemes,” she said.