This article first appeared in The Edge Malaysia Weekly on May 14, 2018 - May 20, 2018

FOR many years, the unaffordability of homes has been a sore point among a lot of Malaysians. While the property market has softened in the past several years, prices remained at levels that are too high for the average wage earner.

Under the Pakatan Harapan’s manifesto, the coalition promises to set up a National Affordable Housing Council, which will be tasked with formulating initiatives to provide affordable homes. This includes building one million affordable units within two terms of its administration and coordinating a unified and open database for unsold homes.

However, will the additional homes exacerbate the existing overhang situation?

It is worth noting that Kuala Lumpur accounted for 22,112 units or 28.36% of new launches last year, most of which are under the 1Malaysia Civil Servant Housing Scheme and Federal Territories Affordable Home Programme. Of the units, 26% were priced between RM400,000 and RM500,000, and 25.9%, between RM250,000 and RM300,000, according to a Ministry of Finance report.

Nevertheless, the sales of this residential segment was a mere 19.5%. With such a low take-up rate, one has to ask if it is advisable to build more units.

Furthermore, if the new government were to build the promised one million homes that are truly affordable (based on Bank Negara Malaysia’s definition of affordability), what would it mean for the inventory of unsold units that are priced above the new batch of affordable homes?

Bank Negara recently pointed out that the maximum price of an affordable home should be RM282,000, given the median household income in 2016 was RM5,228 (based on the Household Income and Expenditure Survey by the Department of Statistics). This price was arrived at by using the Housing Cost Burden approach.

The National Affordable Housing Council will also implement a rent-to-own scheme for the B40 and M40 groups and coordinate with financial institutions to help first-time buyers get housing loans. It would be interesting to see how this collaboration will work, given that the country is battling to reduce household debt.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.