Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on March 29, 2018

KUALA LUMPUR: Bank Negara Malaysia (BNM) said yesterday the affordable housing schemes offered by the government through initiatives like the 1Malaysia People’s Housing Scheme (PR1MA) do not distort the local property industry.

Institute for Democracy and Economic Affairs (Ideas) senior fellow Dr Carmelo Ferlito said last month the government’s intervention in the supply of affordable housing had resulted in unfair competition, pushing out private developers from the segment.

In response, BNM governor Tan Sri Muhammad Ibrahim (pic) said the government’s efforts in affordable housing are very much needed, citing a failure in the property market in providing supply in the affordable range.

“If you look at the numbers in 2014 and 2015, the numbers of affordable houses were quite good, accounting for 75% of the supply of residential properties. But in 2016 and 2017, the numbers were reversed, as only 25% of residential properties were in the affordable range.

“Obviously, there was a market failure. If the government did not come in and provide the additional supply of affordable houses, the problem would have been acute. The intervention by the government is not distortionary from that perspective,” Muhammad told the press after releasing Bank Negara Malaysia’s 2017 annual report and the Financial Stability and Payment Systems Report 2017.

On the other hand, he said the housing market in general remains “seriously unaffordable”, and pointed out that the median house price of RM313,000 exceeds BNM’s maximum estimate of RM282,000 that Malaysian households can afford.

Muhammad also touched on the oversupply situation with commercial developments by highlighting that the incoming supply of office space in the Klang Valley will drive vacancy rates to an all-time high of 32% by 2021.

He said the incoming supply of 140 new shopping malls by 2021 in the Klang Valley, Penang and Johor will also worsen the oversupply in the segment.

“The banks can withstand a slowdown in the property market, but there is an urgent need for coordinated action by the authorities, property developers and other stakeholders to reduce market imbalances,” he said.

Muhammad said the exposure of the banking system to these types of assets is very small, “at about 3.2%”, which is “hardly a dent in the bank’s balance sheet”. Therefore, the commercial property segment does not pose a significant threat to the banking system.

“The financing of property developments does not only come from the banking sector, as corporates can use their retained earnings and raise funds from the capital market. Funding can also come from foreign direct investment, as there are a number of foreign property developers that have come to Malaysia,” he said.

 

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