This article first appeared in The Edge Malaysia Weekly, on November 16 - November 22, 2015.

CALL it an instrument of wealth creation, a tool to create socially stable communities or a driver of the national economy. Whatever the moral and economic rhetoric on the virtues of homeownership may be, Malaysians want their own homes and the government seems keen on helping out.

But, are the billions the government has spent on expanding homeownership among low and middle-income earners working?

A housing boom and soaring property prices that started in 2009 have priced many out of the housing market. The middle-income group, or M40 as Prime Minister Datuk Seri Najib Razak calls them — whose monthly income is between RM3,860 and RM8,320 — has been squeezed for being unable to afford to buy properties in the open market and being unqualified for many of the government housing schemes for the poor.

In fact, a recent study by the Khazanah Research Institute found home prices to be “seriously unaffordable” at over four times the median income of the country’s population — especially so in Kuala Lumpur, where the median house price was RM490,000.

In its attempt to put homes back within reach of the average buyer, the government has announced new affordable housing programmes and policies, and endorsed schemes to ease the path to homeownership.

The “My First Home” programme, unveiled in 2011, allows a state entity to guarantee 10% of a borrower’s facility secured for 100% of the value of an affordable home. The RM300 million My Home Scheme in 2014 was used to get private developers to build 10,000 affordable homes. For every unit sold, the developer would be entitled to an incentive of RM30,000 to cover the 10% downpayment required of buyers during the purchase.

The Youth Housing Scheme under Budget 2015 allows up to 20,000 young married individuals to obtain financing and receive monthly financial aid to repay loans. Under Budget 2016, RM200 million is set aside to help first-time buyers of affordable houses make downpayments under the First House Deposit Financing Scheme.

MIDF Research economist Izzuddin Yusuf argues that there are limitations to such government-backed financing schemes that target first-time homebuyers. They have been unpopular with banks, which favour their own credit assessments of borrowers over the government’s eligibility criteria.

“Many banks are reluctant to provide loans under such schemes. Even if the buyers are successful in securing an offer from the banks, the interest rates will be significantly higher. Buyers will either be unable to afford the amount or simply have second thoughts about the scheme.

“The number of houses the government can subsidise is limited and, therefore, the effectiveness of intervention from the demand side and stabilising of prices is negligible,” he says.

The government, Izzuddin says, is better off focusing on the supply side of the equation by incentivising private developers that build affordable housing.

So far, the most notable of the government’s efforts on the supply side is the nationwide homebuilding initiative through Perbadanan PR1MA Malaysia (PR1MA) — an agency under the Prime Minister’s Department that was given the task of building 500,000 affordable homes in prime locations over five years for middle-income earners. It is a tall order but the scheme is well supported. Allocations for PR1MA projects have increased every year since its inception.

Under Budget 2013, PR1MA was allocated RM500 million to build 80,000 homes. This sum doubled in 2014 for the construction of another 80,000 homes. The agency was given RM1.3 billion under Budget 2015 to build the same number of homes. Next year, it will receive RM1.6 billion to provide 175,000 new housing units.

Rajiv Biswas, chief economist at IHS, says there is space for state-backed housing schemes like PR1MA, but it has to serve a “very targeted” group.

“You should not have government-built properties competing in the open market and similarly, you cannot have applicants for these housing units struggling for ownership. Housing programmes have to be targeted at the right beneficiaries,” he says.

In that sense, PR1MA has glaring gaps in its modus operandi.

Unlike other government-backed housing schemes, access to PR1MA homes is open to those who are already homeowners.

PR1MA CEO Datuk Abdul Mutalib Alias told a press conference recently that those who already own a first property “should not be denied” access to the government-backed scheme. Many middle-income earners held urban jobs and could only afford suburban properties, he said.

Yet, as National House Buyers Association secretary-general Chang Kim Loong puts it, the practice is at odds with the government’s aim of expanding homeownership to those who cannot afford them.

“There are not enough PR1MA units to go around. Every time a project is open for balloting, PR1MA claims there is overwhelming demand and response. So, it should be offering the units to those who are deserving. If you have an excuse now to open the programme up to those who already own a property, there will be new excuses to widen the eligibility requirements next time,” he tells The Edge.

Also noteworthy is the fact that PR1MA poses no additional requirements in terms of the nature, location or value of the first property an applicant owns.

Hypothetically, an individual with a monthly salary of below RM10,000 (which is above Najib’s M40 range) who owns a property in Singapore but lives in Kuala Lumpur with his family would still be entitled to a shot at being enriched by PR1MA’s state-subsidised units.

“We still prioritise first-time homeowners. So, maybe only three in 10 who are successful during the balloting process would be those who already own a property,” Mutalib assured by giving a ballpark figure.

Yet because that 30% figure is more of an estimate than a cap, the figures could theoretically go the other way should a lot more applications come from second or multiple homeowners with better credit rating and earning power.

Another point of contention among observers is that PR1MA has deviated from its original strategy to use federal and state land as the main sources of its landbank to keep costs down. Privately owned land, they argue, should be PR1MA’s last resort in acquiring the 12,500 acres it needs. But, it is understood that just over 20% of its existing landbank is sourced from federal and state governments — something that perhaps PR1MA itself never intended to see.

“We started thinking that we will have access to federal and state land. It hasn’t been the case and we decided not to wait because we have the mandate to build,” said Mutalib.

Besides that, PR1MA partners private developers for the construction and development of its projects. Mutalib claimed that PR1MA’s ability to buy properties in bulk from developers, coupled with strict cost requirements it imposes on builders, ensure that it is the most cost-effective way of developing its landbank.

Chang, who remains sceptical, says, “Private property developers are not there for charity. With them on board, the cost of construction will go up and homes will become less affordable.”

Checks with industry sources reveal that construction awards offer “competitive rates and margins” to builders.

For all its flaws, PR1MA’s success in expanding homeownership is perhaps best judged by the numbers. According to a reply to a question in Parliament last month, Minister in the Prime Minister’s Department Datuk Seri Shahidan Kassim said some 200,000 units had been approved, with 64,794 units being constructed so far. To date, only 560 units in Putrajaya have been delivered to homeowners although Najib promised that another 10,000 units should reach the public by next year.

Can an extra half a million Malaysians be expected to own PR1MA homes by 2018?

A private developer who recently won a multibillion-ringgit contract from PR1MA to build about 1,000 units says, “Things are moving but they are way behind schedule ... need to complete all the units before the next general election. PR1MA is getting into a desperate situation.”

If PR1MA under-delivers or deviates from its intended goal, more Malaysians will likely have to contend with not being homeowners just yet.

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