KUALA LUMPUR (July 5): The central bank’s plan to formulate a ‘relaxed’ housing loan scheme for the benefit of the M40 and B40 segments of the population may not be a move in the right direction and could worsen the problem, says an IDEAS senior fellow. 

This was in response to the Housing and Local Government Minister Zuraida Kamaruddin’s announcement early this week that Bank Negara Malaysia (BNM) is formulating a ‘relaxed’ housing loan scheme which would ease up the loan process for the M40 and B40 households.

In a statement today, IDEAS senior fellow Dr Carmelo Ferlito said: “It is good that the ministry and BNM are working together to tackle housing problems, due to a higher number of unsold properties in the property market. However, this specific measure of ‘relaxed’ housing loan may not be a move in the right direction.”

“Tackling this problem from the demand side by promoting credit policy is not viable and may worsen the problem. Every sector in the economy will experience business cycles and the property market in Malaysia right now is at the stage of contraction. While the market is contracting, encouraging households to borrow more will not solve the problem in the property market; rather it will prolong the property bubble.

“The property sector in Malaysia is bloating, and the evidence is clear that there is a mismatch between demand and supply in the market. Implementing a favourable credit policy, risks delaying a property crisis and making it worse when it does arrive. Lack of affordable housing is a serious problem, and the government should consider how to ensure the private sector is best placed to start building cheaper homes,” he explains.

Nobel-winning economist Vernon Smith had proved whenever a property crisis comes in, a general economic crisis will highly likely occur. In such a scenario, a higher degree of financial exposure will put an already fragile household debt situation at risk, Ferlito added. 

“It is therefore crucial for the government always to be mindful when it comes to a policy decision that involves the property market. Instead of endorsing credit policy, the government should increase Malaysian financial literacy by encouraging Malaysians to rent and to promote the virtue of saving, as the real source for sound investment,” Ferlito concluded.

IDEAS or Institute for Democracy and Economic Affairs, is an independent think-tank dedicated to promoting market-based solutions to public policy challenges.