KUALA LUMPUR (July 6): The central bank’s plan to formulate a “relaxed” housing loan scheme to ease up the loan process for the middle 40% (M40) and the bottom 40% (B40) segments of the population may not be a move in the right direction and could worsen the problem, said a senior fellow of the Institute for Democracy and Economic Affairs (Ideas) in response to Housing and Local Government Minister Zuraida Kamaruddin’s announcement early this week.
In a statement yesterday, Ideas senior fellow Dr Carmelo Ferlito said: “It is good that the ministry and Bank Negara Malaysia are working together to tackle housing problems due to a higher number of unsold properties. However, tackling this problem on 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 in the stage of contraction. While the market is contracting, encouraging households to borrow more will not solve the problem in the property market — 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. The 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 said.
Nobel-winning economist Vernon Smith had proven that whenever a property crisis comes in, a general economic crisis is highly likely to 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 crucial for the government to always be mindful when it comes to a policy decision that involves the property market. The government should increase financial literacy by encouraging Malaysians to rent and promote the virtue of saving as the real source of sound investment,” Ferlito concluded.
This article first appeared in The Edge Financial Daily, on July 6, 2018.