4.4 times the median income, so it’s seriously unaffordable. Tomorrow?

Personally, I disagree with any loosening of lending standards. I think it is still possible to get a home loan approved today. I also think it is possible to get a home today but landed homes below RM300,000 in PJ is definitely impossible. Not even when the price is doubled to RM600,000. So, are borrowers still able to borrow from the banks? Are banks in the lending mood? According to Bank Negara Malaysia’s (BNM) data, the loan approvals for key cities are near 70 percent or higher. Here’s one recent article in NST on “Here’s why Malaysians can’t afford a house” In fact, BNM says that the property industry should boost efforts to cut costs and accelerate supply. Boosting the number of people getting home loans without actually qualifying for it will come back to haunt us, so please do not even think about it. Yes, I am also talking about those who believe their salaries would be higher next year and thus they could stretch themselves to the limit for a ‘better’ home today. This may not work all the time. When it fails to work, bankruptcy follows.
According to Khazanah Research in a 2015 report, the median house price in Malaysia was 4.4 times the median annual household income. In other words, the housing market is “seriously unaffordable” compared to global standards. Before everyone thinks that Malaysia is the only country in the whole world in such a unique situation, well, here’s the top10, from the most expensive to the least expensive.  Hong Kong (18.1 times), Sydney (12.2 times), Vancouver (11.8 times), San Jose (9.6 times), Honolulu (9.4 times), Los Angeles, San Francisco, Bournemouth and Dorset (8.9 times). Here’s that article in CNN. Singapore’s at 5 times. (Yes, this is the truth even if they earn much more when converted to Ringgit). London is at 14 times. Based on ‘severely unaffordable’ score of 4.4 times, Kuala Lumpur has failed to make it into all these top 10 lists. Phew. Anyway, as per the NST article, Kuala Lumpur is ranked eighth best in housing affordability out of 18 metropolitan regions around the globe. This is based on the Demographia study.
The NST article also quoted Paul Selvaraj, the secretary general of the Federation of Malaysian Consumers Associations as saying, “The focus should be on building houses which people can afford, not building expensive houses and then trying to push them, and then complaining that the banks are not giving loans. The reason people are having problems getting loans is because the houses are not affordable. It’s beyond their repayment” ability.” BNM also shared that this problem of insufficient housing is getting larger over time. There is currently a shortage of 960,000 units of affordable housing in Malaysia and this will increase to 1 million units by 2020. Do read the full article here. 
Please note that if Kuala Lumpur becomes more expensive in the near future, it means that we should buy at 4.4 times today instead of 8.8 times in future, whenever that may be. My mother told me that she and my father their first property in Teluk Intan; a huge semi-detached home for just RM50,000 the life was tough. we had fish to eat only twice per month. Every cent counted then.  I think even then, it was ‘severely unaffordable.’ Reason? There’s just not much choices and not many types or even 90 percent loans like today. It is not usual for salaries to rise faster than property prices, except for the top 10 percent performers in all companies. This tells us that developers would also have to change their strategy. Selling ever more expensive may not work once ‘severely unaffordable’ becomes ‘totally unaffordable.’ This is why sizes matter. This is why the acceptance of areas further away is increasing today. Happy reading.
written on 11 Oct 2017
Next suggested article: Greater London, severely unaffordable. Start thinking Greater KL