BY KHALIL ADIS
Allowing developers to provide housing loans could push young Malaysians further into the debt cycle.
When Putrajaya recently announced that it will allow housing developers to act as money lenders to prospective homebuyers, I had very mixed feelings about the decision.
On 8 September, the Urban Wellbeing, Housing and Local Government Ministry announced that it will be introducing an initiative that enables property developers to give out loans to buyers at an interest rate of between 12% to 18%.
The Ministry had explained that the move is to help Malaysians who are unable to get a full housing loan or those who have been given partial loans.
While I applaud the government for wanting to help this segment of the citizens, Putrajaya’s decision to allow developers to give out housing loans to prospective homebuyers could push them further down the vicious cycle of debt.
There’s no smoke without fire
There must be a reason why these individuals have had their loans rejected.
From my observations and when talking to Gen Ys, the most frequent reason they cite for having their loans rejected is either they had not paid their credit card bills on time or they have been blacklisted for not servicing their education loan under the National Higher Education Fund Corporation (PTPTN).
Collectively, these two will have an adverse effect on their credit history (CCRIS) resulting in difficulty in obtaining a housing loan.
This seems to mirror a 2015 survey conducted among more than 1,000 young professionals aged between 20 and 33-years-old by the Asian Institute of Finance (AIF) .
According to the survey, majority of Gen Ys (38%) are living on high cost of borrowing, while 47% are engaged in expensive credit card borrowings.
In addition, when it comes to financial literacy, 58% of the respondents rated themselves as having average financial knowledge.
Meanwhile, only 28% felt confident in their financial literacy and ability to handle day-to-day financial matters.
Even though Putrajaya means well, its decision is not helpful to solve the root issue of the loan financing problem that we are seeing right now. This is due to the lack of financial literacy and the lack of affordable homes in the market.
My main concern for Gen Ys is, if they are defaulting on their PTPTN loan at an interest rate of 1% per year, what more a loan from a private developer of between 12% to 18%?
In addition, the proposed interest rate of 6% by the Urban Wellbeing, Housing and Local Government Ministry is way higher than about 4% from what is being offered by banks.
So, while the government is offering some leeway, we could potentially see more and more young Malaysians spiralling further into a vicious cycle of debt should they take this option.
Swallowing the bitter pill
There is this saying, “spare the rod, spoil the child”.
Likewise, by not addressing the root issue, no amount of superficial wound dressing can solve the ailments that we see right now in the property market.
Gen Ys will need to swallow the bitter pill so that they can become more robust and be able to have a better grasp on managing the increasing cost of living in Malaysia.
Firstly, they need to be inculcated with financial literacy and a sense of responsibility. This means to live within their means and to take ownership on any loans they had taken.
According to PTPTN, as of June 2016 there are 1.25 mil borrowers listed on CCRIS with some 600,000 PTPTN borrowers who have yet to make their repayments.
Don’t ignore your bills thinking your debts will eventually disappear. Every single debt must be paid back in full.
I would urge Gen Ys to approach PTPTN directly and work out an instalment plan if you still have not finished paying your education loan.
This is also a social responsibility on your part.
By doing so, you are helping to provide education for other needy Malaysian students who will need to further their studies. It could be your brothers or sisters.
Once this is cleared, you can then apply for a housing loan direct from the banks. The government body has stated they are “open for negotiation” so go talk to them.
Secondly, the pace and speed of supply for affordable homes need to be ramped up with follow ups.
What we are seeing right now is a demand-supply mismatch in the property market.
Unlike Singapore, which has a central government body in overseeing the country’s masterplan, there is no central government body to gauge demand for homes among Malaysians.
In addition, the property market here is primarily driven by private developers whose main goal is profit.
This has perhaps explained the problem that we see right now, which is insufficient supply of affordable homes versus high number of unsold medium to high end homes.
While the government has implemented various affordable housing schemes under the state and federal levels, many young Malaysians are still living with their parents.
In fact, speak to any young Malaysians and they will tell you some are still waiting for their PR1MA homes that they had applied almost two years ago.
In addition, they have yet to receive any form of acknowledgement or reply on the status of their applications.
The government must engage and assure them on the status of their application.
This, on top of the very popular My First Home Deposit Scheme, are the icing in the cake to solve the current housing woes.
So until we swallow these two bitter pills can there be any hope and future for Gen Ys?
About Khalil Adis
Khalil Adis was the former editor for Property Report. He is also the author of the best selling book “Property Buying for Gen Y”. Aside from being a regular columnist for Propwall, he also conducts workshops and property courses for first time homebuyers in Malaysia.