• Sat. Feb 24th, 2024

    The Challenges of Affordability in Malaysia’s Housing Market

    ByJames Forsyth

    Jan 31, 2024
    The Challenges of Affordability in Malaysia’s Housing Market

    Residential properties continue to dominate the real estate market in Malaysia, but economists highlight a significant issue: most houses are priced above what potential buyers can afford. The average house price in the country stands at RM458,751, with a monthly mortgage repayment averaging RM1,971. While there has been a decrease in the number of unsold properties, indicating a relatively stable market, the median multiple approach reveals that the majority of homes in Malaysia remain unaffordable.

    The median household income for Malaysia stands at RM6,338 per month, which means the average homebuyer can only afford a house costing around RM228,168. This starkly contrasts with the average house prices in major cities like Kuala Lumpur, where homes are priced at a staggering RM770,543. Similarly, in Selangor, the average house price is RM520,456, significantly higher than the affordable housing threshold of RM359,388. Even in Sarawak, where the average house price is RM504,542, an affordable home should be priced at only RM179,208.

    This affordability crisis is further exacerbated by the challenges faced by potential buyers. Urban areas such as the Klang Valley, Penang, and Johor Bahru witness formidable obstacles due to higher property prices and the stigma associated with low-cost properties. The demand for housing in cities has been intensified by rural-to-urban migration, adding pressure to an already strained market. Furthermore, policy changes such as subsidy rationalization and tax increases weaken the buying power of prospective homeowners.

    Banks also play a significant role in determining affordability through the assessment of credit scores, debt-to-income ratios (DTI), employment stability, and housing expenses. The maximum DTI mandated by Bank Negara Malaysia is 60%, meaning that potential buyers are limited to spending 40% of their income on mortgage installments. These stringent criteria make it difficult for deserving individuals and families to qualify for affordable housing. Consequently, more people are turning to the rental market, as owning a home becomes an unattainable dream.

    In order to address these challenges, an inclusive and sustainable housing market must be fostered. This requires a focus on increasing the supply of affordable homes, particularly in urban areas, and improving the perception and quality of low-cost properties. Policy changes should also be considered to enhance affordability, ensuring that the buying power of potential homeowners is safeguarded. By addressing these issues, Malaysia can work towards a more equitable housing market that meets the needs of its people.

    FAQ Section:

    Q: What is the average house price in Malaysia?
    A: The average house price in Malaysia is RM458,751.

    Q: How much is the average monthly mortgage repayment?
    A: The average monthly mortgage repayment is RM1,971.

    Q: What is the median household income in Malaysia?
    A: The median household income in Malaysia is RM6,338 per month.

    Q: How much can the average homebuyer afford?
    A: The average homebuyer can only afford a house costing around RM228,168.

    Q: What are the average house prices in major cities like Kuala Lumpur?
    A: In Kuala Lumpur, the average house prices are RM770,543.

    Q: What are the challenges faced by potential buyers?
    A: Potential buyers face challenges such as higher property prices, stigma associated with low-cost properties, and policy changes that weaken their buying power.

    Q: How do banks determine affordability?
    A: Banks assess credit scores, debt-to-income ratios (DTI), employment stability, and housing expenses to determine affordability. The maximum DTI mandated by Bank Negara Malaysia is 60%.

    Q: Why are more people turning to the rental market?
    A: More people are turning to the rental market because owning a home has become an unattainable dream due to the challenges in obtaining affordable housing.

    Q: What should be done to address these challenges?
    A: To address these challenges, there should be a focus on increasing the supply of affordable homes in urban areas, improving the perception and quality of low-cost properties, and considering policy changes to enhance affordability.

    Definitions:

    – RM: Ringgit Malaysia, the currency of Malaysia.
    – Urban areas: Highly populated areas characterized by infrastructure, commercial activity, and higher property prices.
    – Low-cost properties: Properties that are priced lower than the average market rate and are often associated with reduced quality or stigma.
    – Debt-to-income ratio (DTI): A measurement used by banks to assess an individual’s or household’s ability to manage debt payments based on their income.

    Related Links:

    PropertyGuru – A comprehensive platform for property listings in Malaysia.
    Bank Negara Malaysia – The central bank of Malaysia, responsible for monetary stability and financial supervision.