Lim Lay Ying On Property

Issue of affordability to remain crux of housing

PRIOR to the Asian financial crisis in 1997, concerns about escalating house prices especially in the urban areas of Klang Valley, Penang, and Johor Bahru were hard to pacify.

While house buyers were screaming their hearts out about homes being priced out of reach of future generations, developers responded with reasons to justify price levels. The government had to step in by curbing lending by financial institutions for high-end home purchase when it sensed that such asset inflation trends were getting out of hand.

The new legislation helped but the crisis which set in late 1997 was even more effective. Demand for high-priced residential properties fizzled out almost instantly, driving prices below pre-crisis levels.

With the severe contraction in the country's economy in 1998, most had expected house prices in established areas to dip just as drastically. Many were also hoping for a second chance to buy into the property which was once beyond their reach. But the economy bounced back just as quickly as it had retreated. And so did house prices, in some locations at least.

Near perfect conditions

Conditions now could not be more conducive for residential properties: a low interest rate environment, revival in consumer and business confidence, steady economic recovery, more job opportunities, higher wage expectations, and most importantly, assured demand.

And prospects for the immediate future are bright.

The latest economic data proves beyond reasonable doubt that a solid, sustainable recovery is well under way in the country.

Malaysia's trade surplus for the first quarter of this year was higher at RM16.2bil compared with RM15.6bil achieved during the first quarter of last year. The trade balance has now been in surplus for 29 consecutive months, according to the Department of Statistics. Boosted by the global electronic boom, export growth is expected to average 10.2% this year.

Though playing second fiddle to the manufacturing sector, the construction sector which is expected to grow 4% to 6% this year after contracting 4.4% in 1999 will be a key contributor to Malaysia's strong recovery.

Revival in interest

Interest in the property industry is slowly but surely returning with medium-cost housing having assumed the lead in the last couple of years. The magic price tag of RM150,000 was on the lips of almost every housing developer who hastened to capture this perceived demand wherever possible.

This segment of the housing market is likely to dominate for the rest of this year with speckles of higher-end housing coming into the scene in more established locations.

With rampant liquidity in the financial system and a benign interest rate outlook, concerns regarding a possible oversupply of medium cost housing alongside escalating house prices in preferred areas will quite certainly heighten.

Indeed an ironic situation where there will be a plentiful supply of affordable housing in absolute numbers amid a public outcry of prices of houses in certain areas moving beyond the reach of interested buyers.

At both end of the scales, the affordability issue remains the crux, which is always so whether in good or bad times.

But then, are we looking at affordability in terms of the ability to afford mere roofs over our heads or the ability to afford homes at preferred locations?

This introduces an element of subjectivity into the issue--a young executive may not be able to afford buying a house where he/she prefers to live eg. Damansara, but may be able to afford an apartment in Puchong.

The continuous rise in incomes will undoubtedly result in greater levels of affordability (see chart). But rather than simplistically deducing that housing needs equate housing demand, a more critical and comprehensive analysis of the issue has to account for the entire spectrum of price segments in accordance with the various types of housing available in the market and at different locations.