KRI Webinar - The Financialization and Commodification of our Homes

On 25 July 2024, KRI hosted a webinar discussing findings from the recently published report, ‘The Financialization of our Lives: Values and Trade-offs’. The webinar focused on Chapter 4 of the report, “The Financialization of our Homes: The Myths of Debt and Risks in the Housing Market”, which delves into the housing delivery system against the backdrop of housing loans and provides a compelling justification for reconfiguring the institutional arrangement and social construction of the housing delivery system.

The webinar addressed the rapid house price escalation amid stagnating wages and examined how financial schemes, while making expensive homes appear more affordable, have increased risks for buyers.

The webinar included a panel discussion consisting of the chapter’s author, Dr Suraya Ismail, alongside external stakeholders, Dato’ N. Jayaselan from the National Housing Department, KPKT, Daniel Chin from Bank Negara Malaysia and Datuk Ho Hon Sang from Real Estate & Housing Developers’ Association Malaysia (REHDA). The panellists reviewed the issue of rising housing unaffordability in Malaysia, the risks associated with the Sell-Then-Build (STB) system, and proposed policy recommendations for more sustainable housing practices.

Rising housing unaffordability

The housing market remains seriously unaffordable, consistently scoring above the 3.0 affordability threshold. Median household incomes grow at a significantly slower CAGR of 11.7%, less than half the rate of house price increases. Residential properties now dominate the household debt portfolio, accounting for 60.5% in 2023, reflecting the heavy reliance on financing to make expensive homes appear affordable. The extension of loan tenures to 35 years has correlated with rising house prices, further exacerbating the affordability crisis.

Making housing more affordable

The panellists reviewed several policy recommendations to make housing more affordable, including: 1) implementing the 3x median multiple measurement in cities and towns, 2) discontinuing housing mortgages with longer time periods (more than 35 years or intergenerational loans), and 3) introducing down-market penetration ratio to monitor incoming housing supply. It was noted that longer mortgage periods tend to increase house prices due to financing. While there were mixed views on reducing loan tenures, the regulators emphasised that a 35-year tenure is appropriate to prevent drastic price changes. The importance of educating homebuyers about financial risks and promoting financial awareness to protect them was also underscored.

More protection for house buyers through Build-Then-Sell system

The current housing delivery system, Sell-Then-Build (STB) poses significant risks to buyers, who bear the commercial risks of abandoned housing projects and potential non-compliance with the specifications agreed upon in the Sale and Purchase Agreement (SPA). Government bailouts of abandoned projects are costly, and the SPA often allows developers extended timeframes, reducing incentives to build faster and modernise. The panellists highlighted the need to shift to a Build-Then-Sell (BTS) system, which would protect buyers from these commercial risks. Given the rising number of abandoned housing projects and the thousands of affected buyers, adopting BTS or at least developing a legal framework to protect buyers is crucial. However, the panellists also acknowledged that the current housing development ecosystem is not yet prepared to fully implement BTS.  

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