Longer loan tenures could unintentionally inflate property values, says critics

KUALA LUMPUR: The rising cost of home ownership in Malaysia has reignited debates over how financing structures such as extended loan tenures and intergenerational loans contribute to skyrocketing house prices.

While these measures aim to make homes more accessible, critics argue they unintentionally inflate property values, further exacerbating the housing affordability crisis.

Dr. Yeah Kim Leng, an economics professor at Sunway University, said financing access and availability play a role in shaping Malaysia's housing market, but they are not the primary drivers.

"Financing access and availability play a supporting rather than a driver's role in Malaysia's housing price dynamics," he explained.

He credited Bank Negara Malaysia's prudential lending policies for curbing house price growth in recent years as between 2012 and 2014, median house prices surged by 23 per cent annually, far outpacing income growth.

Despite this cooling trend, financing structures have increasingly been criticised for their role in making properties seem more affordable, particularly through extended loan tenures.

Khazanah Research Institute researcher Theebalakshmi Kunasekaran highlighted the link between financing options and rising house prices in her analysis, "Affordable Housing or Affordable Debt?"

She argued that "house price increases in real terms can be partly attributed to longer mortgage tenure periods rather than current house valuations."

For example, extending a 35-year loan for a RM500,000 home to 40 years increases the total financing cost by 17.4 per cent (an additional RM97,428), while reducing monthly payments by only 4.4 per cent (RM112).

Such measures make expensive homes appear affordable in the short term but saddle buyers with significantly higher overall costs.

While financing structures play a role, other factors continue to drive the affordability crisis as rising land, construction, and building material costs have pushed developers toward high-end properties, leaving low and middle-income groups with limited options.

"This suggests the need for more incentives and new models, including public-public partnerships, to provide affordable homes to these groups, especially first-time buyers," Yeah said.

Meanwhile, the mismatch between income growth and housing costs remains a significant issue as between 2012 and 2014, house prices increased at more than double the rate of median household incomes, a disparity that continues to burden homebuyers today. 

While some view extended loan tenures and intergenerational loans as tools to ease financial strain, they risk perpetuating a cycle of rising house prices.

Yeah remains optimistic, provided financial institutions manage risks effectively.

"As long as lending institutions comply with prudential regulations and adopt sound risk management practices, the residential property market should remain healthy," he said.

Overall, experts agree that tackling the affordability crisis requires a multifaceted approach with public-private partnerships, government incentives for affordable housing projects, and stricter controls on speculative developments are among the strategies proposed to address the issue. 

As policymakers and stakeholders debate the role of financing in house price dynamics, the broader challenge remains clear: creating a balanced housing ecosystem that ensures affordability for all income groups while maintaining a healthy and resilient property market.

Soure : NST By Syakirah Nor