Philip Ho Klik4Malaysia 23 October 2010
Petaling Jaya, Oct 23 – Housing and Local Government Minister Datuk Chor Chee Heung has urged house buyers to sign up two-generation housing loans so that more Malaysians can afford to own houses.
“The most important thing is for the individual to own a house for his family to live in. If loan repayment is extended to the second generation, that means the family will remain intact,” said Chor yesterday after launching the Malaysia Building Society Bhd’s Ultimate Mortgage programme on Friday (Oct 22).
Chor said that the newly announced 2011 Budget also encouraged the two-generation loan term while denying that the move would increase the financial burden of the next generation.
“I don’t think it is a burden for the next generation because the repayment will be spread over a long period and the younger generation are financially strong. They can even buy a second house,” he added.
Klik4Malaysia (K4M) contacted Selangor state government’s chief executive of economic advisory Rafizi Ramli for comments from an accountant’s perspective, regarding the implications on the younger generation’s financial burden.
Rafizi expressed disappointment that the federal government was not addressing the country’s alarmingly high household-debt to Gross Domestic Product (GDP) ratio of 78% (RM 561.5 billion).
“The household-debt is primarily made up of car loans and housing loans and by stretching the loan period to two generations, you are forcing the next generation to bear a heavy financial burden as soon as they start work,” he said. Rafizi then explained that with the current housing loan period of 30 years, a house owner would be paying accumulated interests that would be almost similar to the principal sum.
“If the loan is stretched to two generations, they (family) will be paying two to three times the amount of a house bought 60 to 70 years ago. Why is the housing ministry endorsing this proposal of prolonged debt on top of already high household-debt? he asked.
Rafizi said it was the first time he had heard of a government endorsing a two-generation loan, adding that it has never happened in the USA, Europe or even in the South East Asian region.
He also expressed concern that the younger generation would be bearing a financial burden that would be several times heavier than their parents because principle value of the currency may not be the same in 10 years.
“For example the value of RM100 may not be the same in 10 years due to inflation and also currency depreciation.
“Because of inflation and depreciation of money, over a time period, the next generation will already face lower purchasing power and by dumping such a huge financial burden on them, you are practically forcing them to live in debt,” Rafizi said.
He urged the ministry and also the federal government to control property speculation so that houses can be more affordable rather than allow developers and real estate agents reap over-inflated profits at the expense of the people.
When asked if Malaysia could face another property bubble like USA, he said, “The risk of a property bubble is not that high. Currently, our banking industry’s re-mortgage facilities are still tightly regulated as compared to America.
“I am more worried about the risks of individual bankruptcy because there will come a time when the people can no longer afford to pay their mortgages because they are tied down with so much debt.”