Housing is a fundamental need for individual as a shelter, it also a largest single lifetime investment for most individuals. The affordability is the ability of a person in acquires something, typically referring to individual financial ability. Housing affordability are major concern in this research, the different approach in measuring affordability are study to achieve the objective in calculate the affordable housing price in several method.
Secondly, the various factors that influence the affordability of house buyer are review to giving more clear view in housing affordability problem in Malaysia. The studies of influence will in three parties, housing market, bank and government side. Thirdly, the bank role are important contribute in this research; the various bank service and the housing loan procedure are evaluate to determine the applicable in order to enhance the housing affordability.
Problem Statement
For the past fifteen years, real estate market in Malaysia has experienced high fluctuation on housing price especially in residential property. Due to rise of housing price, the first-time buyers are suffering low affordability to get a house. To overcome the low affordability, the Bank and other financial institution are offer less interest on based lending rate (BLR) to attract more purchasers. Based on the statement above, the primary aim of this research is to determinate the housing affordability to various income group.
Aims
To investigate the housing affordability to the public in Malaysia
Objective
To determine the various factor that influence the affordability of the house buyer
To examine the bank requirement to housing loan and their terms and conditions.
To determine the affordable house price to various income group.
Scope of Study
The research studies are mainly focus in housing affordability on the house buyer by factors that influence the affordability to the various income groups in Malaysia. Besides that, research also examines the bank requirement to housing loan to determine the affordable house price to various income groups. In conducted in interview and questionnaires in this research, the target respondents are those fresh graduates from the university and working youngster in public with 30 survey questionnaires will be distributed. There are 2 interviewees involved for this study to obtain the bank information concern to housing loan.
Research Methodology
Kumar (2005) contends that in order to planning a research study, there are eight major stepsin a research process. The process are in three stage which is what, how and conducting of the study. In more detail, what you are proposing to do, how research plan to proceed; and processing the studies to outcome the conclusion. The process can be illustrate by figure 1.7.1 as below
Formulating the research problem
Conceptualising a research design
Constructing an instrument for data collection
Collecting data
Writing a research proposal
Selecting a sample
Processing data
Writing a research report
Figure 1.7.1 the Research Process
This research is conducted to study people affordability on acquiring a house based on affordability including the house price, income and loan interest rate. Figure 1.7.2 below shows the working framework of the study.
Analysis of Data
A Study of Housing Affordability to the Public in Malaysia
Obtain Data from JPPH
Review from the Internet, Books, and Journal Articles
Literature review
Secondary Data
Obtain Data from BNM
Questionnaire
Formal and Informal Interview
Primary Data
Figure 1.7.2 Research Working Framework
Based on the research framework in figure 1.7.2, the methodology is obtained in two major data, which is primary and secondary data. The primary data was conducted by questionnaire and interview. In other hand the secondary data are obtained through Internet searching on journal articles and information. The third tier of the framework will be the analysis of the data and also the literature review on the data studies.
Primary data
Primary data collected by using questionnaire and through interviews to evaluate people perspective in housing issue and their affordability. The respondent are comprised individual of various income level, for example lower, middle and high income from the public. Minimum of 30 set of questionnaires will be distributed to the selected community which is Klang valley. With the purpose of get information regarding factor affecting the housing affordability, the design questionnaires are simple and straight forward to easy to understand. The design questionnaires are based on the objective in this research, in estimate not more than ten questions.
Interview will also be conducted to obtain more understanding towards research objectives. Interview is a method of gain more information through ask-answer method, the approach of interview can make more in deep to the studies by obtaining more information from professional or public by their opinion and feedback. Potential respondents for this interview will be the banker in order to acquire more information regarding to the bank policy in housing loan. In conducting the interview, face to face interview will be carrying out to obtain more information.
Secondary data
Secondary data are obtained by internet resources, books and journal articles. Most of the resources can be found by internet. the publications of annual report by central bank of Malaysia (BNM), housing price index tabulate by valuation and property services department (JPPH) and also the Williams Talhar and Wong's property market report are review in order to writing literature review. The research was referring various working paper especially in "The Relationship between Demographic Factors and Housing Affordability" and "Housing Affordability: A Study on Household Expenditures Ratio to the Income for the Lower and Medium Income Groups" by Dr. Ahmad Ariffian Bujang (2006). A comprehensive guide of financial and banking service in Malaysia are review as a main references book in this research with understanding in bank services before obtain data from bank.
Analysis Data Collection
In order to analysis the data there are several methods are use in order to obtain the results and finding. Firstly, the calculation was conducted in measuring the housing affordability in determinate the affordable house price. Secondly the primary data obtain through questionnaire and interview was tabulate and presented on either bar chart or histogram in achieve the objective in figure out the various factor that influences the housing affordability.
Chapter Organisation
The structure of dissertation may design by the following order:
Title page
Summary of figure
Summary of Table
Acknowledgements
Abstract
Table of contents
Chapter 1- Introduction
Chapter 2- Literature review
Chapter 3- Questionnaire design and method of analysis
Chapter 4- Analysis data collection
Chapter 5- Summary and conclusions
References
Appendices
Chapter 2: Literature Review
Introduction
In this chapter, the studies are determine the affordable housing price to household in Malaysia, the different method of measuring affordability are study in order to complete this research. There are housing price to income ratio and housing affordability to housing price.
Secondly, the various factors that influence the affordability of house buyer are review in different way, housing price of the various type of housing and the rising index, the average lending rate by commercial loan which is influence by Central Bank of Malaysia (BNM), various housing scheme announce by government to increase individual affordability to getting a house.
Thirdly, reviews in bank roles on the housing loan are conducted with comprehend the loan services offer by various commercial banks in Malaysia. The examined will carry out in the bank requirement and the procedure in applying a housing loan. The mortgages calculation are work out to discover the maximum loan amount that loan-able.
Definition
According to Wahad (1991), Housing not only provides shelter for a household but is seen as a centre of its total residential environment. As a leading economic activity, Housing act as significant of achievement, public reception and as an important element of urban growth. However to most of the individual, housing represents a large single investment of a lifetime, also with others view housing as a shelter and fulfil their fundamental need only.
Definition of Affordability
Affordability comes from two words which is afford and ability, by the combination of two words, its means the capable of a person in make something to available, typically ability measure by financial. Bujang (2010) describe that affordability is the ability of a person in providing something, which is usually referred to his ability in financial terms.
Concepts of Affordability
Based on Quan Gan and Robert J. Hill (2008), housing affordability can be assessment in three different ways: purchase affordability, repayment affordability, and income affordability.
Purchase affordability is related in considering a household capable to finance with bank in order to purchase a house. Repayment affordability is the next concerned with the burden or stress level on the house to pay the mortgage, depends on income and their expenditure. Thirdly, the Income affordability is referred to the ratio of house prices to the income of the purchaser. The greater the ratio, the less affordability of the purchaser to afford a house, this is because of housing price are getting too high. Down payment ratio, the per period mortgage-payment-to-income ratio, the length of the mortgage, and the mortgage interest rate are the important parameter are fixed for repayment affordability, by compare the various parameter, it can be adjust to increase purchase affordability.
Housing Affordability
Australian Housing and Urban Research Institute (AHURI) has define Housing affordability are relates to a person's ability to pay for their housing. It's impacted by the local housing price and individual income as well as economic trends, environmental and social forces. When people struggle to meet the price of housing, researchers describe it as housing affordability stress.
Based on Anirban et. al. (2006), Housing affordability is when a people are approaching to buy a house with a portion of the income to afford their house apart of normal expenditure every month.
Therefore, the housing affordability can be enhanced through bank or other financial institution by providing mortgage, housing loan or other scheme which offered; government are play role in other measures which controlling the housing price by increasing the property lock period to hold steady on the housing price, decrease the based lending rate (BLR) to let individual more affordable with less cost-burden to the housing loan.
From the department of Housing and Urban Development in United State (HUD, 2002) noted that, families or individual who pay more than 30 percent of their income for housing are consider cost-burdened and may have difficultly to basic necessities such as food, clothing, transportation and medical care.
Measuring Affordability
According to Christine et. al. (2009), there is two main approaches to measure affordability: a general indication of whether house prices are affordable in relation to incomes; and a more specific measure of whether particular housing is affordable to certain groups. For example, first time buyers and key workers. In addition, there are a couple of more detailed ways of measuring affordability such as ascertain the income required to purchase a home, focus at a household's 'residual income' or the remaining income after expenditure whether an individual or household has access to finance in order to purchase a house.
Based on Bujang (2008) research outcome in measuring housing affordability, household affordability are affected by financing aspects, the financial aspect the loan repayment are depend on the rate of interest, financing period and the amount of loan also with household income.
House Price to Income Ratio
Based on Christine et. al. (2009), this approach gives a general indication whether house prices are affordable in relation to incomes. This is a simple indicator can be used at national, state either two area in making comparison to determine the housing affordability to public. The formula can be deriving as below:
Ratio = Housing Price
Income
To find out the affordability, the higher the ratio of house price versus income, the lower affordability to the housing in that particular area.
Housing Affordability to Housing Price
To determine the relationship between housing affordability and housing price, the rate if interest, financing period amount of loan and also the individual income are taking consideration. Bujang (2006) has used a formula to determine the housing affordability based on 30 percent of the annual household gross income as below:
HAP = 30% (y) x 1- (1 + i) -n
i
Where: HA = Housing affordability price
y = Gross household income
i = Interest rate for end financing
n = Numbers years for end financing period
Factor influence the affordability of the house buyer
Based on the objective one in this research, the possible factor are influencing the house buyer affordability can be explain in three main element, there are housing price in Malaysia, average bank lending rate was offer to public and government in implementing new scheme or guideline to house buyer more affordable to own a house.
Housing Price in Malaysia
During the last decade, Malaysia's house price continued rose, according to the Valuation and Property Services Department (JPPH). The average house price was RM219, 219 at year end, according to the JPPH. Property consultants C.H. Williams Talhar & Wong are publish a 2012 Property Market Report stated that:
Kuala Lumpur's house price index raised 6% y-o-y to Q1 2012. House prices also increased in Selangor (8.9%), Pulau Pinang (5.2%), and Perak (4.2%). Johor and Negeri Sembilan had the lowest y-o-y price growth, at .2% and 1.6%, respectively.
By property type, nationally:
Terraced houses rose 6.6% y-o-y to Q1 2012
Detached houses rose by 2.3%
Semi-detached houses rose by 7.8%
High rises rose by 4.6%.
In the property market report 2012 (Talhar, 2012), the average housing price in major cities of Malaysia was tabulate as figure 2.3.1 below, the indicative of the average housing price presented the average house price in urban cities such as Kuala Lumpur, Penang and Kuching has more expensive house price due to high population urban area.
Location
Terraced Houses
Semi-Detached Houses
Condominiums (RM psf)
Kuala Lumpur
RM500,000
RM1,400,000
RM1,100
Seremban
RM180,000
RM340,000
NA
Penang
RM700,000
RM1,200,000
RM450
Butterworth
RM300,000
RM450,000
RM230
Alor Star
RM300,000
RM400,000
NA
Ipoh
RM250,000
RM400,000
RM300
Johor Bahru
RM380,000
RM600,000
RM330
Batu Pahat
RM240,000
RM385,000
NA
Melaka
RM250,000
RM400,000
RM250
Kuantan
RM270,000
RM460,000
RM220
K Terengganu
RM300,000
RM350,000
RM250
Kota Bahru
RM280,000
RM350,000
RM250
Kota Kinabalu
RM425,000
RM750,000
RM400
Kuching
RM400,000
RM700,000
RM380
Figure 2.3.1 Indicative Average Prices of Residential Properties, 2011
Average bank lending rate
Every loan is imposed an amount of interest to equity the depreciation of money in future and also as a profit to the lender who bear the risk to offer the loan. In generally, the bank interest rates are influence by the base lending rate. The base lending rates are recommended lending rate revised time to time by Central Bank of Malaysia (BNM) based on state economic.
C:\Users\Acer\Desktop\average blr commercial bank.jpg
Chart 2.3.2 Base Lending rate and average lending rate of commercial banks
In the Monetary Policy report 2011, the Central Bank of Malaysia (BNM) are tabulated a graph as above shown the pas two decade of lending rate. As the chart above, the average interest rate was hike at the peak in the year 1998 which economic recession, to enhance the economic the monetary policy 1999 was taken action in lowering the lending rate, to improve economic growth with increasing of public purchasing power.
Housing Scheme
For the past fifteen years, the Malaysia plan was concern in housing affordability to the public, every year the Minister of Financial will announce various new housing scheme through the new budget. The housing schemes are normally benefit to the public especially to the young adults to more affordable getting their first house.
Housing Loan Scheme
Ministry of Housing and local authority also putting great effort in housing affordability in providing housing loan scheme to the low income group are not affordable to own their first home. The loan are provided up to 40 years tenure with two generation loan package are offer the child to payback the remaining repayment once father are up to 60 years old and the child as the second name of the loan applicant which 21 years old but not exceeding 35 years old.
My First Home Scheme
Skim Rumah Pertamaku (SRP) or My First Home Scheme was first announced by government in the 2011 Budget to assist young adults who have lower income which earning RM3, 000 per month or less to own their first house. The scheme are giving hundred percent of financing to the residential property up to 35 years without any down payment and up to 70 years old of financing tenure.
In the 2012 Budget, it was announced that the maximum property value be increased from RM220, 000 to RM400, 000, effective from 1 January 2012. (My Bajet, 2012)
1Malaysia Housing Programme (PRIMA)
In 2012 Budget, government was introduced new programme by conjunction with various developers in Malaysia to built affordable houses in 20 various strategic urban areas in Klang valley and Serembam. This programme is part of the government's plan to increase the quality of life of Malaysians and is in line with the 1Malaysia concept. The government are aware of the problems faced by middle-income earners who can't afford expensive homes, but at the same time are not eligible for low-cost housing programmes.
Under this programme cost of house are between RM150, 000 and RM300, 000, any individual with maximum RM6000 month income are eligibility to apply. The loans were up to hundred and five percent and house buyers could apply from participating financial institutions. The additional five percent would be for the insurance and legal fees. To avoid speculation, the buyer could not sell his unit within ten years.
Guideline of housing loan
Central Bank of Malaysia (BNM) was introduced guideline of responsibility loan in November 2011 and effectively in 1st January 2012. The guideline was implemented to all commercial bank; one of the matters stated that the entire loan approval are advised to based in net income of the applicant which is gross income after deduction of contribution Employee Provident Fund (EPF), Social Security Organisation (SOCSO) and income tax.
Employee Provident Fund (EPF) withdrawal
A house buyer can withdraw his EPF Account No: 2 to make the initial down payment for his house. In generally EPF savings are divided into 3 special accounts:
Account 1 - Savings for Retirement (60%)
Account 2 - Savings for Housing (30%)
Account 3 - Savings for Medical (10%)
Savings in Account 2 can be withdrawn for purchasing houses with first withdrawal up to 30% of EPF amount. Subsequent withdrawals to reduce the housing loans are allowed at 5 year intervals until the age of 55 when member can withdraw 100% of EPF amount standing in members' account.
Roles of Bank
Ruin (2010) defines financial institutions like commercial banks provide various services but actually there are two traditional purposes. The first function is offer to received deposits from public and also allow depositor to withdraw their money. Another traditional purpose are to give out loans to people are willing to pay the fees or interest to bank.
In another sides, Central Bank of Malaysia as known as Bank Negara Malaysia (BNM) are collaboration with government to monetary stability not only the value of Malaysian currency, also the national economic.
In this research, we will review the Loan Services provided by the commercial bank, also the Based Lending Rate (BLR) was place firmly by Central Bank of Malaysia.
Loan Services
Generally Malaysia has hundred over financial institution and bank, in order to conduct this research, there are three major of commercial bank was selected to review on their provided loan service:
Malayan Banking Berhad;
CIMB Bank Berhad;
Public Bank Berhad.
In generally, the housing loan services was provided by bank identify as mortgage. Based on the mortgage service, it can be various payment methods. In this research, the main two type of mortgage loan will be review.
Mortgage
Ruin (2010) defines that mortgages are a large amount loan be secured by landed property or some suitable form of collateral such as fixed deposit receipts, share, corporate guarantee or joint guarantee of company directors. Normally the land title to a house is charged to a bank for straight forward for house financing. If the loan is not repaid on time, the bank can enforce the mortgages for sales in order to settle the outstanding amount.
Mortgage cost Calculation
In Malaysia, the mortgage payments are calculated by:
Monthly Mortgage payment = (LTV % * House Price) * (i/1 - (1 + i)-n)
Where: LTV = Loan to Value
i = average mortgage interest rate in month
n = total financing period in month
From United Kingdom, National Housing and Planning Advice Unit (NHPAU, 2010) measure that is whether mortgage payments are affordable, and how much money a household will have left after paying the mortgage. This measure is calculated by:
Annual Mortgage Payment = (LTV% * House Price) * (i/1 - (1 + i)-n)
Where: LTV = Loan to Value
i = average mortgage interest rate
n = total financing period in year
The annual mortgage repayment is divided by household take home income to calculate the proportion of household income that would be consumed by mortgage repayments.
Home Loan and Home Flexi
Home Loan is a traditional term loan that lets home buyer choose for either a variable or fixed rate; single tier or multi-tier rates. Basically fixed rate are normally agree initially and unchanged until the end of financing period, following with the single tier or multi-tier rates are changeable due to property market, usually forecast by bank. Applicable bank required minimum deposit of RM15, 000.
Home Flexi offers flexibility in loan repayments where lender can deposit any amount at anytime to account. Excess repayments will be used to offset the principal loan amount for interest calculation. Combines loan account with current account to facilitate withdrawal of excess cash. Applicable bank required minimum deposit of RM150, 000.
General Terms and Conditions
For any Malaysian or permanent resident in Malaysia, which individual aged 18 years and above are eligible to applying housing loan. For the first home buyer, bank are offer almost 100 percent loan of housing price, some even higher to cover the initial processing fees like stamp duty and legal fees. The financing period of loan usually is 5 to 30 years, or up to 70 years old of applicant. Some of the bank are offering two generation home loan to help household to more affordable to getting a house.
Procedure of Loan
Obtain Sales Purchase Agreement while purchase a home property with a deposit.
Paid 10% Down payment to the purchase property (deposit from early are counted in) to the developer
Contact with a Bank for financial assistance to home loan.
Prepare the require document for loan application as below:
Photocopy of applicant's identification documents, NRIC
Latest 3 months' salary slip/ income statement, if self employed, he has to provide his business registration documents.
Form J/ EA form / EPF statement (last 2 years).
Last 3-months personal or individual bank statements, fixed deposit or copies of Saving Account passbook for individual does not have income/salary slip.
Valuation Report for completed house which stated property condition
Copies of Sales & Purchase Agreement / Booking receipt from developer
Approval of Loan Applications and
The evaluation process for loan application can be min three working days to one week; any may vary from one bank to another.
The successful applicant has to appoint a lawyer to finalise the loan documentation and submitted to relevant government authorities such as registration of the stamp duty charge, as part of the condition for releasing housing loan.
Summary of the Chapter
In this chapter, the data collection on the three main objectives in order to carried out literature review, all the data from internet sources, books, and journal article acquire for various method in measuring the housing affordability, factor influence the housing affordability to house buyer, and the bank roles and service.
For the bank roles, the data obtain smoothly through various commercial banks, Central Bank of Malaysia (BNM) by informal interview also searches for information in Knowledge Management Centre under Central Bank of Malaysia (BNM).
