EXPANDING the debt market is not necessarily the key to expanding sluggish sections of the economy, in this instance the housing industry. No doubt, proposing that housing developers become money-lenders to sell their unsold houses could work, but it would be pointless if in the short and medium-term, these loans do not perform. Then the problem will impact on the overall economy. The main reason for doubting the success of this arrangement is that these loans are attractive to those who are, according to banks and other Bank Negara Malaysia-controlled lending institutions, not creditworthy. And, there is a very good reason why they are not creditworthy: they are either defaulters or have low monthly income.
All financial institutions thrive on lending. Nevertheless, for the institution’s good health, a lending discipline is absolutely necessary. Standards are established by the industry to ensure a minimal risk of non-performance and the rule of thumb is that disposable income after debt servicing is a third of the applicant’s monthly income. This is the financial industry’s win-win formula. Not unnaturally, those with low income cannot make the grade with commercial institutions. After all, when the lending institution goes into the red, more than itself is at risk as America’s subprime debacle demonstrates.
The Money Lenders Act 1951 was not designed for a massive purchase like house-buying. The phenomenal interest rates of 12 to 18 per cent per annum is tough. Credit card defaults testify to this. Not only will this rate add from one sixth to a fifth to the house price, which increases the burden of those who, by banking standards, cannot afford to service a loan, it will too mean the inevitable re-possession of the property. Obviously, the end result is houses sold will later revert to become the developer’s stock and can be resold in a perpetual cycle of non-performing loans. The window for abuse then is undeniable, irrespective of the nature of the loan. For, loans to those who cannot afford to service them is nothing but a trap into bankruptcy.
Furthermore, the move is a market spoiler. By implementing this policy, the government is necessarily keeping house prices high despite slowing demand. If market forces are left unimpeded, then houses will become more affordable, leaving the government responsible for housing the B40 group, the low-income households. As earlier promised by the government, to enlarge the house-owning democracy, the poor will be assisted. Naturally, to this category of borrowers, banking standards are not applicable. Instead, cheap loans attached to EPF contributions, for instance, with repayments deducted at source can be introduced. Putrajaya must stay focused on facilitating buyers and not developers if the talk of a housing democracy is to be more than lip service. When government is of, for and by the people, everyone’s interests matter equally. While, one cannot allow a slump in the housing industry, the Urban Wellbeing, Housing and Local Government Ministry cannot seduce those who can least afford it to “subsidise” the industry.