The purpose of this paper is to explore the affordability of Malaysian housing market, sufficiency of affordable housing and factors influencing the housing affordability in Malaysia.
In this study, qualitative research approach was adopted. Semi-structured interviews were conducted with ten industry practitioners from developers and real estate agencies and further validation with three industry experts.
The findings reveal that housing affordability is a grave concern to average Malaysians, and the supply of affordable housing is insufficient in the current residential property market. Income, property price, land cost and demand and supply are identified as significant factors affecting housing affordability.
The research findings provide an insight rather than definitive information, as the small sample size could limit the generalizability of the findings. Future research can include participants from the public sector and focus on the policy options.
This paper provided numerous policies to ensure successful deliverability of affordable housing which eases government to partner with private sector to formulate a systematic framework for implementation of affordable housing programs and schemes.
There is a need for government to pay more attention to housing needs of middle-income groups. Also, the government is urged to ensure transparent balloting process in every implementation of affordable housing programs.
The paper emphasised the issues of undersupply of affordable housing and mismatch of property price and income. The paper also highlights the key reasons behind high housing affordability index. Hence, it is hoped that this paper will encourage positive debate and gain some attention from the policymakers, practitioners and researchers in Malaysia and beyond.
Yap, J. and Ng, X. (2018), "Housing affordability in Malaysia: perception, price range, influencing factors and policies", International Journal of Housing Markets and Analysis, Vol. 11 No. 3, pp. 476-497. https://doi.org/10.1108/IJHMA-08-2017-0069Download as .RIS
Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited
Residential property serves as a basic human need and plays a significant part in the urban economy (Suhaida et al., 2010). Department of Statistics Malaysia (2011) shows that the average annual population is increasing at a growth rate of 2.0 per cent during the period of 2000-2010. In the same period, the total number of household shows an increment of 32 per cent, that is from 4.80 million to 6.35 million households. Housing properties are in stronger demand as population increases (Shuid, 2016). A similar observation is seen in Brazil (Acolin and Green, 2017), China (Shi et al., 2016) and India (Gopalan and Venkataraman, 2015). According to Olanrewaju et al. (2016), Malaysia is having housing deficit of between 4 to 6 units per 1,000 of the population. Accordingly, the national statistics reveal that 21.3 per cent of households do not own a house in the year 2010 (Department of Statistics Malaysia, 2014). Alarmingly, the household debt of Malaysians has reached 89.1 per cent in 2015 (Tee, 2016); indicating that the housing unaffordability has gradually increased (Tan, 2012). The rapid growth in housing price has raised concern regarding the sustainability of the Malaysian housing sector (Said et al., 2016). Besides, statistics by Khazanah Research Institute (2015) also reveal that in 2014, only 19.7 per cent of new launched houses are in the lower price range, where it was 36.4 per cent in 2004. Bank Negara Malaysia (2015) notes that surging of house prices had reflected the imbalance of shortage in the supply of affordable houses with pricing below RM250,000 as compared to the supply of more expensive homes priced above RM500,000. Undersupply of affordable homes and uneven pace of growth of house price and income has led to unaffordability to home ownership. This is consistent with Samad et al.’s (2016) assertion on the mismatch in demand and supply for affordable housing. These ongoing issues amplify the need for relentless research efforts (Alaghbari et al., 2011), as well as government and private sectors to react swiftly to the housing affordability issues in Malaysia.
This research aims to explore various elements affecting the affordability of residential property in Malaysia. This paper begins with a review of published literature on the current residential real estate market scenario, the sufficiency of affordable housing and critical factors influencing the provision of affordable housing. The recommended affordable housing price range is established to determine whether the recent house price launched is matching with the industry practitioners’ outlook and various policies to ensure successful deliverability of affordable housing are identified.
2. Literature review
2.1 Affordability of residential property in Malaysia
Housing affordability is related to income in which cost of housing does not exceed 30 per cent of gross income (Table I) as adopted from Cox and Pavletich (2016). When a household spends more than this amount, they are classified as “core housing need”, whereas more than half of their earnings is in “severe housing need” (Lee, 2016). The “Median Multiple” methodology is used to assess Malaysian property market, in which a household is no longer categorised as affordable if the house price-to-income ratio exceeds 3.0 (Bank Negara Malaysia, 2016).
2.2 Relationship between house price and income
Cox and Pavletich (2016) point out that the largest household expenditure is the housing cost which is rising much faster than earnings. Short term affordability issue may be because of supply-demand, however in the long-term, it should be related to growing gap between fairly rising household incomes and speedy increasing housing costs (Gihring, 2000). With this in mind, it is sensible to compare house prices and incomes to measure housing affordability. According to Khazanah Research Institute, the median house prices in Malaysia are 4.4 times median annual household income in the year 2014. This is considered “seriously unaffordable” for Malaysians when the median multiple stood above 4.0 times persistently since the year 2002 until 2014 (Khazanah Research Institute, 2015). Figure 1 exhibits the housing affordability of Malaysia from the year 2002 to 2014 as adopted from Bank Negara Malaysia (2015).
The question arises, whether Malaysian house prices rise too high or Malaysian relatively low salary is unable to purchase a house? In view of this, both the median monthly household income and house price index are examined. First, the median household income is used to appraise the housing affordability. As affordability of houses looks into median multiple approach (house price-to-income ratio), hence from this perspective, it is also required to consider how much Malaysian households earn every month (Figure 2). An average Malaysian is earning RM4, 585 per month with an annual median household income of RM55,020. Hence, the affordable house price is below RM165,060 basing on 3.0 times median multiple. However, the median house price stood up at RM242,000 (Khazanah Research Institute, 2015), making residential houses seriously unaffordable (4.4 times) for many Malaysians. According to Economic Planning Unit (2015), in the year 2014, the bottom 40 per cent of Malaysians are earning RM2, 537 and below, while middle 40 per cent of the population is earning not more than RM5, 662 per month. This implies that at least half of the Malaysian population is not earning more than the median household income of RM4, 585. Bank Negara Malaysia (2016) recommends that a household’s housing commitment should not be more than 30 per cent of monthly income. With RM4, 585 applied to the house price-to-income ratio, is there sufficient houses launched below RM165,060?
Second, Malaysia All House Price from the year 1999 to 2015 was obtained from National Property Information center (NAPIC) (2016) (Figure 3). A close examination of Figure 3 reveals that house price grows steadily from the year 2000 to 2010. However, it moved up steeply to 227.5 in 2015. From Q1 of 2011 to Q4 of 2015, the house price has increased by 52.6 per cent within a five-year period from 149.1 to 227.5.
Table II shows the annual growth of house prices in Malaysia while Table III presents the all house price of Malaysia, Kuala Lumpur and Selangor. The average growth rate of house price in the year 2001 to 2009 is about 3.2 per cent, but a few years later rose by almost triple. Therefore, when the increase in income does not follow the tremendous change in house price, home affordability issues becoming even worse. It can be observed that the national house price has stood up to RM297, 934 by the end of 2014 while the affordable range lies below RM165,060 (based on median household income of RM4, 585). Thus, the increase in housing price is still a long way for low- and middle-income groups to purchase their house, not to mention the affordable house.
3. Demand and supply
The number of households has increased from 5.7 million in 2005 to 7.4 million in 10 years’ time while housing stock supplied into the Malaysia market only rose from 3.7 million to 4.9 million during the same period (Bank Negara Malaysia, 2015), implying a housing supply gap. Malaysia’s housing stock showed an increment of 35 per cent since 2005. In fact, there is still a 2.5 million units lacked to match the uptrend population growth. In addition, between 2011 to 2015, the number of households increased by 166,000 however only 80,089 units of houses are completed annually (Bank Negara Malaysia, 2015). A total of 4.9 million houses to supply to 7.4 million households indicate that every three households share two houses, which also implied that house ownership does not apply to every household (Bank Negara Malaysia, 2015). Hamid (2016) estimates 202, 571 units of new houses are required from 2016 to 2020 to meet the estimated households’ growth.
Moreover, urbanisation will indirectly create competitiveness among house buyers in areas that have the highest urbanisation. Department of Statistics Malaysia (2011) reveals that Kuala Lumpur, Putrajaya, Selangor and Pulau Pinang have more than 90 per cent level of urbanisation; recording the highest population density. Therefore, the all house price in Kuala Lumpur and Selangor are both the top two highest (National Property Information center (NAPIC), 2016) in the country. According to Yaakob et al. (2010), the rapid growth of urban population in the major cities has created several issues concerning the core needs of individuals particularly urban poverty and affordable housing. Nevertheless, a similar observation is found in East Malaysia such as Kuching (Ministry of Housing and Urbanisation Sarawak, 2016) and Kota Kinabalu (Said et al., 2016). Hence, the growing population has increased housing demand and directly inflated housing price in these major cities.
Based on Bank Negara Malaysia’s (BNM’s) (2016) report, there is a shortage in supply of affordable house (below RM250,000) but the availability of expensive houses that priced RM500,000 and above have elevated house prices. Less than 30 per cent of total launches are of affordable housing priced below RM250,000 in the first nine months in 2015 (Bank Negara Malaysia, 2016). For a house priced at RM500,000, a monthly household wages need to be nearly RM15,000 but only 6 per cent of Malaysian population afford to have (Hamid, 2016). Hamid (2016) further adds that the real demand for houses is below RM250,000, however, developers are offering houses above RM500,000 which is double of the affordable range.
4. Factors affecting housing affordability
A sound understanding of the factors that influence housing affordability is always a requirement for successful policies. The key underlying factors from past studies are summarised in Table IV.
5. Research methodology
Interviews are particularly suitable for soliciting the story behind a participant’s rich experiences (Merriam and Tisdell, 2016) which allows researchers to ask complex and follow up questions (Collis and Hussey, 2014) to gain deeper insights of the research topic. A similar approach was adopted by Ram and Needham (2016) to explore the provision of affordable housing in India. In this study, face-to-face semi-structured interviews were undertaken to investigate the issues of housing affordability, price range for affordable homes, underlying factors influencing the housing affordability and the viable policies to ensure successful delivery of affordable housing programs. Pre-testing was employed before the actual study to access the overall quality of the interview questions. To elicit maximum information from the interview participants, probing questions such as “Can you explain that in more detail?”, “What do you mean?” or “Can you share some examples?” require them to elaborate on their interview statement (Collis and Hussey, 2014). An academic with over 20 years of experience in the Malaysian property market was asked to proofread the draft interview questions to ensure clarity and to predict potential misunderstandings or biases. Two preliminary personal interviews were conducted with one participant from the property developer and another from a real estate agency. As there were no changes required to the interview protocol, the pilot interview transcriptions have been added to the main study.
The interview participants were selected using a purposeful sampling technique (Sekaran and Bougie, 2013). In this case, the interview participants need to have relevant and extensive knowledge in residential property development and transactions within Klang Valley region, which is the center of economic activities in Malaysia and where the capital city of Kuala Lumpur is located. In addition, the interview participants have substantial experience dealing with issues about the affordability of residential houses especially involving residents living in the Klang Valley region. Given these criteria, the targeted interview participants were employees of housing developers and real estate agencies with more than five years of working experience in the Malaysian residential housing sector to ensure the validity of responses to the research topic. A total of 10 in-depth interviews were undertaken and the profile of the participants is presented in Table V. The number of interviews is considered as appropriate as theoretical saturation was achieved (Merriam and Tisdell, 2016) and suffice to understand commonalities (Saunders et al., 2016). The interviews were transcribed and qualitative analysis technique employing content analysis method (Collis and Hussey, 2014) was used to analyse the data with the aid of a computer spreadsheet.
The findings were further validated through participative action research (Berg, 2004) with three experts who have more than ten years’ experience in the property sector. The experts included one editor of property section of an online newspaper portal who was also a former chief editor of a reputable property magazine with 19 years of experience, one team manager of a real estate agency with 15 years of experience and one senior economist in a public institution with 10 years of experience. The combined overall years of experience of the experts in the property sector are 44 years. Feedback from the experts was later analysed to triangulate the findings.
6.1 Perception on housing affordability
Each interview participant has been asked to describe housing affordability to Malaysians (Figure 4). In this regard, it means the ability to purchase a residential property. Although their definitions given were unique and the wording organisation was different from each other, the understanding falls within two main factors: affordable house prices and household income which subsequently affect the ability to repay monthly loan instalments.
Interviewees A, F, H and K opined that value of residential property (property price) is a prime concern in housing affordability. As long as the property price remains affordable to all Malaysians, the issue of affordability would not occur. Interviewee H mentioned that the problem with housing affordability occurs once the house price is far beyond the acceptable range of average Malaysians. Besides, Interviewee K asserted that the house price should not exceed three times of annual income, of which once exceeds, considered unaffordable. This method is used to gauge the level of affordability of residential properties.
The majority of the interviewees acknowledged assessing housing affordability using the monthly household income which is directly related to the ability to repay housing loan instalments every month. The affordability is calculated as a percentage of the household income. According to Interviewees B and K, the monthly mortgage loan should not exceed one-third of the household income. On the other hand, Interviewee C used debt service ratio to access affordability, in which all the monthly debt obligations, including vehicle hire purchase and credit card, should fall within 60 per cent of monthly income. Interviewees F and K are in the opinion that both of these approaches are inter-related. Although banks usually evaluate loan applicants through their monthly household income, property price will affect the outcome.
All ten interviewees raised their grave concern about the housing affordability to average Malaysians, especially the low and middle-income earners, first time home buyers and young home buyers. According to Interviewees H and J, although loan applicants can service their mortgage loans, their household debt is just too high and most of their income is contributed to loans, thereby affecting the quality of life. Most home buyers have recourse to joint borrowers in their housing loans indicating that a single income is not enough to purchase a residential property. Given the high property price, Interviewee K shared that some families need to sacrifice their desired location of stay and choose other properties in suburban areas which are more affordable.
6.2 Affordable price range
The interview participants were also asked to share their opinion on the affordable price range for residential property to average Malaysians (Figure 5). Their explications given were varied, ranges from RM100,000 to RM400,000 and below RM300,000 which were quantified by three interviewees (D, E and K) and two interviewees (C and H), respectively. The rest of the price range was only mentioned by a single interviewee. Most of the interviewees opined that affordable pricing is very subjective, mostly depends on their income. Nevertheless, six of the interviewees explained that with joint borrower, household is able to afford a more expensive residential property. Interviewee C further elaborated that the property price is subjective to land cost and construction cost; different location would have different housing price and is subjected to the developer’s plan to construct. Generally, all the price range with an interval of RM50,000 has been indicated by more than three interviewees. A close examination of Figure 5 reveals that the most frequently mentioned price range is between RM150,000 and RM300,000.
6.3 Factors influencing housing affordability
Subsequently, each interview participant was asked to share their insights and opinion concerning the factors that affect housing affordability. The information shared varied from each interviewee, and their feedback was being themed into ten factors as shown in Figure 6. All ten interviewees selected income as the prime factor, considering the significant correlation between buyer’s salary and property choice. Therefore, the income factor predetermined the price range a buyer can afford. Besides, banks assess the buyer’s ability to service mortgage loan using their earnings. Interviewee K specifically mentioned that disposable income would determine the purchasing power of residential property.
The next most significant factor selected by eight interviewees is property price. Interviewee G noted that residential property within a mature township around Klang Valley is unaffordable to the majority of Malaysians. According to Interviewees A, D, E and H, the outskirt of Kuala Lumpur or sub-urban cities such as Seremban still have an affordable price range of residential property. Interviewees A, C and F opined that home seekers still have alternatives to purchasing housing scheme launched by the government such as PR1MA, Rumah Selangorku and RUMAWIP. However, Interviewee A and B commented that the property price in Malaysia is still not as high as compared to Hong Kong and Shanghai in China, but they blame the incompetent income of Malaysians being the most influencing factor affecting housing affordability.
Six interviewees highlighted land cost where the reason given was a scarcity of land in the main cities. Interviewee C explained that land price is subjected to the location with different connectivity and magnitude of development. For a piece of land in a mature development, the land cost will be transacted higher. Another three interviewees (C, D and G) also agreed that conversion title of land to residential use would ultimately give rise to land cost. For instance, the premium paid to convert agriculture land or any other title to residential use is high and unavoidable, but the cost will push up the selling price. Land cost will also affect a developer’s plan to select the choice of residential property. Interviewee B and C elaborated that developers can only sell at a higher price or build a smaller unit to sell at affordable price range.
Five of the ten interviewees were of the opinion that demand and supply would affect the affordability of residential property in Malaysia. Demand normally comes from buyers who seek for lower or affordable residential property price; however, developers constantly launch new property at a higher price. According to Interviewee B, the supply of housing largely depends on developers’ intention to construct affordable homes according to housing trend or continue to launch housing as planned. The interviewees opined that demand is pushed up by the increasing population and urbanisation. Limited supplies of affordable housing are mainly because of the scarcity of land.
Changes in economics and developers’ profit margin were highlighted by four interviewees. Malaysia’s weak currency, depreciating value of the Ringgit, unstable national economy and inflation are the reasons causing economic changes and potentially affect housing affordability. These reasons may have affected construction cost and inflate the property prices. Besides, profit margin set by developers will influence affordability of the residential property. Interviewee G pointed out that difficulty in obtaining freehold land and a high premium of renewing lease period on leasehold land is a critical concern. Besides, high land price and scarcity of land will leave developers with no choice but to launch at a higher price to elicit viable profit margin. Afterall, developers are business entities set out to provide a reasonable return to their shareholders considering the high risk and huge investments involved.
Three interviewees opined that demographics, construction cost and interest rates significantly influence housing affordability. Population growth and high urbanisation rate in Klang Valley area are believed to be the reasons behind the higher demand for residential property. As the major cities are saturated with citizens and foreigners, the residential real estate market is active all the time with routine transactions, thus pushing up the prices. High and fluctuated construction cost (i.e. material and labour) will require developers to take out more capital to construct. In addition, Interviewee F opined that high interest rates would increase the amount of loan instalments the buyers need to pay every month. High lending rates contribute to costly housing loans. Interviewee J noted that tight lending environment further worsens the issue of housing affordability. Given the strict evaluation criteria set by the banks, interviewee A suggested that potential buyers should maintain a sound financial record and never default in loan repayment will be the way to secure bank housing loan easily. Interviewee C specifically revealed government red tape as the other factor affecting housing affordability. The costly contributions to local authorities and long approval process will add up to developers’ operation cost. These unavoidable costs will be passed on to property buyers and substantially inflate the prices of residential properties.
6.4 Adequacy of the supply of affordable homes
Each interviewee was then requested to respond on the adequacy of the supply of affordable homes to fulfil the increasing demand. Seven of the interviewees (B, C, D, E, H, J and K) pointed out that the current demand is exceeding the supply of residential property in the market. The exponential growth of the low-income earners and developers’ tight profit margins are the underlying factors for the excess demand but a limited supply of affordable homes. Interviewee J highlighted that most of the residential projects launched are above RM500,000 which is way beyond the affordable price range. However, three of the interviewees (B, F and G) opined that this situation is temporary, as the incoming supply of affordable housing by private developers, such as Rumah Selangorku and RUMAWIP. Most of the interviewees recommended serious buyers to opt for property located at the outskirt of major cities or consider smaller unit.
6.5 Policies on affordable housing
Finally, each interviewee was asked to give some opinions on the policies that can guarantee deliverability of affordable housing. Their suggestions can ultimately be grouped into three categories, namely, actions by government, private developers and bankers (Figure 7).
6.5.1 The government.
There are 13 actions recommended by interviewees to be taken by the government to ensure successful deliverability of affordable housing (Table VI). Regarding the affordable housing program implemented by the government, the interviewees desired the government to enforce policies and regulations properly and penalise those developers who do not adhere to the given rules. One of the interviewees noted that there is “under table money” involved in the affordable housing program, which the interviewee wished the process could be more transparent. There are also some interviewees that expected the government to regulate affordable housing into new development as well as integration into mixed development. Some of the interviewees also suggested the government provides incentives or waive contribution to utilities to encourage developers to build affordable housing. There are two interviewees who particularly urged the government to cater the housing needs of middle-income groups, who are not eligible to apply for PR1MA and are unable to mortgage highly priced residential property. They called for the government to come up with a more flexible and easy financing payment schemes, apart from My First Home scheme to help M40 and first-time home buyers. One interviewee commented that the application approval rate is actually less than half. Last but not least, the government may well launch more affordable housing program such as PR1MA, as the supply could not meet the demand. There are still many applicants failing to get any unit even if they are eligible to apply because of the inadequate supply.
6.5.2 Private developers.
Two interviewees recommended private developers to come up with more attractive marketing strategies or packages when launching a new project to attract serious home buyers and able to reach the sales target such as cash rebates and free SPA and legal fees (Table VII). One of the interviewees also alerted private developers to be aware of their corporate social responsibility to build more affordable homes instead of high-end residential property. Besides, the interviewees also do not wish to see developers using lower specifications or poor quality of materials to save cost to build affordable housing because that is not the way how a developer should brand the company. An affordable house does not equal to a low-cost house, and developers should not compromise on the quality of construction and the materials used.
Two interviewees suggested bankers reduce the terms and conditions set to loan applicants because many of them were rejected by banks although they qualified to apply for affordable housing programs launched by the government (Table VIII). This is particularly true concerning the rules for first-time home buyers can be relaxed so that home ownership problems could be solved, and high property price would not price out them.
7. Discussion and analysis
Figure 8 exhibits the various approached to determine the level of housing affordability. Suhaida et al. (2010) assert using price-income ratio as the measure of housing affordability. The banks used “Median Multiple” approach to assess the degree of affordability and considered the outcome (house price-to-annual-income ratio) not more than 3.0 as affordable (Bank Negara Malaysia, 2016). There are also studies advocating that monthly mortgage loan should be capped at 30 per cent of monthly household income which is known as service debt ratio (Lee, 2016). These studies agree with the findings of the interviews where property price and household income are two most important factors to assess the housing affordability and determine the ability to repay housing loan instalments. The household income not only limits the house price a person can buy, but also determine the capacity to service the loan financially. Said et al. (2016) affirm that the principal determinants for home buyers are no other than price and household income.
All the interviewees agreed that housing affordability issue is a critical concern to Malaysia and many other countries around the world. This is consistent with Khazanah Research Institute’s (2015) report that the prices of residential property in Malaysia are classified under “seriously unaffordable”. Low income is the primary issue when coming to mortgage loan which directly represents the purchasing power of residential property. For Malaysia, the median monthly income is at RM4,585, suggesting an affordability level of RM165,060. However, this is not in tandem with the median of house price which rose to RM242,000 (Khazanah Research Institute, 2015). In this regard, the average growth rate of house price is higher than the increase in incomes over the years. This further signifying a mismatch of property price and income level in Malaysia. As highlighted by Interviewee H, the high Malaysian household debt further magnifies the problem of housing affordability becoming a national concern. Similarly, The Malay Mail Online (2016) reported that the property loan occupied as high as 56.2 per cent of the monthly household income. This huge portion of income for mortgage repayments has exceeded the service debt ratio recommended by the bank, suggesting that households are overburdened with mortgage repayments and do not have sufficient disposable income for necessities and sustainable lifestyles.
The affordable price range obtained from this study is below RM400,000. This finding agrees with the initiatives of the government and private developers. There are multiple programs executed by the government and industry to supply affordable housing. PR1MA affordable homes in the central region of Malaysia are launched with price range from RM220,000 to RM400,000 (PR1MA, 2017) (Table IX), while 1Malaysia Civil Servants Housing Programme (PPA1M) within the Klang Valley area are capped at RM300,000 (PPA1M, 2017) (Table X). Rumah Selangorku and RUMAWIP in parts of KL and Selangor by private developers are also priced below RM300,000 (Table XI).
Four interviewees pointed out that the profit margin set by developers would affect the affordability of residential property because it will affect the developer’s plan to construct and launching property price. According to Hashim (2010), developers have a strong tendency to build the most profitable housing, generally comprising high-end and highly priced residential property. Hence, there should be a cap for the profit margin of developers (Singh, 2016). According to Gopalan and Venkataraman (2015), the profit margin for affordable housing is lower as compared to high-end real estate projects – impeding the private developers’ appetite to construct lower priced houses, as they are profit-driven entities (Olanrewaju et al., 2016). In China, the allowable profit rate is capped at 3 per cent (Niu, 2008).
Another influencing factor is government red tape which includes the premium for land conversion and contributions to local authorities; this may add up to developer’s final selling price. Singh (2016) proposes the red tape be reduced or removed in Malaysia to avoid any unnecessary costs to be incurred. This is also consistent with Gopalan and Venkataraman’s (2015) best practices recommendation for the Indian affordable house delivery.
On the other hand, none of the interviewees mentioned about the speculative activity. This contradicts with Wu and Wu (2001), Chen et al. (2007) and Hashim (2010) that speculation will largely inflate property price and make people less responsive to housing affordability. The National House Buyers Association consistently called up government intervention into home ownership issues to prevent speculators taking advantage (Chang, 2016). However, the finding reveals that speculation is not critical here. A plausible explanation is that interview participants from developers and real estate agencies may not think that speculation is a serious factor affecting housing affordability but rather help to support the property market.
Another eight factors that synchronise with the national statistics are income, property price, land cost, demand and supply, changing in economic, demographics, construction cost and interest rates. Baqutaya et al. (2016) outline extremely high property price, high interest rate, low-income increment and price inflation in living goods has caused housing loan to be one of the core issue faced by Malaysians. The undersupply of affordable homes is exacerbated by demographic factor and current income trends (The Star Online, 2017). Besides, Samad et al. (2016) also assert the issue of affordable housing is worsening because of supply-demand imbalances and trends of higher priced property launched in Malaysia. Only 85,000 new units are supplied, while 118,000 new households are formed; this signifies the increase in demand followed by a shortage of new housing supply. Osmadi et al. (2015) also highlighted land cost and construction cost to be the elements of housing price in Malaysia, and these have deteriorated housing affordability.
According to Khazanah Research Institute (2015), the Malaysian residential property market was flooded with luxury homes with too few mid-range affordable housing. The newly completed properties are above RM500,000 and are beyond the reach of average Malaysians. The escalation of property price and insufficient supply of affordable housing are the primary reasons affecting housing affordability (Samad et al., 2016). Similarly, most of the interviewees mentioned that the supply of affordable housing is not sufficient to fulfil the demand; however, some opined that private developers have affordable housing programs in the pipeline. According to BNM, there is still a 2.5 million units of houses gap to be filled up. Data also showed the mismatch of increase in the number of households and supply of houses. The BNM report also showed Malaysia encountering a shortage in supply of affordable house which priced below RM250,000. Some of the industry practitioners may not see the supply to be insufficient, as there is residential property priced affordably at the outskirts of Kuala Lumpur and serious house buyers still have many alternatives, such as PR1MA, Rumah Selangorku and RUMAWIP. Nonetheless, increasing the new housing supply alone will not raise the overall housing affordability (Poon and Garratt, 2012).
A total of 17 policies were recommended by industry practitioners to improve and ensure successful deliverability of affordable housing program. These outlined policies have some suggestions made to government bodies, private developers and bankers. To increase the supply of affordable housing, interviewees demanded the government and private developers to build more affordable houses that meet the quality and location requirements of households. In Yemen, Alaghbari et al. (2011) advocate the allocation of public lands to solve the shortage of affordable housing schemes. In conjunction to this suggestion, the Malaysian government has allocated funds under People’s Housing Programme and to Syarikat Perumahan Negara Bhd to build affordable homes in Budget 2017 (Tong, 2016). In addition, vacant government lands at strategic locations will also be allocated to government-linked companies and PR1MA to build more than 30,000 units of affordable housing (Tong, 2016). This is consistent with Tan’s (2012) proposal that government agencies and private developers collaborate to form a joint initiative. As land matters in Malaysia are within the jurisdiction of state governments (Tan, 2012), both the federal and state governments should be transparent, especially when there is an acute disparity between two distinct political divides. According to Aziz and Hanif (2016), young households prefer to stay nearer to their work place which is situated in urban areas – suggesting the need to consider locational factors in selecting public lands for affordable housing schemes (Acolin and Green, 2017). In addition to the logistics and locational aspects, the affordable housing schemes must be socially acceptable and technically feasible to enhance the living environment and quality of life (Tan, 2013).
Besides, some of the interviewees requested an independent committee should be established to monitor and manage the process of building affordable housing in a transparent and fair manner. Nathan (2016) notes that balloting process of PR1MA to finalise the list of applicants is open to the public and overseen by independent auditors to ensure transparency and stringent security. The Star Online (2017) reported that there is a need to establish a central agency to consolidate the provision of affordable housing, as well as a central repository.
To improve the compliance with regard to the policy of affordable housing program, enforcement should be in place to monitor the different parties involved. Failing so, a hefty penalty should be imposed. This is akin to Sufian and Ibrahim (2011) advocating the strict enforcement of housing policies in Malaysia.
The government and developers also can have some innovative, flexible and easy financing schemes to help citizens to not only acquire affordable homes but also promote home ownership. Easier housing loan schemes, rent-to-buy scheme and down payment assistance should be looked into seriously and with extra care to actually assist and protect homebuyers (Mazlan, 2016). This is akin to Alaghbari et al.’s (2011) recommendation for special financial support dedicated to affordable housing projects in Yemen.
In addition, some interviewees wished the government to look into middle-income groups as well, to ensure that Malaysia housing market able to accommodate households of all income groups. This finding is similar to Abd Aziz et al. (2011) which they mentioned affordability problems arise among middle-income households. Middle-income earners fall into a trap where they do not qualify for low-cost housing and cannot afford a comfortable desired property (Hisyam, 2013). According to Berry (2003), more private investment is required into the supply of affordable housing targeted at groups most in need.
Furthermore, results also show that the interviewees urged the government to give tax incentives and reduce contributions for utilities to encourage private developers to build affordable housing. Association of Valuers, Property Managers, Estate Agents and Property Consultant asserted that offering tax incentives and reducing land conversion premium and statutory payments can easily convincing private developers to build affordable homes (Saieed, 2016). The mandatory “surcharge” imposed by utility companies comprised a significant percentage of the cost of constructing houses amounting to 5-10 per cent should be waived in affordable housing (Tan, 2016). To increase the supply of affordable housing in India, Ram and Needham (2016) opine reducing development cost and utilities through VAT exemption or fees waiver. According to Niu (2008), all administrative fees and half of taxes are waived to support affordable housing program in China since 1994.
There is only one suggestion to banks, which is to reduce restrictions to housing loan applicants. A similar recommendation is also proposed by Yemeni professionals in the housing industry (Alaghbari et al., 2011). Rosli (2016) notes that loan rejection rate in affordable housing segment in Malaysia has stood up to more than 50 per cent, because of strict lending rules and this has stopped many first-time home buyers. Hence, banks may need to look into and revise the mortgage lending conditions for loan applicants in affordable housing segment which priced below RM500,000.
The background of the experts involved in the validation of the interview findings is presented in Table XII. In general, the comments from the experts are as follows:
The housing affordability is measured by house price-to-income ratio and debt service ratio. Both of them shared the relationship to establish the borrowers’ repayment capability.
Housing affordability is a concern to average Malaysians.
The affordable homes price range is below RM400,000. However, it largely depends on household income and location within Malaysia (i.e. which state is the development located).
The factors affecting the affordability of residential property in Malaysia agree with the interview findings, namely, income, property price, land cost, construction cost, demand and supply, changing in economic, demographics, interest rates, developers’ profit margin and government red tape. One of the experts highlighted that compliance cost as one of the critical problems where developers have to bear the costs of providing facilities for utilities and public amenities in their development projects which can amount to as high as 15 to 40 per cent of their gross development value.
The supply of affordable homes is insufficient to fulfil the demand.
The experts found eight out of seventeen policies to be practical and need to be outlined for future housing developments:
Government to enforce policy and restriction of owning affordable housing properly to ensure no under table money involved.
Government to enforce law or penalty if developers failed to fulfil the process and guidelines for housing development.
Government to ensure transparency in balloting process of affordable housing program implemented.
Government to loosen rules and regulations set to applicants of the affordable housing program.
Government to reduce contributions for utilities to encourage developers to build affordable housing.
Government to supply more affordable housing through PR1MA program.
Government to pay more attention to housing needs of middle-income groups.
Developers to build more affordable housing.
Purchases of residential property mostly involve the aid of housing loan for a typical household in Malaysia and this has engaged commitment from the household to repay the monthly instalments. Using the Median Multiple approach and debt service ratio, Malaysia has fallen into a severely unaffordable residential property market and most of the households are overburdened from housing cost. The mismatch of house price and household income in Malaysia has led the housing market to be seriously unaffordable (house price-to-income ratio is 4.40). Besides, the largest portion forming the household debt of Malaysians is the purchase of properties, equivalent to 56.2 per cent. The empirical findings reveal that housing affordability is a grave concern to average Malaysians, as the housing price rises faster than income. The income level has determined the ability to repay the loan instalments and the value of residential property the loan applicants can afford. The factors affecting housing affordability identified through the qualitative data collection are income, property price, land cost, demand and supply, changing in economic, demographics, construction cost, interest rates, developer’s profit margin and government red tape. Various policies have been listed by the industry practitioners to ensure successful deliverability of affordable housing.
Despite the interesting findings, there are some limitations that may thwart the contribution of this study. First, there is no interview participant from the government agencies. Second, because of time and cost constraints, the interview participants are limited to the Klang Valley region which restricts the generalisation of the findings to the whole of Malaysia. Third, this study did not look at the planning and coordination of affordable housing schemes between federal and state governments. Nevertheless, this research provides insights on the problems of affordable housing and recommends some feasible measures to tackle the perennial issue in Malaysia, as well as other developing countries in many parts of the world with rapidly expanding cities. Thus, it would be recommended for further research to extend the research geographically to include other major cities in Malaysia with high population and urbanisation such as Johor Bahru, Kuching and Kota Kinabalu.
Median multiple categories
|House price-to-income ratio||Housing affordability rating|
Annual growth of house prices in Malaysia
|Location||Average growth rate (%)|
|1Q 2001-4Q 2009||1Q 2010-2Q 2012|
Source: Bank Negara Malaysia (2012)
All house price of Malaysia, Kuala Lumpur and Selangor (2014 and 2015)
|All house price (RM)||Q4 2014||Q4 2015|
Summary of factors affecting housing affordability
|Sources/Factors||Speculation||Demand and supply||Income||Demographics||Residential property price||Land cost||Construction cost||Changing economic growth and human psychology|
|Adenubi and Wiindapo (2007)||X||X|
|Bank Negara Malaysia (2016)||X||X||X||X|
|Chen et al. (2007)||X||X||X||X||X||X||X|
|City of Calgary (2008)||X||X||X||X||X||X|
|Economic Planning Unit (2014)||X||X||X||X|
|Glaeser and Gyourko (2003)||X||X||X|
|Khazanah Research Institute (2015)||X||X||X||X||X||X||X|
|Quigley and Raphael (2004)||X||X||X|
|Wu and Wu (2001)||X||X|
Profile of interview participants
|Interviewee||Nature of company||Department/Profession||Current position||Experience (years)|
|A||Real estate agency||Real estate agent||Team leader||10|
|B||Developer||Sales and marketing||Manager||7|
|C||Developer||Sales and marketing||Manager||20|
|D||Developer||Sales and marketing||Executive||3|
|E||Real estate agency||Real estate agent||Senior||10|
|F||Real estate agency||Real estate agent||Senior||5|
|G||Developer||Sales and marketing||Executive||4|
|H||Developer||Sales and Marketing||Manager||12|
|J||Real estate agency||Real estate agent||Senior||8|
|K||Real estate agency||Real estate agent||Senior||8|
List of actions taken by government to ensure successful deliverability of affordable housing
|Actions to be taken by government||No. of interviewees selected|
|Government to enforce policy and restriction of owning affordable housing properly to ensure no undertable money||1 (G)|
|Government to enforce policy to developers to build affordable housing first in new development||1 (B)|
|Government to enforce developers to build integrated or mixed development of high end residential property and affordable housing||1 (D)|
|Government to enforce law or penalty if developers failed to fulfill the process and guidelines in housing development||1 (G)|
|Government to ensure transparency in balloting process of affordable housing program implemented||2 (C, H)|
|Government to form an independent committee to in charge of affordable housing program, such as lawyers||1 (C)|
|Government to loosen rules and regulations set to applicants of affordable housing program||1 (A)|
|Government to reduce contributions for utilities to encourage developers to build affordable housing||1 (H)|
|Government to give tax incentives to developers who build affordable homes||2 (E, H)|
|Governmnet to offer flexible and easy financial payment schemes||2 (H, K)|
|Government to control residential property price||1 (D)|
|Government to supply more affordable housing through PR1MA program||1 (B)|
|Government to pay more attention to housing needs of middle-income groups||2 (F, K)|
List of actions taken by private developers to ensure successful deliverability of affordable housing
|Actions to be taken by private developers||No. of interviewees selected|
|Developers to have attractive marketing strategies/packages||2 (A, J)|
|Developers to have corporate social responsibility to build more affordable housing||1 (E)|
|Branding of developers and to ensure quality of affordable homes built||1 (G)|
List of actions taken by bankers to ensure successful deliverability of affordable housing
|Actions to be taken by bankers||No. of interviewees selected|
|Banks to reduce restrictions to housing loan applicants||2 (F, J)|
PR1MA in Klang valley launched by the government
|Location of PR1MA||Types of residential property||Size of unit (sqft)||Property price (RM)|
|Bandar Teknologi Kajang||Apartment||700∼950||From 236,000|
|Alam Damai, KL||Apartment||662∼1048||From 243,000|
|Bukit Jalil||Apartment||654∼957||From 267,000|
|Cyberjaya 2||Apartment||850∼1000||From 274,000|
|Bukit Bintang||Apartment||906∼1089||From 275,000|
|Lakefront, Cyberjaya||Apartment||850||From 280,000|
|Kajang Utama||Apartment||900∼1124||From 315,000|
PPA1M in Klang Valley initiated by the government
|Location of PPA1M||Types of residential property||Size of unit (sqft)||Property price (RM)|
Rumah Selangorku and RUMAWIP by private developers
|Location of Rumah Selangorku/RUMAWIP||Developers||Type of residential property||Property price (RM)|
|near Eco Majestics||Gallery Development Sdn Bhd||Townhouse||From 220,000|
|Putra Heights||Sime Darby Property||Apartments||170,000∼270,000|
|Jalan Kuching, KL||Mah Sing Group Bhd||Condo/Apartment||300,000|
|Bandar Baru Sentul||SkyWorld Group||Condo/Apartment||300,000|
|Setia Alam||S P Setia||Apartment||170,000|
|CyberSouth City||MCT Consortium||Condo||250,000|
Profile of experts selected for the validation
|Industry practitioners||Job position||Experience (years)|
|A||Currently is a contributing editor of property segment of online newspaper platform; Former Chief Editor of a reputable property-based magazine||19|
|B||Team Manager of a real estate agency||15|
|C||Senior Economist in public institution||10|
Abd Aziz, W.N.A., Hanif, N.R. and Singaravello, K. (2011), “Affordable housing within the middle income households in Malaysia: challenge to enterhomeownership”, Australian Journal of Basic & Applied Sciences, Vol. 5 No. 8, pp. 258-267.
Acolin, A. and Green, R.K. (2017), “Measuring housing affordability in São Paulo metropolitan region: incorporating location”, Cities, Vol. 62, pp. 41-49.
Adenubi, O.I. and Wiindapo, A.O. (2007), “A study of factors affecting the affordability of urban housing in Nigeria”, Construction Research Journal, Vol. 1 No. 1, pp. 26-36.
Alaghbari, W., Salim, A., Dola, K. and Abdullah Abang Ali, A. (2011), “Developing affordable housing design for low income in Sana’a, Yemen”, International Journal of Housing Markets and Analysis, Vol. 4 No. 1, pp. 84-98.
Aziz, A. and Hanif, N.R. (2016), “Housing affordability problems among young households”, Journal of Surveying, Construction & Property, Vol. 7 No. 1, pp. 1-18.
Bank Negara Malaysia (2012), Development in the Housing Market and Implication in Financial Stability, Bank Negara Malaysia, Kuala Lumpur.
Bank Negara Malaysia (2015), Assessing Demand-Supply Conditions in the Malaysian Property Market, Bank Negara Malaysia, Kuala Lumpur.
Bank Negara Malaysia (2016), Financial Stability Report 2015, Bank Negara Malaysia, Kuala Lumpur.
Baqutaya, S., Ariffin, A.S. and Raji, F. (2016), “Affordable housing policy: issues and challenges among Middle-income groups”, International Journal of Social Science and Humanity, Vol. 6 No. 6, pp. 433-436.
Berg, B.L. (2004), Qualitative Research Methods for the Social Sciences, 5th ed., Pearson Education, Boston.
Berry, M. (2003), “Why is it important to boost the supply of affordable housing in Australia - and how can we do it?”, Urban Policy and Research, Vol. 21 No. 4, pp. 413-435.
Chang, K.L. (2016), “Affordable housing: how to own it?”, The Star Online, Kuala Lumpur, (3 September),
Chen, J., Zhong, Y. and Wang, L. (2007), “System dynamics based study of affordable housing in Shanghai”, 2007 International Conference on Service Systems and Service Management, IEEE, Chengdu, pp. 1-6.
City of Calgary (2008), “Factors affecting housing affordability over time”, Calgary, available at: https://doi.org/10.1576/toag.4.4.245a.66596.
Collis, J. and Hussey, R. (2014), Business Research: A Practical Guide for Undergraduate and Postgraduate Students, 4th ed., Palgrave Macmillan, London.
Cox, W. and Pavletich, H. (2016), “13th Annual Demographia International Housing Affordability Survey: 2017”.
Department of Statistics Malaysia (2011), Population Distribution and Basic Demographic Characteristics Report 2010, Dept of Statistics, Putrjaya.
Department of Statistics Malaysia (2014), “Report on Characteristics of Household 2010”, Population and Housing Cencus of Malaysia.
Economic Planning Unit (2015), Mean Monthly Gross Household Income of Top 20%, Middle 40% and Bottom 40% of Households by Ethnic Group and Strata, Economic Planning Unit (EPU), Putrjaya.
Economic Planning Unit (2014), Median Monthly Gross Household Income by Ethnic Group, Strata and State, Malaysia, 1970-2014, Economic Planning Unit (EPU), Putrjaya.
Gihring, T. (2000), “The Real Causes of Home Price Inflation”, Seattle.
Glaeser, E.L. and Gyourko, J. (2003), “The impact of building restrictions on housing affordability”, FRBNY Economic Policy Review, Vol. 9 No. 2, pp. 21-39.
Gopalan, K. and Venkataraman, M. (2015), “Affordable housing: policy and practice in India”, IIMB Management Review, Vol. 27 No. 2, pp. 129-140.
Hamid, A.J. (2016), “Can you afford to buy a house?”, New Straits Times Online, Kuala Lumpur, (24 April).
Hashim, Z.A. (2010), “House price and affordability in housing in Malaysia”, Akademika, Vol. 78, pp. 37-46.
Hisyam, K. (2013), “Housing mismatch and the middle-income trap”, Kinibiz Online, 23 July.
Jing, L. (2014), “Recent trends on housing affordability research: where are we up to?”, Hong Kong.
Khazanah Research Institute (2015), Making Housing Affordable, Khazanah Research Institute, Kuala Lumpur.
Lee, M. (2016), Getting Serious about Affordable Housing, Canadian center for Policy Alternatives BC Office, Vancouver.
Mazlan, M. (2016), “Boost supply of really affordable houses”, New Straits Times Online, Kuala Lumpur, (19 October).
Merriam, S.B. and Tisdell, E.J. (2016), Qualitative Research: A Guide to Design and Implementation, 4th ed., Jossey-Bass, San Francisco, CA.
Ministry of Housing and Urbanisation Sarawak (2016), “Govt increases housing density for urban centers”, available at: www.minhousing.sarawak.gov.my (accessed 29 August 2017).
Nathan, Y.T. (2016), “Rumawip to be built in Putrajaya soon”, The Star Online, Kuala Lumpur, (5 December).
National Property Information center (NAPIC) (2016), The Malaysian House Price Index, NAPIC, Kuala Lumpur.
Niu, Y. (2008), “The performance and problems of affordable housing policy in China”, International Journal of Housing Markets and Analysis, Vol. 1 No. 2, pp. 125-146.
Olanrewaju, A., Aziz, A.R.A., Tan, S.Y., Tat, L.L. and Mine, N. (2016), “Market analysis of housing shortages in Malaysia”, Procedia Engineering, Vol. 164, pp. 315-322.
Osmadi, A., Kamal, E.M., Hassan, H. and Fattah, H.A. (2015), “Exploring the elements of housing price in Malaysia”, Asian Social Science, Vol. 11 No. 24, pp. 26-38.
Poon, J. and Garratt, D. (2012), “Evaluating UK housing policies to tackle housing affordability”, International Journal of Housing Markets and Analysis, Vol. 5 No. 3, pp. 253-271.
Quigley, J.M. and Raphael, S. (2004), “Is housing unaffordable? Why isn’t it more affordable?”, Journal of Economic Perspectives, Vol. 18 No. 1, pp. 191-214.
Ram, P. and Needham, B. (2016), “The provision of affordable housing in India: are commercial developers interested?”, Habitat International, Vol. 55, pp. 100-108.
Rosli, L. (2016), “Only 20.4pc of loans for affordable housing rejected”, New Straits Times, Kuala Lumpur, (8 April).
Said, R., Majid, R.A., Alias, A., Adnan, Y.M. and Razali, M.N. (2016), “Sustainable housing affordability in Sabah”, Planning Malaysia, Vol. 5, pp. 65-76.
Saieed, Z. (2016), “PEPS: give incentives for private developers to build affordable homes”, The Star Online, Kuala Lumpur, (30 January).
Samad, D., Zainon, N., Mohd Rahim, F.A., Lou, E. and Abd Karim, S.B. (2016), “Malaysian affordability housing policies revisited”, MATEC Web of Conferences, Vol. 66, p. 10.
Saunders, M., Lewis, P. and Thornhill, A. (2016), Research Methods for Business Students, 7th ed., Pearson Education Limited, Essex.
Sekaran, U. and Bougie, R. (2013), Research Methods for Business: A Skill-Building Approach, 6th ed., John Wiley & Sons, New York.
Shi, W., Chen, J. and Wang, H. (2016), “Affordable housing policy in China: new developments and new challenges”, Habitat International, Vol. 54, pp. 224-233.
Shuid, S. (2016), “The housing provision system in Malaysia”, Habitat International, Vol. 54, pp. 210-223.
Singh, D.V. (2016), “Budget 2017: fiscal discipline required”, The Malaysian Reserve, Kuala Lumpur, (3 April).
Sufian, A. and Ibrahim, A. (2011), “Equitable distribution of low-cost houses in Malaysia: constraints and challenges”, International Journal of Economics and Management, Vol. 5 No. 2, pp. 251-265.
Suhaida, M.S., Tawil, N.M., Hamzah, N., Che Ani, A.I. and Tahir, M.M. (2010), “A conceptual overview of housing affordability in Selangor, Malaysia”, International Journal of Social, Human Science and Engineering, Vol. 4 No. 12, pp. 287-289.
Tan, T. (2016), “Tanjung malim tragedy: hopes of paying homage to ancestors shattered budget 2017: house buyers group wants more affordable homes”, Free Malaysia Today, pp. 2-5. Kuala Lumpur, (2 April).
Tan, T.H. (2012), “Meeting first-time buyers’ housing needs and preferences in greater Kuala Lumpur”, Cities, Vol. 29 No. 6, pp. 389-396.
Tan, T.H. (2013), “Affordable housing for first-time homebuyers: issues and implications from the Malaysian experience”, Pacific Rim Property Research Journal, Vol. 19 No. 2, pp. 199-210.
Tee, L.S. (2016), “Household debt on the rise”, The Star Online, Kuala Lumpur, (2 April), Business Times.
The Malay Mail Online (2016), “Malaysia’s household debt to GDP stands at 89.1pc”, Kuala Lumpur, (29 April).
The Star Online (2017), “Undersupply of affordable houses seen to worsen”, The Star Online, Kuala Lumpur, (24 March).
Tighe, J.R. (2010), “Public opinion and affordable housing: a review of the literature”, Journal of Planning Literature, Vol. 25 No. 1, pp. 3-17.
Tong, A. (2016), “Solving affordable housing issue”, The Star Online, Kuala Lumpur, (10 December).
Wu, S.T. and Wu, S.H. (2001), “Affordability, speculation, and house price in Taipei”, The ROC Housing Association’s Annual Conference, Taipei.
Yaakob, U., Masron, T. and Masami, F. (2010), “Ninety years of urbanization in Malaysia: a geographical investigation of its trends and characteristics”, Journal of Ritsumeikan Social Sciences and Humanities, Vol. 4 No. 3, pp. 79-101.
Special gratitude is also extended to those industrial practitioners who have responded to and contributed their valuable input in this research through their time and effort.