Kuala Lumpur, 28 Nov 2019 – The government has been advised against further credit easing for first-time homebuyers and instead, focus on the problem of rising household debt which has been largely driven by housing loans. This comes following Minister of Finance, Lim Guan Eng’s call for Bank Negara Malaysia (BNM) to ease the rules for mortgages to help first-time buyers purchase their house. According to the Minister, many potential homebuyers are finding it difficult to secure loans. This seems to be the case despite BNM and other banks already took steps to ease credit conditions for first-time homebuyers.

Commenting on the news, Dr Carmelo Ferlito, Senior Fellow at the Institute for Democracy and Economic Affairs (IDEAS), suggested that a further credit easing is not the way to go. “We should look at the issue from a broader perspective”, Dr Ferlito added. “With 76.3% home-ownership rate, Malaysia is scoring pretty well worldwide; on the other hand, BNM has revealed that the household debt is 82.2% of the GDP”. Thus, according to Dr Ferlito, the government should focus on addressing the latter figure, rather than the former; this is all the more true given the fact that loans for the purchase of residential properties continue to be the key driver of debt growth.

“A further easing of credit conditions will harm financial stability for those people which are already in a fragile situation”, Dr Ferlito added. He said that the economic system evolves through ups and downs and therefore it is important for households to build up, during the good moments, those fundamentals that will support them through the bad ones.

According to Dr Ferlito, moreover, “the situation faced by the property industry requires a market-oriented approach”. Without government intervention and credit support, he added, “developers will have to deal with the consequences of their investment decisions and consumers will have to take financial choices consistent with their economic conditions to avoid overexposing themselves”.

Finally, Dr Ferlito called for a new approach to housing policy: “It is time – he said – to talk more about urban policies, realizing that a city, a village or a neighbourhood is more than bricks: they are made of the complex net of human relationships which builds up those environments”.

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