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To Purchase or to Rent a Home in Malaysia? A Case Study in Selangor

The modern and highly globalized societies have witnessed a rapid growth of

various industries. An example is the construction industry in Malaysia. Transnational

properties have proliferated significantly in line with globalization (Sanghoon, Huynh &

Rowe, 2013) and the marked increase in population. Malaysia, as a developing country,

had a population of 30,995.7 million in 2015. As for the states in Malaysia, Selangor had

the highest population with 6,140.1 million people, followed by Sabah, 3736.2 million;

Johor, 3547.7 million; Perak, 2,457.8 million and Sarawak 2,707.6 million. The increase

in population led to a rise in demand for basic needs such as food, water and shelter.

Asiah (1999) stressed that housing is a basic need for every citizen and this is

acknowledged by the Malaysian government. Thus, it is evident that an increase in a

country's population results in a significant rise in the demand and supply of residential

properties.

According to Mahmood and Zakaria (2007), the property sector has played a

significant role in the economic development of Malaysia. Ong (2013) pointed out that a

rapid increase in demand and supply of residential properties would lead to an escalation

in the value of the properties. This phenomenon is also known as the 'housing bubble',

where a surge in demand and supply of houses lead to continuous increase in property

prices over a period of time. In terms of the cost of borrowing, prior to the

implementation of the Base Rate (BR), cost of obtaining housing loans from local

financial institutions was 6.68% Base Lending Rate (BLR) rate minus 2.4% (bank rate)

(Chin, 2014). In March 2014, 2 To Purchase or to Rent a Home in Malaysia? A Case

Study in Selangor the Central Bank of Malaysia (Bank Negara Malaysia) (BNM)

announced that the BLR, which is determined by BNM, would be replaced by Base Rate

(BR), effective January 2015. The BR is determined by the financial institutions'

benchmark cost of funds (Chai, 2015).

As stated in the 11th Malaysia Plan (2016-2020), the Government's intention is to

increase affordable housing to the poor, low and middle income households in urban and

rural areas. In addition, financing schemes such as My First Home Scheme, Youth

Housing Scheme (YHS) and MyHome are extended to prospective home buyers and

developers. My First Home Scheme was announced by the government in budget year

2011 and is targeted at assisting young adults own a house. Under this scheme, home

buyers are able obtain 100% financing from financial institutions. Thus, the down

payment of 10% is waived.

Meanwhile, the Youth Housing Scheme (YHS), which was announced in the

budget year 2015, allows married house buyers within the age group 25 to 40 years with

monthly income of not more than RM10,000 to purchase their first residential property.

Under this scheme, a 50% exemption of stamp duty on the transfer and loan agreements

is provided as well as RM200 per monthly assistance is given for a period of 2 years from

the date of first disbursement of loan to the developer to subsidize repayme

installments. In the case of the My Home program, the government offers incentive up to

RM30,000 per unit. In 2014, an allocation of RM300 million for building 10,000 units of

affordable homes around the country was provided. Together with the My Deposit

program newly launched in April 2016, all these initiatives constitute the various

incentives made available by the Government to increase ownership of residential

property, the target being at least one house per household.

Despite the several incentives from government and sales offers from developers,

most households still deliberate when it comes to deciding whether to purchase or rent a

house for their living. This issue led to a research gap to be investigated though this

exploratory study by exploring the research.

a. From your point of view, has the intention of state government of Selangor to

increase affordable housing to the poor, low and middle income households in

urban and rural areas can be achieved?

(15 marks)

b. Are there any linkage issues, when government launching My Home program

which has the same intention like the state government of Selangor?

(10 marks)