KUALA LUMPUR: The increase in house prices in real terms is partly due to longer mortgage repayment periods, rather than current house values.
This is because longer tenure mortgage repayment periods create the illusion of affordability, with innovative financing.
"The proliferation of unaffordable homes in Malaysian cities is not primarily a wage stagnation problem. This is because no amount of wage increment, even with the minimum wage intervention can realistically keep pace with Malaysia's rapid house price escalation."
"House prices have been growing much faster than household incomes, further widening the affordability gap," Khazanah Research Institute (KRI) researcher Theebalakshmi Kunasekaran wrote in her view entitled "Affordable Housing or Affordable Debt?" published on KRI's website.
While demand for housing remains high, modest income growth is insufficient to close the affordability gap, which has been further widened by the increased reliance on mortgages.
Between 2012 and 2014, the median house price grew at a compound annual growth rate (CAGR) of 23 per cent from RM170,000 to RM270,000. In comparison, median household incomes grew less than half the rate of increase in house prices.
Hence, it is not reasonable to expect wages to increase at a CAGR of 23 per cent to match house price growth," she said.
Since 2009/10, house prices have grown at a compounded annual growth rate (CAGR) of 7.2 per cent.
She said the growing gap between household income and housing prices is closely linked to developments in the financial industry.
Theebalakshmi said innovative financing measures such as longer loan tenure and higher loan-to-value (LTV) ratios have made these expensive homes more accessible and 'affordable'.
She said Bank Negara Malaysia (BNM) has emphasised that a maximum housing loan tenure of 35 years is more than sufficient for borrowers to fully repay their loans before retirement. Extending loan tenures beyond this limit not only increases the total cost of financing but also has a minimal impact on borrower's debt service ratio.
For example, increasing the tenure of an RM500,000 housing loan from 35 years to 40 years would increase the total cost of financing by 17.4 per cent or RM97,428.
However, the monthly instalment would only decrease by 4.4 per cent or RM112.
She said this demonstrates that longer tenures result in disproportionately higher financing costs without providing meaningful financial relief to house buyers.
Similar challenges arise with intergenerational loans, a concept previously proposed to tackle housing affordability crisis.
While intergenerational loans may offer lower monthly payments compared to conventional loans, they ultimately pass the debt burden to the next generation, who will end up paying much more interest payments over time.
"Given the high levels of household debt and the significant role housing loans play in it, addressing housing affordability requires more than just innovative financing mechanisms. Homes should not appear affordable merely because credit is easily available, and longer tenures reduce monthly mortgage payments," she said.
Instead, genuine affordability must be achieved through structural reforms. This includes considering measures such as reducing loan tenure limits, transitioning to a Build-Then-Sell (BTS) system, adopting prefabricated construction technologies to lower costs and ensuring house prices align with the median multiple affordability in the localities.
Theebalakshmi said by shifting the focus away from over-reliance on extended loan tenures and moving towards structural reforms, policymakers can ensure property values reflect real market conditions and remain within the financial reach of households.