Sunday October 7, 2012
Owning a home, benefit or burden?
By LISA GOH
Property ownership is seen as an essential part of wealth creation by many Malaysians but there are some who rent for various reasons.
IN all her 19 years of being employed, Sofia (not her real name) has never once felt the need to buy her own house and that's exactly how she likes it.
“I value my freedom too much. I like the feeling of being able to just quit my job, pack up and get on the next plane, and take off.
“I don't want to be tied down by a housing loan for 20 to 30 years because if I want to travel, I'll have to worry about paying my loan or renting out my place,” says the 40-something writer.
Instead, Sofia rents a 1,200 sq ft (111sq m) fully-furnished apartment for RM1,400 a month, a price she is comfortable paying.
“I've been staying in this apartment for the last 10 years, and the rent hasn't really gone up. But if it does, I would consider looking for another place.
“I'm not married, don't have children My two sisters are also not married, and we have the family home in our kampung. So I really don't see a need to buy my own house,” explains Sofia, an avid globetrotter.
She adds that there are other factors behind her decision to rent rather than buy.
“I'm a Muslim, and because I have no male kin, when I die, the law is such that the state takes a share.
“For my lifestyle, this works out best. I love to travel and eat, and I'm not willing to give that up. I don't have a house, but I think I've been able to live a quality life. It's a deliberate choice,” she says.
For others, such as Navesh (not his real name), 32, being a property owner is the way to go.
“For me, renting doesn't make sense. Instead of paying rent, I'd rather pay for the mortgage, and at the end of it, I own the property.
“It's also forced savings for me because if I don't use the money to pay for my properties, I might be spending on other things. But now, it's going towards accumulating an asset,” he says, adding that the property investment would act as a hedge against inflation.
Navesh, a banker, currently owns a double-storey semi-detached house, and a Soho unit which is rented out for RM2,000 a month. Both are in the Klang Valley.
“I'll be moving into the house after my wedding next year,” says Navesh who now lives with his parents.
The monthly instalments for his house and Soho come up to RM3,500 and RM1,400 respectively, but Navesh, who earns about RM10,000 a month, says he doesn't feel burdened by the payments.
After deducting the rental income from his Soho unit, he pays a total of RM3,000 towards his loans.
“Also, I'm quite low maintenance I don't club often or have expensive hobbies, and I'm not really fussy about buying branded items,” says Navesh, who drives a Toyota Vios.
He is open to selling his property if he gets a good opportunity to work elsewehere.
RAM Holdings Bhd group chief economist Dr Yeah Kim Leng notes that in the Asian culture, property has always served a dual purpose consumption and investment. And because the value of property in Malaysia has steadily climbed over the last few decades, it is seen as an essential part of wealth creation by many Malaysians, he says.
Interestingly, The Economist recently published a debate on home-ownership titled “Should home-ownership be discouraged”.
In that debate, Andrew Oswald, Professor of Economics with the University of Warwick, said it should.
All for renting
“Modern generations have been brainwashed into believing there is something wrong with them if they rent,” he said, in his argument.
Citing examples from Europe, he pointed out that home-ownership did not always equate to a thriving nation.
Switzerland, for example, “has tiny unemployment, wealth, high happiness and mental-health scores; visible democracy; people flocking to get in. Does it have high home-ownership rates? Absolutely not. In Switzerland, about seven in 10 of the population are renters. Yet, with Europe's lowest home-ownership rate, the nation thrives.
“Spain has approximately the highest home-ownership rate in Europe (at more than 80%). One-quarter of its population is unemployed, and Spaniards leave their country in droves,” he argued.
Oswald added that high levels of home-ownership “mess up the labour market” because it does not encourage mobility.
“In a sensibly functioning economy, it is easy for people to move around to drop into the vibrant job slots thrown up by technological change. That movement is particularly necessary for the young, who are looking for their early jobs. High home-ownership in a nation is like a treacle blanket thrown over the surface of the country and economy,” he said.
Against the motion, however, was Richard K. Green, director of the USC Lusk Centre for Real Estate who reportedly argued that the statement “home-ownership inhibits mobility” was impossible to prove.
He said it was more likely the other way around where “people who choose not to be mobile are more likely to become home-owners”.
“But what if home-owning does indeed impede mobility? There are benefits as well as costs to stability. For example, stability of tenure has been associated with good outcome for children,” he said.
He added that home owners with an equity stake in their communities had a greater interest in making sure their common areas were well maintained (such as better schools) as these would be reflected in higher property value.
Currently, demand in Malaysia for residential property outweighs supply, which is one factor that has contributed to sky-rocketing prices in the last two years.
“As of June this year, there are 4.5 million residential units in the country but an estimated 6.5 million households,” Dr Yeah says, citing statistics from the National Property Information Centre.
Property takes the biggest cut of the pie in Malaysia's Net Capital Stock. According to the Department of Statistics, in 2010, Structures and Buildings (which covers residential and commercial properties) was valued at RM996.5bil, about 66% of the total Net Capital Stock of RM1.5tril, compared with other asset types.
(Net Capital Stock reflects the market value of the stock of fixed assets in the economy and, as such, provides an important indication of overall wealth.)
In an effort to make homes more affordable, Prime Minister Datuk Seri Najib Tun Razak announced that a total of 123,000 affordable housing units priced between RM100,000 and RM400,000 will be built next year under an allocation of RM1.9bil in the 2013 Budget.
These houses will be built in Kuala Lumpur, Shah Alam, Johor Baru, Seremban and Kuantan.
These efforts are commendable, says Malaysian Rating Corporation Bhd (MARC) chief economist Nor Zahidi Alias, but “the speed of the implementation is key to its success”.
“The measures introduced by the government are rather mild in our view, as there is fear of a broad-based decline in property prices,” he says in an e-mail interview.
He adds that more measures can be used to stabilise the property prices here, such as limiting the purchase of landed property to Malaysians only, giving the example of our neighbouring countries where foreigners are not allowed to purchase landed property.
For many Malaysians such as Navesh, owning their own property is still the preferred choice.
“I don't worry too much about it I don't see it as tying me down. I don't remember ever wanting to buy or do something, and not be able to afford it because of my properties,” he says.