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If can’t afford to buy property, why not rent?

”Affordable” and “moderately unaffordable” homes are defined as costing below three times, and between 3.1 and 4.0 times one’s annual household income respectively, according to the housing affordability rating recommended by the World Bank and the United Nations. ”Affordable” and “moderately unaffordable” homes are defined as costing below three times, and between 3.1 and 4.0 times one’s annual household income respectively, according to the housing affordability rating recommended by the World Bank and the United Nations.

Dissatisfaction over expensive home prices has been escalating in Malaysia in recent years, with prices now reportedly beyond the reach of an average worker in key states like Kuala Lumpur and Penang.

The situation, as many have lamented, is also not helped by the government’s move towards rationalising subsidies and the introduction of the goods and services tax (GST) last year.

An urban worker in such states, according to news reports citing Bank Negara Malaysia (BNM), will need to work for 5 years — and spend on nothing at all — to be able to afford a home.

Houses priced up to RM165,060 are considered affordable to a median Malaysian household with a monthly income of RM4,585 and below, according to BNM, but only 21% of new housing launches in Malaysia were priced below RM250,000 in 2014.

There is an acute shortage in the affordable housing category, and property launches in the above RM500,000 category — where there is now an oversupply — are only within the reach of 5.4% of the population, for households earning at least RM15,000 a month, said BNM in its Annual Report 2015 released last month.

But dire as the situation may be, it also begs the question, a practical though possibly an unpopular one: if you can’t afford to buy, why not rent?

This is what entrepreneur Joachim Sebastian, 29, has chosen to do, as he grows his e-commerce business. He has been renting a double-storey terrace house in Ara Damansara — a property that would have cost him RM1 million or about RM4,800 a month if he had chosen to buy it — for RM1,700 a month since 2014.

Sebastian lives on the gated and guarded property, which also has a nearby playground, with his wife, one-and-a-half-year-old son, and his brother. He said renting has allowed his young family to pare down their monthly overheads and to focus on growing his business.

“I see myself buying a property down the line but, at the moment, renting allows us to get a much better house than what we can afford,” he said, recommending renting as a cheaper alternative for young families, and one that should not be viewed as “wasting money”.

“It’s a lifestyle choice, and the quality of life is great, compared with the stress of owning a house straight away [after starting a family] and then not having the income (to support that choice),” he added.

The drawbacks to renting are mostly the uncertainty of the tenure if the landlord decides to terminate the lease, and the inability to renovate the house according to individual preferences, he said. But these, he noted, pale in comparison to the benefits he has experienced so far.

“If we had bought before we entered into this (current property) market, we would have been stuck with a very high mortgage right now, with no way to escape. By renting, we will be able to buy the home we want later, when we can afford to,” he added.

There are also those who have chosen to rent for life — or almost as long — not only because affordability is an issue, but also due to differing priorities.

Cindy Lim’s parents, for one, never bought a house and were renting up until five years ago.

“As far as I could remember, we had always been renting. From time to time, we would move if the lease expired or if we found a cheaper rental. My father was a construction worker and his income wasn’t steady. My mum was a housewife,” said Lim, 34.

With three children, the couple invested all they had in their children’s education. “To be fair, my parents could have afforded a property if they wanted to, but their priorities were different. Their focus was us children.”

It was only after Cindy Lim started working — and saving for 5 years — that she could afford to buy a house for her parents. And it was no easy feat for her either, as she started work as an audit assistant with a monthly salary of RM800 about 10 years ago.

It was through sheer hard work and grit — and taking night courses to get herself qualified as a certified auditor — that eventually helped her move from the RM800 job to owning a small accounting firm, which brings her a personal income of between RM15,000 and RM20,000 per month.

After her career stabilised five years ago, Lim bought her first property — a terrace house worth about RM200,000 at the time — for her parents in Malacca. The Kuala Lumpur-based single herself has been renting from the start of her career until last year, when she bought a condominium worth RM400,000 in the city.

Perhaps Lim’s experience is not a common one. But it has parallels to Ernest Cheong of Ernest Cheong PTL Chartered Surveyor’s experience. He started out as a paint salesman when he first graduated in the 1960s, and only bought a house after saving — and renting — for 5 to 6 years.

“I rode a motorbike; I rented, and I saved. I put myself through night school (to get my surveyor qualifications). We were ready to suffer, to work for it (what we wanted),” he shared.

Though Cheong has been expounding since 2013 that house prices have escalated beyond what more than 60% of Malaysians today can afford, ironically, he thinks the present situation of high prices and tougher economic environment is also “good for their souls”.

“It teaches them (the younger generation) the value of money. And some of them will have to accept the fact that they may never be able to afford a property,” he said.

This, he believes, will force them to reconsider their priorities. “Why must you drink at Starbucks when you can have teh tarik? Why must you drive when you can take the bus? Why must you own a house if you can’t afford it? What is wrong with renting?” he asked.

 

Renting offers flexibility, mobility

BNM also believes renting — besides the construction of public housing and a substantial increase in the supply of affordable housing — forms part of the solution to ensure that low- and middle-income households have access to quality affordable housing.

“In other countries, the rental market is generally accorded equal priority in national housing policies, serving as an important alternative to homeownership. This is evident particularly in countries with unaffordable house price levels.

“In Switzerland, Germany and Australia, the vibrant private rental markets have contributed towards ensuring sufficient supply of houses to meet the needs of households with diverse income levels and preferences, as well as the shifting demographics."

"With changing social preferences in a highly globalised world, renting offers households the flexibility and mobility to move for career and education opportunities,” it noted in its Annual Report 2015.

Rental rates have also remained largely flat in the last 5 years due to oversupply, especially among higher-end properties, which have left individuals spoilt for choice.

With house prices escalating faster than rental rates, rental yields for home owners have been compressed, according to CH Williams Talhar & Wong managing director Foo Gee Jen.

Foo also thinks that renting is a viable choice for those who can’t afford to buy, albeit not a long-term one, as most Malaysians prefer to own their own property, be it for investment, hedging of inflation, or as a legacy for their future generation, he said.

“It’s a mindset thing. Malaysians — like most Asians — prefer to own.”

 

House price rental graph.

 

Buying properties for investment is now less attractive

But under prevailing conditions, investing in properties for investment has become less attractive as prices have begun to stagnate and rental yields ease, largely because of slower demand as well as increasing supply, said Yeah Kim Leng, business school dean of the Malaysia University of Science and Technology.

“So that has caused rental yields to come off and because of the high property prices, it actually makes sense for some businesses to rent rather than to own (property),” he said, adding that the scenario is similar in the residential property market.

The market is expecting a drop in housing sales in the last half of 2015, and the first quarter of 2016, pending the release of the Property Market Report 2015 from the government, said ExaStrata Solutions Sdn Bhd chief real estate consultant Adzman Shah Mohd Ariffin.

“More owner occupiers are seen to make enquiries, (while) investors are more cautious since most have existing inventory which has not been disposed of,” he said.

 

Full story and research image adapted from The Edge Financial Daily article entitled "If can’t afford to buy, why not rent?" on 4 April 2016.

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