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The case for an open housing market

  • A market opening, through targeted marketing campaigns, should help clear the country's massive luxury property stock.

By Carmelo Ferlito

Housing and Local Government Minister Zuraida Kamaruddin recently announced a prospective Home Ownership Campaign (HOC) for foreign buyers, mentioning in particular that the government is going to target Hong Kong and China. The new HOC will be limited to high-end properties. I believe that the proposal may have the effect of supporting a segment facing important difficulties and at the same time it appears unlikely to create market distortions.

The announcement encountered several criticisms; in particular, the Minister was accused of not caring about local citizens’ welfare, while the biggest concern among analysts and lay people seems be that the new proposal may result in foreigners hoarding properties and further pushing prices upward. It is not a secret that I have been quite critical about the housing policy implemented both by the new government and the previous one. However, in this specific case I believe that the raised concerns could be excessive. In fact, I find myself quite in favor of a market opening – through targeted marketing campaigns – to help the luxury homes stock to be cleared.

It has to be noted that the proposal is targeting high-end properties. While it is true that additional pressure from the demand side can generate an upside movement of prices, it is also true that, in case of luxury goods, we cannot expect, even in a moment of low demand like the present one, a significant reduction in price, to the extent of making those properties affordable to the middle class. While the inflow of financial resources following the eventual incoming of new buyers would be of help for the general economy, the opening of the market will also help mitigating the negative consequences on the economic system generated by the property glut.

I must add, however, that the proposal is expected to be not distortionary if three conditions will occur:

- The price thresholds for foreigners (in this specific scenario) would be maintained.

- The government activity would be limited to marketing and institutional support.

- No new financing support would be introduced.

It is important to design the new HOC in a way in which the market opening occurs mainly because of a good marketing campaign, rather than introducing credit facilities.

An additional measure that might be studied is the possibility to lift the price thresholds for those foreigners that stably settled down in Malaysia and who can comply with non-speculative intentions according to standards that can be identified. In a paper of mine, I proposed, in example, to include, among the TalentCorp program benefits, the possibility to buy properties without price thresholds. Additional requirements to avoid foreigners to hoard houses and manipulating prices can be studied.

Coming back to the specificity of the new HOC, a concern that could be raised is the possibility that, with new demand inflowing in the high-end segment, developers may decide to further focus on that market, marginalizing their activity in the affordable home segment. In order to address concerns regarding the affordable housing issue, I suggest a change in approach which could rebalance the different roles played by the market and by the government with reference to housing.

First of all, I suggest to separate the discussion between social housing and affordable housing. The first term and related policies should target the real poor segment of the population, that can be identified as the B10. Indeed, a B40 policy, targeting almost half of the population, fails to appreciate the micro-differences within the category and risks to miss to achieve the planned objectives. By targeting the B10, instead, government would support people really experiencing a general shelter problem; in this case, rental support rather than ownership support (i.e. more credit) should be preferred to preserve the financial stability of the beneficiary households and at the same time to address their need for a shelter.

Finally, I believe that affordable housing initiatives can be taken by private developers, and therefore can be market driven, if the government would gradually step back from direct intervention, like it has instead been done in the past years with government and state agencies. Similarly, fiscal incentive can be proposed, in particular to support the emergence of new technologies. In the long run, only entrepreneurially driven technological development can bring along a real change in the market and affect the price structure.

(Carmelo Ferlito is Senior Fellow, Institute for Democracy and Economic Affairs, IDEAS)


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