If it helps rein in soaring house prices, why not?

A proposal by Bank Negara Malaysia to change the way mortgages are calculated is excellent. It will greatly reduce the amount the public can borrow.

More than three years ago, my wife and I missed a chance to own our dream double-storey terrace house in Bangi. The price was about RM230,000 or RM217,000 after a 7 per cent rebate for Bumiputeras.

That house was under the first phase of a new township, whose units were snapped up within hours. A few months later, the second phase was launched, and the units under it, with slight upgrades from the previous phase, started from well over RM300,000 and were literally sold out too within hours.

I don't know exactly how the price for a more or less similar product had risen dramatically within a short span. My guts told me that it was due to a combination of the developer's reputation and quality and great demand for new houses in Bangi. Or perhaps, it's because of expectations (read speculation)?

Some observers said property rides on expectations. If people expect prices to go up in a foreseeable future, many may find out that properties will forever be out of their reach. Indeed, property prices in Malaysia have never eased during the past few years. As it stands today, the affordability ratio has gone through the roof.

A survey done by a publication on housing affordability saw property prices increasing from 5.9x income in 1989 to 10.9x in 2010. Left unchecked, it will soon climb to 15x your annual income.

It is also reported that the household debt-to-GDP (gross domestic product) ratio in the country has reached nearly 76 per cent, which is on the high side compared with our counterparts in Southeast Asia.

Hence, a proposal by Bank Negara Malaysia to change the way mortgages are calculated is excellent. It will greatly reduce the amount the public can borrow. The computation is supposed to be based on net income, and not gross income. That could reduce the amount that can be borrowed between 14 per cent and 37 per cent, according to a research house.

Certain parties can sigh and whine, but such proposal is a belated move to curb rising household debt. Yes, there could be an impact on the demand for affordable properties priced between RM100,000 and RM300,000. Yes, there could be slower take-up rate from the low- and middle-income segments that will result in the long run, slower delivery of affordable housing projects. And yes, ordinary wage earners could be affected more than the high-income segment.

But any good move to nip the household debt in the bud should be lauded. In other words, any good move to cool down soaring housing prices (and credit card loans) must be supported.

By Business Times