Affordable rent-to-own scheme for the youth of B40

By Sofea Azahar,

In addressing the issue of housing affordability and ownership within the youth in low-income group (B40), one way to go about it is by implementing Rent-to-Own (RTO) scheme across the affordable housing units.

Some might ask why is this needed? They would be able to afford a house since they are “affordable”. But the terms “affordability” and “affordable housing” should be adequately defined so as not to confuse people as affordability varies from state to state and not everyone will be able to even afford the affordable houses.

The crux of this issue is that anecdotal evidence has shown that it will become harder for youth to purchase a house amid this challenging time when employability is uncertain for them as new entrants in the labour market. Therefore, they are at risk of earning stable and sufficient incomes.

There was a positive first signal in May after the announcement made by the Federal Territory Minister Annuar Musa about the government considering a Rent-then-Own scheme for B40 youth in Kuala Lumpur who are civil servants or running their own businesses but cannot afford their own homes.

Under the proposed scheme, over 1,000 housing units will be rented out for RM800 to RM850 per month while waiting for affordable houses priced less than RM200,000 to be built. Once the housing projects are completed, the rental payments can be used to pay for deposit for the new house or used as a rebate.

Perhaps the same scheme can be implemented in other states, say, for youth who have to reside in other states for work purpose and they plan to own a house but are unable to. Instead of going through the difficulties to own a house, they can be given the option to rent first while saving money to buy the house in the future.

Under the RTO scheme, the B40 youth who are first-time house buyers should be given the assistance to rent houses at affordable rates for a few years and allow them to purchase the house at the end of the rental period or when they are able to secure mortgage loan from the banks.

Through this scheme, the attraction seems to be that the entry cost is low because the tenants do not need to pay for the 10 per cent down payment.

To make it workable, the government alongside financial institutions and property developers should collaborate to try to cater to this group’s needs in the most effective and coordinated way.

This move should be welcomed as it could help address the worries in relation to home ownership for the youth – difficulty in getting loans and insufficient money to pay for the 10 per cent down payment.

It could also help solve the issue of property overhang in the country which involves affordable homes priced at RM200,000-RM300,000, accounting for 43 per cent of the total in the first half of 2019, according to the Valuation and Property Services Department (JPPH) as reported by Free Malaysia Today.

This measure can be in conjunction with the Housing Integrated Data System (HIDS) whereby buyers can select their preferred location and type of house which suits their incomes, expected to be ready by next year.

With this convenience, the underprivileged youth can be prioritised in the allocation process of affordable housing units. If they are still unable to afford the house, they can be directed to the RTO scheme.

Although the Home Ownership Campaign (HOC) has been lauded by the public due to its incentives, RTO scheme could be another booster to help youth to afford their own home as some are still constrained from purchasing due to the issue of affordability, job stability, commitments and high house prices, based on a survey conducted by City & Country.

Considering youth are likely to be part of the B40 group who are found to allocate the highest share of their expenditure on housing – 25.6 per cent – and income growth tends to not keep up with the growth in house prices, the issue of housing affordability should be addressed.

With that being said, the rental market should be strengthened further to become a viable option for youth who are financially burdened in the short term. Hence, an RTO scheme should be one of the action plans to be looked into.

Sofea Azahar is Research Analyst at EMIR Research, a think tank focused on strategic policy recommendations based on rigorous research.

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