A misconceived discount for housebuyers?

By Raslan Sharif (The Star)

Doing away with the bumiputra housing discount, which hardly fits in with the goals of the National Economic Policy, will do more good than harm.

I LIVE in an apartment in Ampang. It’s a decent place, relatively clean, and there are trees all around that make for pleasant surroundings.

The unit is on the first floor, so if you forget stuff on the way down to the car, a return trip is a just a quick few steps away.

There’s also the added bonus of the sundry shop being downstairs from my apartment, making late night runs for cigarettes a breeze.

On weekends, I sometimes go down to the swimming pool with the kids for a dip. It’s a small pool but we have loads of fun.

For my wife, my two children and me, this is home. In a few years, it will be a home that we fully own.

It’s not a big one, with nothing much more than 950 sq ft to play with. Yes, it’s small but not as small as some flats that much larger families live in. My children have practically known no larger home than this, except maybe for my son.

Before we moved into the apartment about six years ago, my wife and I lived in a rented house deep in Sungai Buloh, just 2km from the prison.

It was a spacious, two-storey bungalow, with lots of space all around. The surroundings were quiet and peaceful, and the abundance of greenery made for cool evenings.

The rent was cheap not only because of the location but also because of the owner’s generosity in letting us pay whatever we could afford then for the five years that we lived in the house. (I will forever be grateful, sir)

My son spent the first four years of his life there, although he can’t recall much of it now.

My six-year-old daughter does not know what it’s like to live in a house, let alone a house like the one in Sungai Buloh.

Makes me sad sometimes, as they don’t know what they’re missing.

I still remember the wide open spaces of my childhood. The games my brothers and I used to play in and around the house. The hours spent riding around on our bicycles or playing in the fields. The sheer freedom to roam, to explore and to boldly go where you had not gone before.

It was exhilarating. Nothing beats living in a house located in a neighbourhood with space for children to play and move around in.

So what am I doing living in an apartment?

Well, it is not for a lack of wanting. Like not a few other Malaysians, I regularly peruse the newspapers to see if there’s anything that fits the bill.

I came across this humungous house sitting on a 50,000 sq ft piece of land in a swank area of Shah Alam that is said to cost only RM3.5mil. Too bad it’s not for sale.

Jokes aside, I would rather buy a house in a new development project, as it saves me the trouble and the extra money that would go into the dreaded “R” word – renovation.

I’m still looking, as nothing has really struck my fancy except those that come with price tags from around RM500,000 and upwards.

But I can’t afford them, even with the bumiputra discount.

This, as you might have guessed, is where I get to the point of all my rambling.

The goals of the National Economic Policy are the eradication of poverty regardless of ethnicity and the elimination of the identification of ethnicity with economic function.

I’m not sure where the bumiputra housing discount that we see today fit in.

If we nevertheless argue that we want to make the ownership of homes more affordable to bumiputras, then our initial argument must be that there are not enough homes that most bumiputras can afford.

So how do the housing discounts solve this problem, if the problem exists at all?

A RM200,000 house with a 7% discount for bumiputras will cost RM186,000.

Using the home loan calculator at Bank Negara’s Banking Info website (www.bankinginfo.com.my), the difference in the monthly instalments between a RM200,000 home loan and RM186,000 one, with identical 30-year tenures and 10% interest rate (I’m being conservative here), is about RM123.

If the interest rate is 5%, the difference is even lower – a measly RM75.

Now, before you attack me for describing RM75 as “measly”, please note that the respective monthly instalments are RM1,073.64 and RM998.49.

What’s the difference between someone who can afford a monthly home loan instalment of RM1,073.64 and someone who can afford RM998.49?

This is not a joke or a trick question, as the answer is practically none. For all intents and purposes, we can reasonably say that the person who can afford the lower monthly instalment will also most probably be able to pay RM75 more every month.

Of course, the difference is larger for more expensive houses, at least in absolute terms.

For example, a RM1mil home loan at a 10% interest rate over 30 years will set you back RM8,775.72 a month, while a RM930,000 home loan (the same house after 7% bumiputra discount) will have you paying a monthly instalment of RM8,161.42.

That’s a RM614 difference.

Does RM614 a month make much of a difference to someone who can afford a million ringgit home?

You tell me.

As far as I’m concerned, the discounts that we are giving to people who can afford to buy houses at full price do not make sense.

I dare say that doing away with such discounts will do more good than harm.

Raslan Sharif suggests that for a start, let’s get rid of bumiputra discounts for houses costing RM500,000 or more.