Friday, March 16, 2012

EPF's RM1.5b loan scheme: When the crux of the matter is not addressed

A government has the duty to address matters of public housing to those who cannot afford private properties while doing their best to maintain the prices of properties in check.

What we have seen over the last many years are sheer lack of interests to address matters with regards to housing by the Malaysian government. There are just too many cases of property developers abandoning projects and eloping with the deposits and any other progress payments that cheated buyers have made. After many disappointments and through lack of initiatives to keep prices of properties in check especially in Klang Valley, Penang and Johor, they have come out with this scheme that can be considered to be a joke.

What can EPF (who is supposed to be protecting the savings of the Malaysian employees) do to help public housing? Provide financing at high interest rates to high risk clients? That is not the solution. The poorer group cannot afford to pay high interest rates on top of the principals especially with matters concerning the biggest portion of payment out of their monthly household income. At 6.5% to be charged, it is way higher than the current market rate of 4.0% to 5.0%. Housing firstly should be made affordable to all. Then you will not see situations of a huge "baby boomers" group being left out of doldrums without a roof under their head due to price.

There are 9 local banks in Malaysia (largest 3 out of 4 are owned by government), because of pure greed did not do anything to keep the spiraling property prices in check over the last 5 years. If I may, I would go to the extent to call that it is the financial institutions that have greedily speculated the property market together with the developers at the expense of the consumers. Yes, they are the ones that provide financing for 2nd and 3rd home (etc) with almost zero upfront payment terms and up to 40 years. Beyond 30 years financing, this is basically asking for the children of the borrowers to bear some of the burden as very few can have the liberty to maintain their jobs past 60. If you are encouraging a wealthier group to own more than 1 property with ridiculously low barrier of entry, this is what happens. It becomes a massive speculation.

Then you want to charge the poor (who already cannot afford) a higher interest rate. This is pure capitalism at play! Cheaper or subsidized financing for the ones who deserve it should be from the government's coffers. A government has many sources of income. Chief among them from taxes. And for this government, they should look at education, health, affordable properties and security as their main concern.

EPF's role has for so many years been providing loans to the government by subscribing to the Malaysian Government Bonds. Yes! with the funds continue to grow at a very fast pace, EPF is finding it tougher to allocate funds and provide the returns its depositors are expecting of them. But lets not reinvent the wheel with a creative scheme where EPF will lend the money to a special purpose vehicle, with guarantees from DBKL. In financial terms, this is an "off balance sheet" item for the government which they will bear anyway. Surely one could remember the biggest "off balance sheet" trick which went wayward awry was the House of Cards created in the housing collapse in US.

While the first RM1.5 billion is a small start as opposed to the size of the housing collapse in US, I am sure if not in check the government of the day (knowing them) would create a bigger hole.

Tackle the bulls by the horn. Housing should be the problem (no matter how difficult) for the government to address, not by some creative schemes.

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