The Business Times: 11 January 2008

A GOVERNMENT initiative to boost home ownership is expected to ‘free up’ billions of ringgit from a national social security fund, and boost property sales.

Beginning January, members of Malaysia’s Employees Provident Fund (EPF) are allowed monthly withdrawals to fund mortgage payments for one property under the scheme which was proposed in last year’s national budget.

The EPF is a national compulsory savings scheme funded by contributions from both employers as well as employees. Thirty per cent of such contributions are maintained in a separate account called Account II.

Members can now withdraw from Account II for such a purpose, the significance of which has been underestimated by the market, according to stockbroker Credit Suisse First Boston Malaysia (CSFB). Should EPF’s entire estimated membership of 5.4 million take up the offer, an estimated RM9.6 billion (S$4.2 billion) would be ‘unleashed’ annually for home purchases, CSFB observed.

Mass-market developers are likely to benefit the most, it said in a report which pointed out Singapore properties received a shot in the arm when a similar proposal was implemented for its Central Provident Fund (CPF) housing scheme. The main difference was the maximum withdrawal permitted - under Singapore’s CPF, members could take out 22 per cent of total salary compared with 7 per cent under the EPF scheme.

While the impact of the EPF initiative would be less, property players expect it to help spur demand. With inflation rising, the initiative would ‘lighten the burden’ of borrowers, particularly lower-to-middle income end users as opposed to investors, said Gamuda Land senior general manager Angela Tham. ‘Most buyers can come up with the 10 to 15 per cent downpayment, but have difficulty funding the rest,’ she said.

Ms Tham’s observations gel with statistics which show that nearly 80 per cent of property transactions involve units costing less than RM200,000. Those costing RM50,000 to RM100,000 account for slightly over a quarter of total transactions.

Home ownership in Malaysia is about 67 per cent, CSFB said, adding that RM9.6 billion is equivalent to a third of 2006’s residential property transactions by value. The amount is also double the estimated residential property stock overhang in the country of RM4.2 billion. Of the 25,300-odd units unsold, Johor has the largest, or nearly a third, of total overhang.

December was a good month, according to Johor Real Estate Housing & Developers’ Association chairman Steven Shum. Mr Shum told BT higher sales were registered because home buyers were worried prices would shoot up further this year owing to raw material cost increases as well as rising inflation.

Although too early to gauge the scheme’s effect, Mr Shum believes there could be an almost immediate effect on two main groups: those who already have an existing housing loan and those that might want to upgrade.

Generally, EPF withdrawal rates have averaged 40-plus per cent while the bulk of members may not act on it, a developer who is less bullish about the initiative observed. Nonetheless he said: ‘The impact is small but the psychology is big.’

Michael Geh of Raine & Horne, Penang believes the EPF scheme, coupled with attractive financing packages, would continue to drive real-estate sales, especially once members see how they can take advantage of the scheme.