Generational home loans: Carry out careful study before implementing, says Penang state rep

Penang Exco suggests providing generational loans to address the present high home loan rejection rate. (Bernama pic)

PETALING JAYA: Generational or multi-generational home loans may be unfair to the young persons signing such loans, Kebun Bunga assemblyman Jason Ong Khan Lee said today.

He said it may burden the next generation with loans that the person may not be prepared to shoulder.

“One such example would be a parent, upon his child’s 18th birthday, entering into a sale and purchase agreement to buy a house.

“The child, although of legal age to put down his name as a signatory, will be unable to understand fully the consequences of having to service a loan for the next 30 years or so.”

Ong was commenting on a proposal by Penang housing committee chairman Jagdeep Singh on Thursday to extend loan tenures through generational loans to address the present high home loan rejection rate.

He said the repayment period could also be extended beyond the usual 30 years on a case-to-case basis.

Countries such as the UK, Japan and Sweden allow such dual-generation loans, also known as inter-generational loans, in which parents and their children take home loans for a longer mortgage period.

Ong said two years ago, in Sweden, lawmakers limited the 140-year mortgage period to a maximum of 105, in view of rising house prices and increasing debts.

“The only upside to a generational loan is that the purchase price and all subsequent repayments are locked in using the original sales price.

“No doubt a generational loan will benefit some and enable some people to own homes which they could otherwise ill-afford.

“However, home ownership should not be a measurement of a person’s or a family’s status in society.

“We have within our midst, many unresolved and disputed cases regarding property ownership, especially if it is an inheritance.

“If an all-paid-for property can also face problems with ownership, just imagine what a housing loan could mean or if the owner passes away and the relative cannot afford to service the loan.”

Ong said whatever good that could come from a generational loan will most likely be negated by a myriad of problems.

However, he said if the government was serious about such generational loans, a proper study should be conducted first.

“The generational loan should not be approved merely to help the developers ‘clear stock’.

“Market forces should be left alone —without too much government intervention — to determine the level of affordability and marketability.

“That said, the market’s supply and demand should be sufficient to ensure a healthy economy, especially in the property sector. Too much buying will definitely create a bubble and a false sense of ownership.”

Referring to the Budget 2019, Ong said the finance minister announced that those earning below RM2,300 can only purchase houses of up to RM150,000.

“This is a very good move to prevent a meltdown where purchasers without good credit ratings are given loans that they can ill-afford.

“The subprime crisis which resulted in a recession for the United States in 2007 should serve as an eye-opener for us.”

Ong also called for better scrutiny of B40 and M40 individuals who apply to purchase low-cost or medium cost homes. This is to ensure that only those who are deserving and eligible are given the opportunity to buy these units.”

He suggested that independent companies be engaged to audit the housing departments charged with selecting recipients of such houses to ensure greater transparency and put all doubts to rest. - FMT