Recently, the leading state newspaper in Perak carried an article which contained details of the Perak State Government’s budget for 2012 which was tabled before the State Assembly on November 21, 2011 (Ipoh Echo, Issue 133, 1-15 December 2011).
Among the key items of planned allocation in what is clearly a pre-election budget aimed at buying votes for the present state government in the coming elections, the most problematic is the RM60 million fund set up to assist first time house buyers by providing the 10% deposit as required by banks to purchase a new house.
I sympathise with the plight of first-time low-income house buyers and agree on the need to assist them in helping with home ownership. I can also understand the populist intention of the programme. However, this programme – as it is currently designed – is not only likely to fall short of its noble goal but will result in grief to the Perak administration.
I can already foresee the following difficulties:
What will happen if the buyers cannot pay the monthly instalments to the banks? A Housing Loan Manager of one of the leading banks told me that the bank can issue the first letter of demand after the defaulter fails to pay up only after three months. Also that the bank is able to initiate legal action only after three letters of demand have been sent out. In all likelihood, the legal procedure to recover the property will take six months or more. Hence, it could take more than one year at least for the bank to evict a defaulter. By the time the house is repossessed, it would be in such a deplorable condition that the bank will not be able to recover its loan and administration costs in most of the cases. To sell a repossessed property, the bank also has to advertise to invite bids. In most cases, the bank will not be able to get
the reserved price in the first auction. If this happens, the bank will have to reduce the reserved price by 10%. If the second auction is not successful, the reserved price will have to be reduced by another 10%.
What will happen when a buyer cannot pay back the 10% to the State Government? Does the Government have the necessary machinery to recover the debt? As you can see above, there are laws to protect the poor men. Even the commercial banks with all the rules and regulations in place, still have difficulties to recover their money, how can the Perak State Government expect to do better?
The administrative costs to recover the debt is not only likely to be considerable but could also exceed the 10% loan outlay. This will further impoverish the state by diverting resources to unproductive expenditure. What this means is that any recovery of loan funds will be much less than what has been dispensed, leading to a short life-span for the so-called “rolling” fund.
I hope all members of the Perak State Assembly will consider these comments seriously and delay the implementation of the scheme until a later date when all the design and operational kinks and problems are fully understood and accounted for.
A better planned and more stringent housing loan scheme is needed for the state if it is to be sustainable. The unseemly haste with which this poorly designed scheme is being pushed through for the coming elections will surely backfire on the state government and all Perak subjects.
Koon Yew Yin