How Intervention By Government in Economic Welfare affect Real Estate Sector PDF

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Warning: TT: undefined function: 32 Warning: TT: undefined function: 32 Name : Asmeer Nor Aqilah Binti Amiruddin • Student ID : 2019893522 • Class : AP2254E • How Intervention by Government in Economic Welfare affect RealEstate SectorIn general, economic welfare is easily refer to how economic polic...

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• Name : Asmeer Nor Aqilah Binti Amiruddin • Student ID : 2019893522 • Class : AP2254E •

How Intervention by Government in Economic Welfare affect Real Estate Sector In general, economic welfare is easily refer to how economic policies affect the well-being of community. The determinant of economic welfare is influenced by the quality of life factors such as cost of living and housing. According to the news reported by The Star, The Malaysia government has spent approximately RM41.1 billion on various rakyat welfare programmes from year 2014 until 2019. This allocation is designated by the government to ensure that the social security of low-income earners, hardcore poor households, senior citizens and people with disabilities is fully safeguard through Bantuan Rakyat 1Malaysia(BR1M), Kuala Lumpur Homeless Transit Centre, and many other welfare programmes. Why does the government spend vast sums on welfare system? This is because to prevent market failure. Market failure occurs when the price system leads to inefficient distribution of resources and a deadweight loss of economic welfare. Market failure can be corrected through government intervention in effort to stimulate back the economic growth whereby the marketplace can no longer accommodate public services and control externalities. The purpose of this essay is to investigate the relationship between the determinant of economic-welfare issues (cost of living and housing) in real estate industry. Recently, a significant rising in the cost of living has drawn a major concern from Malaysians especially low-income groups and M40 class of citizens who are the core drivers of domestic consumption. Rising price in cost of living has a relatively huge effect in the economic welfare. Based on the Malaysia’s Consumer Price Index (CPI) recorded at January 2020 roses at 1.0% compared to December 2019 at 0.9%. This indicates a bad sign for the economy just as the purchasing power has been eroded by inflation. The fact that a household requires to spend more Ringgit in favor of maintaining current standard of living shown an obvious effect of changing price on consumer welfare. Therefore in recent Budget 2020, the Government has tabled various incentives, programme, subsidies and policies to help society cope with the ever-increasing cost of living . Bantuan Sara Hidup scheme, minimum wage increments from RM900 to RM1,100 monthly, the cost of living allowance specified for civil servants of Grade 56 and below, fuel subsidy for motorcyclists are among the government measures to provide an equitable standard of living to Malaysians. Living costs are reliant on two elements which are income and price. Hence, it would not be an exaggeration to say that cost of living is a key driver of the housing market. As an example, the disproportionate increase in living expenses has caused most Malaysians disability to purchase a house resulting from low salary, house price is far beyond their affordability. In consequence the excessive supply of unsold property occurs. Data recorded by Bank Negara Malaysia states that the number of unsold housing units increased to 177,200 units (1Q:2019) with more than 80% of unsold units priced above RM250,000. Housing price control must be established by the government in handling the issue of housing affordability to facilitate homeownership for M40 and B40 other than various initiative which include Rent-To-Own Scheme, My First Home Scheme and 1Malaysia People’s Housing Programme. This issue needs to be addressed well or otherwise it is seriously unaffordable for average Malaysians to own a home in Malaysia with the shortage of affordable housing.

By using a household-centric perspective to measure the influence of housing in economic welfare, almost 30% Malaysians reported were not having enough money for shelter based on the Gallup World Pool. This is more remarkable among the urban residents than those in rural areas. Nevertheless, expensive housing price is commonly seen as an urban issue rather than a potential market failure in housing. Market failure in housing happens when house prices have gone up ahead of inflation which has caused many people struggling to pay for housing and create inequality of wealth, particularly millennial. Other example of housing market failure includes empty housing & homelessness, chronic supply of homes which creates excess demand and labour immobility due to high house price & rents. After having taken previous said situations into consideration, the government has formulated various policies and programs towards addressing this housing issue which includes the involvement of private sector to deliver affordable houses through open market with fewer restrictions imposed. Apart for that, the government intervenes in housing market through subsidies and incentives. Symbolically, subsidies and incentives are government-provided funds that empower supplier to lower price on the demand side and further promote to produce more houses on supply side. Stamp duty exemption for property up to RM1 million, Youth Housing Scheme, MyDeposit to assist first-time homebuyers are part of subsidies and incentives offered under The Home Ownership Campaign in effort of the government to settle homeownership issue among Malaysians. In conclusion, it would appear that the relationship between the determinant of economic welfare (cost of living and housing) and real property industry has always been closely related. An increase in the inflation rate has a knock-on effect to the cost of living which especially felt by B40, M40 and those who live in developed areas further cause an uproar dumping of houses in the property market for a reason that the market has failed to achieve economic efficiency. By this point, government role in the market is crucial. The government may resolve those deficiencies by offering subsidies, incentives and policy. It is notable that the interventions by government have a significant indirect impact on the housing sector rather than a direct effect on sector. With that being said, hopefully the government can urgently rethink of affordable housing policy framework by first determining the current eligibility and identify beneficiaries for affordable housing as the house price is soaring up faster than the income to ensure the economic well-being of Malaysians is protected .

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