Middle Class Affordable Housing Scheme NOT Affordable

While having my morning cup of coffee and a cheese sandwich, the news below caught my eye.

PETALING JAYA: Middle class Malaysians who are aspiring to buy a home will soon be able to do so once a new Government-led initiative to build apartments costing less than RM300,000 in major cities is launched this year, Housing and Local Government Minister Datuk Chor Chee Heung said.

The affordable housing scheme, which is an addition to the My First Home Scheme for units costing between RM100,000 and RM220,000, will see stratified units priced between RM220,000 and RM300,000 being built for those with a household income of less than RM6,000 a month and who do not yet own a house.
~ source ~ The Star Online (click on link for full story)

My first reaction was, this will not work. If they are going to restrict purchase of properties priced RM300K and below for those with a household income of less than RM6K, those who earned RM6K and above will find themselves unable to purchase a home of their own while those who earned less would not be able to afford this so-called affordable housing. 

In today's rising costs, if you earn RM6K a month as an individual, you do not have much disposable income. What more if it's a household income of less than RM6K, which translates to less than RM3K as an individual. But this is another issue. I only want to find out if those with a household income of less than RM6K could afford a home of RM220K to RM300K.

I will use the ceiling of RM5,999 as the household income in my calculations. I am using an example of a husband and wife with no kids. What is the actual take home pay this household has? RM4,976...after deducting EPF and tax, with the allowance amount taken into consideration before calculating the tax amount. (I did not take Socso contributions into account as the amount is rather negligible and some employers opt not to deduct Socso from their employee's salary.)

Let's take a look at the disposable income this household has. Out of RM4,967, a portion has to go towards car installment, utilities, petrol, parking fees and toll. I'm not even going to take into account the cost of a car's maintenance! Let's assume this household owns only one car.

RM4,967 - RM800 (car installment) - RM200 (utilities) - RM500 (petrol, a conservative figure) - RM100 (parking fees and toll, another conservative figure) = RM3,367. 

RM3,367 is the remaining disposable income for this household. And what is the monthly installment payment for homes costing between RM220K and RM300K?

The monthly installment for a RM300K home would be RM1,467* if they are in their 20s or early 30s and could get a 30-year loan. For a RM220K home, the monthly installment for this young household would be RM1,076*. 

So, if this household is foolish enough to buy a RM300K home, they will be left with only RM1,900, a sum hardly able to sustain a household. If they were to buy a home at the bottom of the range, their monthly disposable income, after deducting the house installment would be RM2,291. Still not a healthy disposable income for a household, but at least slightly better than if they had bought a RM300K home. (Bear in mind this is not an individual income, but household income.) And I am not even looking at a household with kids!

*Note - the best quote I know from a foreign bank.