THE proposed Residential Tenancy Act (RTA) involves a third-party mechanism – in this case the government instead of a third-party company or platform – to manage security deposits, disputes and rent adjustments. 

This has sparked a debate on whether the government should intervene in the market or the degree of government intervention. 

Media interviews typically covered both sides of supply and demand for rented properties: representatives of housing developers, such as the Real Estate and Housing Developers’ Association Malaysia, and representatives of quasi-tenants, such as National House Buyers Association (since there is no tenant association at national level currently).

This article intends to examine whether there is a need for a third-party mechanism in the housing rental market to protect tenants’ welfare and, at the same time, address some of the concerns of landlords.

Unequal level of playing fields

Current legislation has several laws to cover tenancy agreement related matters, such as Contracts Act 1950 (for conflicts over tenancy agreements), Civil Law Act 1956 (payment disputes), Distress Act 1951 (eviction), Specific Relief Act 1950 (prohibits landlords from evicting tenants or making the property inaccessible to tenants without a court order). 

However, it is too expensive for the tenant to take legal action if the landlord breaches the contract, according to a cost-and-benefit analysis carried out by the government. 

In real life, a tenant will try to avoid a legal process as much as possible even if the owner does not fulfil the tenancy contract.

The legal process could cost between RM3,000 and RM15,000. Legal aid in Malaysia, such as Legal Aid Department Malaysia and Bar Council Legal Aid, do not cover matters related to tenancy agreements. 

In most circumstances, the tenant will try to directly negotiate with the owner, facing the tough choice of whether to compromise or leave the property if the tenant cannot persuade the owner to fulfil the tenancy agreement. 

Hence, the government, as the designated third party, comes in to play the role by standardising the tenancy agreement template so as to ensure some essential criteria and obligations would be fulfilled by the landlord. 

The government also collects the security deposit on behalf of the landlords so that the latter cannot use the security deposit as a tool to pressure the tenants to back down during a negotiation.

A key measure in the RTA is that the government will also set up a tribunal so as to lower the legal fees involved for the affected tenants. This would effectively protect the tenants, currently on an unequal level of playing field with the landlords.

Not a full market intervention

Current background checks of tenants usually look into details such as age, race and occupation, but usually do not involve the tenants’ financial health and criminal record. 

The RTA may incorporate financial health checks by using Central Credit Reference Information System (CCRIS) or CTOS credit check to access the tenants’ bankruptcy history, their debt obligation and repayment history.

However, the drawback of this mechanism is that it will add to the administrative burden (workload and cost) of the housing regulation agency. 

The alternative would be to let both landlord and tenant decide whether they need to conduct a financial health check and the cost each side has to bear since CCRIS and CTOS can easily be purchased online for around RM10. 

Through the market mechanism (responding to the tenant’s financial health), insurance will also be introduced for the landlords to mitigate their risk.

Address some concerns of landlords

On the other hand, landlords have some concerns over tenancy agreements – that there should not be a one-size-fit-all template. 

Also, landlords are afraid that security deposit payments will take longer to reach them.

The government can stipulate that some of the clauses must be standardised, recognising the different nature of renting a room as opposed to renting a house. 

In addition, the government should learn from financial institutions by disbursing the fund in a few working days once the application of return deposit to tenants or deposit claim by landlords is submitted.

Housing affordability still a long way off

In a nutshell, the need for the government to intervene is justified in the matter of tenancy agreement, security deposit and tribunal. 

This article does not discuss rental control and racial discrimination, as these are other big topics that should be dissected separately. 

Regulating the housing market does not just protect the welfare and rights of tenants but can also, to a certain extent, address the housing market mismatch issue by providing another viable alternative for the tenants to make them feel more comfortable and secure. 

Nevertheless, the RTA would still have its own limitations in terms of addressing the issue of housing affordability, since housing development projects will still be playing a huge role in stimulating the economy to create so-called Keynesian multiplier effects. 

In the current system, property is commonly seen as an investment tool and social class determinant in the capitalist system. 

Housing mismatches will not be solved, even with the RTA, until comprehensive housing policies are implemented. But the RTA definitely has its functions and its role to play to make housing tenancy more pleasant, predictable and hence, sustainable. – April 11, 2022.

* Nick Tan Beng Teong graduated with Bachelor of Economics at University of Malaya. A member of Agora Society, Tan believes in policy reforms in order to build a better nation.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.