Malaysia’s household debt has been growing moderately for
seven consecutive years. In 2017, it grew by 4.9% from a peak of 14.2% in 2010.
As a result, ratio of household debt to GDP declined to 84.3% (from 89% in
2015). Loans for purchase of residential properties represent 52% of total
household loans. The median house price is five times the annual median
household income in many urban centres of Malaysia. And this divergence is
widening, with prices becoming unaffordable for many.
Borrowers are most affected by income shocks than cost of
living or borrowing costs. A 10% decline in total income will severely impact
ability to service loans. This is primarily for those with monthly earnings of
RM3,000-RM5,000. Cost of living may be mitigated by moving further away from an
urban centre while borrowing cost is mitigated by fixed rate loans.
Chart 1
Borrowers are most
affected by income shocks
To curtail unwarranted house price increases, supply of
affordable housing in major urban areas needs to be stepped up. The Government
has several good plans but its implementation always seem wanting. More than
ECRL or other grandiose projects, housing for urban middle and lower income (the
M40 and B40) group requires focus. It is not exciting but certainly meaningful
to meet basic needs of young (and not so young) people.
What needs curtailing is credit card debt, hire purchase
loans and personal loans. Banks tend to encourage these areas in consumer
lending because it is able to generate wider margins. Responsible borrowing
/lending matters. The 2008 Crisis in the U.S. is a great example of
irresponsible exuberance. Moving forward requires structural adjustments on
income, productivity, affordability and implementation processes.
Ref: Indebted to Debt: An Assessment of Debt
Levels and Financial Buffers of Households.
By Siti Hanifah Borhan Nordin, Lim Sheng Ling
and Muhammad Khairul Muizz Abd Aziz, Bank
Negara Malaysia, March 2018
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