RM1.5tril household debt fuelled by soaring house prices
PETALING JAYA: Malaysia’s surging household debt, which has now touched RM1.53 trillion, has been driven by increasing home ownership and exacerbated by rising house prices, say economists.
Center for Market Education CEO and economist Carmelo Ferlito said based on Bank Negara Malaysia (BNM) data, the growing trend in household debt centres precisely on household loans.
In its Economic and Monetary Review 2023, the central bank reported household loans, particularly for home and car purchases, were the key drivers of loan growth, with outstanding household loans growing at 5.6% compared to 5.4% in 2022.
Loans for residential properties made up 60.5% or RM928.1 billion of the total household debt of RM1.53 trillion as of December 2023.
“You can’t push on home ownership without pushing on household debt,” he said.
He highlighted that during the Malaysian housing bubble from 2009 to 2013, home prices grew much faster than wages and much faster than the average rate of inflation.
“With these conditions, the government narrative and the cultural pressure on home ownership surely translated into financial pressure,” Ferlito said.
An International Journal of Economics and Financial Issues report titled Boom-Bust Housing Price Dynamic: The Case of Malaysia stated that housing prices in the Malaysian market during that period increased by 9.5% a year.
This was comparable to the rates in some Organization for Economic Cooperation and Development (OECD) countries that experienced housing booms before the global financial crisis of 2007-2008, ignited by the subprime mortgage crisis in the US.
The average rise for the UK was 8.6%, 11.3% for the US and 13.3% for Ireland for the period 2006-2007, the report said.
Total household debt has been on an upward trajectory in recent years from RM1.19 trillion in 2018, rising to RM1.32 trillion in 2020, RM1.38 trillion in 2021, RM1.45 trillion in 2022 and RM1.53 trillion in 2023.
Housing loans to rise further
Bait Al-Amanah analyst Yugendran Sivakumaran said that the household debt is expected to rise by the end of this year, as well as next year, due to the Housing Credit Guarantee Scheme (HCGS) announced in Budget 2023.
The HCGS guarantees home financing of up to RM5 billion in 2023 for applicants who have irregular incomes. This may incentivise and make it easier for around 20,000 Malaysians to get a home, he pointed out.
“Yet one thing I do find worrisome is that personal financing is 12.6% (of household debt), which is relatively high compared to vehicle loans, which are at 13.2%.
“With the number of government incentives, we need to tread carefully, not overdo it and have proper vetting measures in place,” he told FMT Business.
Yugendran has also welcomed BNM’s prudent approach to addressing high household debt risk by improving the public’s financial literacy level and encouraging households that have substantial borrowings to follow the Credit Counselling and Debt Management Agency’s (AKPK) online financial education programme.
“I think this is an incredible initiative, as many Malaysians are still not well-versed in how repayments work, especially when it comes to nominal and compound interest rates,” he said.
Economist Shankaran Nambiar of the Malaysian Institute of Economic Research (MIER) said the increasing household debt is a sign of the tightening conditions that households have to endure.
Nambiar added that debt would increase either because of a lack of financial prudence or simply because households do have not much surplus after spending on essential items.
“If it is a case of financial indiscipline, counselling and debt management will help, but if the increasing debt is due to the increasing cost of buying the same basket of goods, then no amount of counselling will help.
“Households have to be watchful to avoid progressing into greater financial difficulties,” he told FMT Business.
