Composition of Household Debt

The biggest portion of the Malaysian household debt goes to paying off housing loans followed by passenger car loans, personal use, securities purchase, and credit cards.

Malaysians take on increasing amount of housing loans because of rising house prices, low or negative interest rates, and speculative activities. Banks and other financial institutions have encouraged borrowing by offering low down-payment, some as low as 5% of the value of the property, while developers provide marketing incentives in the form of payment of certain transaction costs and interest- "free" financing during the construction period.

There are strong indicators to suggest that house prices and ability to service housing loans have been overstretched in Malaysia. A ratio of house price to household income of 3 to 4 times is internationally acceptable but this ratio has risen to over 6 times and over 8 times in Kuala Lumpur and Penang island respectively.

Next to housing loans, car loans form the second largest category of household loans. This is due to Malaysia's misguided national car policy encouraging car ownership, to support Proton at the expense of a good public transport system. As a result, ordinary Malaysians are burdened with significant car loans that consume a large part of their income. In fact, car loans are stretched over a long period to enable borrowers to pay off their loans, such that the cars become obsolete no sooner when the loans are fully repaid.

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So ... we have few credit-cards ... and using money beyond our means? And our inflation rate is 5% ... or are they claiming it to be 2%? 

We are in trouble if we still think that we are 'rich' and we could afford many more things ...

Time to be prudent. Be frugal. Be wise ... financially.

TEH