Write an article about The household debt in Malaysia explained .Organize the content with appropriate headings and subheadings (h1, h2, h3, h4, h5, h6), Retain any existing tags from In 2023, housing and vehicle loans accounted for 60.5% and 13.2% of household debt, respectively, according to data cited by the finance ministry.
PETALING JAYA: Owning a house and a car is the benchmark of middle-class success in Malaysia, but it is also a big reason why many are falling into debt.
At the recent Malaysia edition of BBC World Questions, Tricia Yeoh of the University of Nottingham Malaysia said housing and vehicle loans make up the bulk of household debt in the country.
According to data cited by the finance ministry, home loans – at 65% -accounted for the largest portion of household debt in 2023, followed by vehicle loans, at 13.2%.
FMT takes a closer look at the root causes of Malaysia’s rising household debt, and what needs to change.
A car for every household, but at what cost?
Buying a car in Malaysia goes far beyond the sticker price, with multiple taxes and charges inflating the final cost.
Universiti Putra Malaysia’s Law Teik Hua told FMT that taxes and levies can push car prices up by as much as 30% to 50%. Here’s a breakdown of those duties:
- Excise duties: 10% to 105%
- Import levies: Up to 30%
- Sales tax (SST): 10%
That is before the cost of insurance, which hovers between 1% and 3% of the vehicle’s value, is factored in.
Even after buying a car, ownership costs continue to mount. Interest, typically between 3% and 5%, is payable on vehicle loads. Car owners must also stump up for annual road tax and insurance renewals and maintenance costs that can range from RM2,000 to RM5,000 a year.
“Many Malaysians are over-leveraged on car loans. The normalisation of long-term loans for up to nine years and loan-to-value rates of up to 90% have also encouraged overborrowing,” he said.
The invisible ‘trap’ in owning a home
National House Buyers Association honorary secretary-general Chang Kim Loong said a home should cost no more than three times a household’s yearly income, but most Malaysians face prices nearly five times higher.
He said a household earning RM5,000 a month should be buying homes priced below RM180,000, but many are overextending themselves with longer loan periods.
“The average mortgage tenure is now around 30 years, with many stretching it to 35 years just to lower monthly repayments.
“Property developers are even pushing for two-generation loans of 40 years or more, which is absurd,” said Chang.
Debt by design? Financial expert weighs in
Financial planner V Rajendaran said housing and car loans combined should not take up more than 40% of one’s monthly take-home pay.
Housing loans should ideally be capped at 30% to 35% while car loans should remain within the 10% to 15% range, he added.
“However, many Malaysians overextend, especially on cars. It’s not uncommon to see car loans alone taking up 20% to 25% of income, which is financially unsustainable,” he said.
Rajendaran said that many young Malaysians can’t tell the difference between needs and wants, and are thus easily swayed by lifestyle-driven spending pressures.
“At the same time, housing prices and car costs are structurally high relative to Malaysian median income,” he added.
The way forward
On the BBC talk show, Yeoh said the data on household debt should spur the government to reassess its housing and vehicle affordability policies.
In a similar vein, Rajendran said policy reforms were urgently needed.
“Even well-informed individuals can be trapped in debt cycles due to systemic cost pressures,” he said.
Law proposed lowering excise duties, expanding public transport outside of the Klang Valley, and capping car loan repayments at 15% of income.
Chang called on developers to prioritise the building of affordable housing for first-time buyers, subject to stringent resale conditions, with good access to basic amenities and public facilities.
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