THE MALAYSIAN DILEMMA: WHEN BEING IN DEBT CAN BE A ‘GOOD THING’

KUALA LUMPUR – Your household income has risen, but so has your household borrowing to pay for that house you bought a while ago and it feels like you’re living on a thinner wallet these days.

If you’re getting anxiety attacks over your financial future, relax a little. Economists contacted by Malay Mail Online said while recent reports showing increases in both the average household income and debt may look scary, it also shows Malaysians might actually be enjoying a better quality of life.

According to their analyses, most of the household borrowings was because Malaysians are investing in properties, and that, they said, is generally “a good form of debt”.

“In general, Malaysians are doing better as most of them borrow to buy properties,” said Dr Yeah Kim Leng, professor of economics at the Sunway University Business School.

“But if the price of properties climb faster than the climb in our salaries, then it can be a problem,” Yeah added.

However, he also said such a situation where an increase in loans tops the rise in revenue is unlikely due to Bank Negara Malaysia’s (BNM) policy to check growing household debt by making it tougher for banks to simply give out any kind of loan.

Penang Institute chief executive and economics head Dr Lim Kim Hwa also said this pattern should not cause actual worry.

“It is only worrying if the people borrowed money to cope with the rising cost of living, but the data from BNM reflected otherwise,” he said.

The central bank’s annual report for 2013 — the most recent figures available — showed household debt levels overall has increased to 87 per cent, a steady climb from 60 per cent in 2008. Of that figure though, more than 40 per cent of household debt went into loans for property purchases.

At the same time, the BNM data also showed a steady increase in the composition of household assets for the same period, with over 322 per cent to the gross domestic product (GDP) acquiring diversified assets and with the housing wealth segment taking up the largest chunk of them all.

More recently, government-linked Khazanah Research Institute’s latest data showed the average Malaysian household has been earning higher income levels over the years.

Its latest State of the Households Report released earlier this week showed the average monthly household income rose to RM6,141 in 2014 compared to 2012, suggesting an overall improvement in the quality of life for Malaysians domestically.

But like many other things, there is a caveat.

One economist cautioned that while Malaysians have increased their purchasing power thanks to a higher household income, they should not throw their entire disposable income into property investment.

“It is important to keep some of your disposable income for rainy days such children’s education or healthcare because spending all that you have on long-term loans for investment purpose is not really a good idea,” said the economist who spoke on condition of anonymity.

He said it would be alarming if the lower-income group attempted to mimic such investment moves.

“Those households with an income of RM3,000 or lesser must be extremely careful in spending because these people borrow money for purchasing a home and then some extra cash for other purposes.

“With some banks giving out personal loans so easily these days, it can be very tempting for those who needs fast cash,” he said.

He urged the government to introduce special measures as a safety net to enable this lower income group to cope with rising living costs.

-Malay Mail

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