Ideas: Focus on household debt

Ferlito: Further credit easing is not the way to go

PETALING JAYA: The Institute for Democracy and Economic Affairs (Ideas) is urging the government to focus on household debt, instead of home-ownership.

Ideas senior fellow Carmelo Ferlito cautioned that further credit easing is “not the way to go.”

“We should look at the issue from a broader perspective. With 76.3% home-ownership rate, Malaysia is scoring pretty well worldwide.

“On the other hand, Bank Negara has revealed that the household debt is 82.2% of the gross domestic product (GDP),” he said in a statement yesterday.

Ferlito emphasised that the government should focus on addressing the latter figure.

“This is all the more true given the fact that loans for the purchase of residential properties continue to be the key driver of debt growth.

“A further easing of credit conditions will harm financial stability for those people which are already in a fragile situation.”

He added that the economic system has its ups and downs.

“Therefore it is important for households to build up, during the good moments, those fundamentals that will support them through the bad ones.”

Ferlito’s comments come following Finance Minister Lim Guan Eng’s call for the central bank to ease the rules for mortgages to help first-time buyers purchase their house.

Lim had said that many potential homebuyers are finding it difficult to secure loans, despite the fact that the central bank and other banks have already taken steps to ease credit conditions for first-time homebuyers.

Ferlito noted that the situation faced by the property industry requires a “market-oriented approach.”

“Without government intervention and credit support, developers will have to deal with the consequences of their investment decisions and consumers will have to take financial choices consistent with their economic conditions to avoid overexposing themselves.

Calling for a new approach to housing policy, he said: “It is time to talk more about urban policies, realising that a city, a village or a neighbourhood is more than bricks. They are made of the complex net of human relationships which builds up those environments.”

Based on Bank Negara’s data, Malaysia’s household debt level is among the highest in Asia and has even exceeded several high-income nations such as the United States, Japan and Singapore.

Housing loans, while representing wealth accumulation, are the prime reason for the high indebtedness among Malaysian households, with about 54.4% of the country’s household debt having been acquired to purchase homes.

As at end-june 2019, Malaysia’s household debt stood at 82.2% of GDP as compared to its peak of 86.9% in 2015.

The household debt-to-gdp ratio in the US and Japan are 75% and 58.2%, respectively. Singapore’s debt level is at 53.6%

Meanwhile, Indonesia’s household debt-togdp ratio is 16.9%. The Philippines has a lower household indebtedness of only 9.5%.

With 76.3% home-ownership rate, Malaysia is scoring pretty well worldwide.

Carmelo Ferlito