Restructuring our household debt

NEW Year always come with new resolutions. Finance is an important aspect of most people’s checklists when it comes to planning new goals.

While it is good to set new financial targets, it is also vital to re-look at our debt portfolio to ascertain if it is at a healthy state.

At a national level, our country also has its financial targets matched against its debt portfolio.

According to the latest Risk Developments and Assessment of Financial Stability 2016 Report by Bank Negara, the country’s household debt was at RM1.086 trillion or 88.4% of gross domestic product (GDP) as at end 2016.

Residential housing loan accounted for 50.3% (RM546.3bil) of total household debts, motor vehicles at 14.6%, personal financing at 14.9%, non-residential loan was 7.4%, securities at 5.7%, followed by credit cards at 3.5% and other items at 3.6%.

Evidently, residential housing loan is the highest among all types of household debt. However, a McKinsey Global Institute Report on “Debt and (Not Much) Deleveraging” in 2015 highlighted that in advanced countries, mortgage or housing loan comprises 74% of total household debt on average.

As a country that aspires to be a developed nation, a housing loan ratio of 50.3% to total household debt would be considered low, compared to 74% for the advanced countries. In other words, we are spending too much on items that depreciate in value immediately – such as car loans, credit card loans and personal loans – compared to assets that appreciate in value in the long run, such as houses.

Advanced economies, which are usually consumer nations, have only 26% debts on non-housing loan as compared to ours at 49.7%.

In order to adopt the household debt ratio of advanced economies, our housing loan of RM546.3bil should be at 74% of total household debt. This means that if we were to keep our housing loan of RM546.3bil constant, our total household debt should be reduced from the current RM1.086 trillion to a more manageable RM738bil. This would require other non-housing loans (car loans, credit card loans and personal loans etc) to reduce from 49.7% of total household debt to only 26%. To achieve this ratio, the non-housing loan debt must collapse from the current RM539.7bil to only RM192bil.

Reducing total household debt from the current RM1.086 trillion to a more manageable RM738bil would also have the added benefit of reducing our total household debt-to-GDP ratio from the high 88.4% to only 60%, making us one of the top countries globally for financial health.

Malaysia’s household debt at present ranked as one of the highest in Asia. Based on the same 2015 McKinsey Report, our household debt-to-income ratio was 146% in 2014 (the ratio of other developing countries was about 42%) compared to the average of 110% in advanced economies.

Adjusting the debt ratio by reducing car loans, personal loans and credit card loans will make our nation stay financially healthy.

Car values depreciate at about 10% to 20% per year based on insurance calculations, accounting standards and actual market prices. Assets financed by personal and credit card loans typically depreciate immediately and aggressively.

The easy access to credit cards and personal loan facilities tend to encourage people to spend excessively, especially when there is no maximum credit limit imposed on credit cards for those earning more than RM36,000 per year.

If we maximised the credit limit given without considering our financial ability, we will need a long time to repay due to the high interest rates, which ranged from 15% to 18% per annum.

Based on a report in The Star recently, Malaysia’s youth are seeing a worrying trend with those aged between 25 and 44 forming the biggest group classified as bankrupt.

The top four reasons for bankruptcy were car loans (26.63%), personal loans (25.48%), housing loans (16.87%) and business loans (10.24%).

It is time for the Government to introduce more drastic cooling-off measures for non-housing loans in order to curb debt that is not backed by assets. This will protect the rakyat from further impoverishment that they are voicing and feeling today.

As we kick start the new year, it is good to relook into our debt portfolio. When we are able to identify where we make up most of our debts, and start to reallocate our financial resources more effectively, we will be heading towards a sound and healthier financial status as a nation.

By Alan Tong – Food for thought

Datuk Alan Tong has over 50 years of experience in property development. He was the world president of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please e-mail
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Moving forward with affordable housing

One way to solve housing shortage problem is to build more houses.

“If we take a look at countries with commendable housing policies such
as Singapore and Hong Kong, we notice that the government plays a very
important role in building and ensuring a sufficient supply of housing
for their people.”

THE issue of affordable housing has been a hot potato for many countries, especially for a nation with a growing population and urbanisation like ours.

In my previous article, I mentioned that there was a growing shortage of affordable housing in our country according to Bank Negara governor Tan Sri Muhammad Ibrahim. The shortage is expected to reach one million units by 2020.

According to Bank of England governor Mark Carney, one of the most effective ways to address the issue is to build more houses. There are good examples in countries like United Kingdom, Australia and Singapore, which have 2.4, 2.6 and 3.35 persons per household respectively.

In comparison, the average persons per household in our country is 4.06 person, a ratio which Australia had already achieved in 1933! To improve the current ratio, we need to put more effort into building houses to bring prices down.

If we take a look at countries with commendable housing policies such as Singapore and Hong Kong, we notice that the government plays a very important role in building and ensuring a sufficient supply of housing for their people.

For example in Singapore, their Housing and Development Board (HDB) has built over one million flats and houses since 1960, to house 90% of Singaporeans in their properties. In Hong Kong, the government provides affordable housing for lower-income residents, with nearly half of the population residing in some form of public housing nowadays. The rents and prices of public housing are subsidised by the government and are significantly lower than for private housing.

To be on par with Australia (2.6 persons per household), our country needs a total of 8.6 million homes to house our urban population of 22.4 million people. In other words, we need an additional 3.3 million houses on top of our existing 5.3 million residential houses.

However, with our current total national housing production of about 80,000 units a year, it will take us more than 40 years to build 3.3 million houses! With household formation growing at a faster rate than housing production, we will still be faced with a housing shortage 40 years from now.

Therefore, even if the private sector dedicated all its current output to build affordable housing, it will still be a long journey ahead to produce sufficient houses for the nation. It is of course impossible for the private sector to do so as it will be running at a loss due to rising costs of land and construction.

In view of the above, the government has to shoulder the responsibility of building more houses for the rakyat due to the availability of resources owned by the government. Land, for example, is the most crucial element in housing development. As a lot of land resources are owned by government, they must offer these lands to relevant agencies or authorities to develop affordable housing.

I recall when I was one of the founding directors of the Selangor State Development Corp in 1970s, its main objectives was to build public housing for the rakyat.

However, today the corporation has also ventured into high end developments in order to subsidise its affordable housing initiatives. This will somehow distract them from focusing on the affordable housing sector.

Although government has rolled out various initiatives in encouraging affordable houses, it is also important for the authorities to constantly review the original objectives of the relevant housing agencies, such as the various State Economic Development Corporations, Syarikat Perumahan Negara Bhd, and 1 Malaysia People’s Housing Scheme, to ensure they have ample resources especially land and funding to continue their mission in building affordable housing.

A successful housing policy and easy access to affordable housing have a huge impact on the rakyat. It is hoped that our government escalates its effort in building affordable housing, which will enhance the happiness and well-being of the people, and the advancement of our nation.

Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email
By Alan Tong

Lessons from Penang affordable housing

AS we all know, affordable housing is the saving grace for the middle to low income group in our common dream to pursue the “roof over our heads”.

Most often, aspiring homebuyers are sandwiched between increasing property price and developers’ tendency to build high-end apartments especially in greater KL for the last decade.

The introduction of PR1MA and other affordable housing agencies by the federal government is aimed at addressing this gap and to promote better home ownership as part of the prime minister’s national transformation programme. Nonetheless, not many realised that affordable housing is also a state initiative whereby state governments are free to introduce affordable housing schemes given that land and development are within the exclusive power of the state under the Federal Constitution. For instance, Penang is fully behind the notion of affordable housing by placing their top priority on increasing homeownership ratio within the state.

Checking online, there are currently 29 affordable housing projects in Penang with 12 being developed by the state government and the other 17 by the private sector. Penang is delivering a commendable amount of affordable housing by trading plot ratio of built-up area in exchange for more units to be built.

The state government is constantly reviewing and updating the criteria for the purchase of affordable housing in Penang. A person who already owns a property can still purchase affordable housing in Penang provided the person can satisfy the conditions imposed.

For example, the house to be purchased must be of higher value than the one already owned.

In addition, for those who are not born in Penang, under the talented and skilled category, they may also purchase affordable housing in Penang provided they undertake to reside there for a minimum of five years. In short, affordable has become a driver for talent retention. This ultimately helps to upgrade living standard in Penang.

On the flip side, Penang has uncovered a problem. Those who are entitled to affordable housing may not qualify for financing, especially those from the lower income group as they are considered as high risk by banks.

Job and income security at this level are extremely vulnerable given the high cost of living that in effect reduces disposal income. Bank and financial institution are after all profit-making entities. Loan disbursements below a certain threshold amount does not always generate their desire margin. Many expiring home owners are left helpless.

While nothing is perfect, one can only achieve success through lessons learned along the way and from history. The federal government is aware of the high loan rejection rate. It has, therefore, provided a 10% loan guarantee and First House Deposit Financing to help purchasers with their downpayments. The “Rent to Own” scheme was also introduced to circumvent the stricter loan financing situation.

Penang has introduced a similar Rent to Own scheme. Under this scheme, the state government provides 30% of the home price so that the house buyer can seek a 70% loan margin.

PR1MA, on the other hand, is facing difficulties finding suitable land as land is state matter. There is also a tendency for the state government to allocate land for this purpose in areas they want to urbanise, but which are often far from amenities and transportation links.

We all know that to develop affordable housing is not the best commercial decision to make because profit margins are definitely lower. As such, we cannot expect private sector developers to always bear the cost.

Penang, on the other hand, is able to overcome this problem by reducing the development charges via an increase in plot ratio. This then attracts private sector developers to come in.

A recent survey conducted by PR1MA shows that buyers prefer to purchase residential projects close to schools, clinics and shops. They also prefer access to transportation. Penang is closer to achieving its objective in the affordable housing arena because it “focuses on the homeowners”.

Under the recently announced Penang Transport Master Plan, the state government is mulling over RM8bil worth of projects that will enhance connectivity.

The development of an underground tunnel from Gurney Drive to Bagan Ajam, Gurney Drive to Jelutong Expressway and an alternative road connecting Gurney Drive right up to Batu Feringhi will really improve connectivity.

Penang is ambitious in executing its affordable housing plans. It is also spot-on when it comes to addressing the different issues connected with this subject.

The banking sector must buy into it. Banking and financial institutions are governed by the fiscal policy of the federal government. Maybe some mandatory quota or corporate social responsibility initiatives can be imposed on banks to provide loans to deserving house buyers. So it is timely that Bank Negara has called for a comprehensive and carefully designed National Planning Policy to support the Government’s aim in delivering more social housing in its recently released annual report.

By Chris Tan

Chris Tan is the founder and managing partner of Chur Associates.


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Making all housing more affordable in Malaysia

WHEN I watched Usain Bolt cross the 100m line in an Olympic record of 9.63 seconds during the recent concluded Olympic Games, I saw a young focused sprinter with only one objective in mind; to cross the finish line in the shortest possible time. He amazed the world with his stunning performance again.

This reminds me of our journey in making all Malaysian housing more affordable. It is a race that requires the same amount of focus from all relevant stakeholders including public sector which is the Government, and private sectors, i.e. the property developers, home buyers and NGOs. Furthermore, like in a race where the sprinters have a sight on the direction and goal, all stakeholders in the housing industry should be aligned to the same goal before starting the race.

To understand what exactly drives up property prices, we need to analyse the various factors that influence the price of a housing development in Malaysia. This may help us identify the root cause and provide us with the correct remedies to make Malaysian housing more affordable and sustainable.

Let’s begin by looking at what are the major cost components of a property project. Twenty or 30 years ago, land acquisition was only about 5% to 10% of a project cost, but nowadays, it can take up to a sizable 20% to 30% of the whole development budget before any value-added works are carried out on the land itself.

Land prices are ever rising due to scarcity of urban land especially in the major cities. For example, a piece of land that used to cost RM10 per sq ft in Mont’ Kiara during the late 80’s now can cost up to RM300 per sq ft. With rising land cost “eating” up a significant portion of the development budget, house prices automatically increase as a result.

The next major cost is the holding cost and construction financing cost of the project. The longer it takes to complete a project, the higher the financing costs of the project which will then increase the price of a home.

I mentioned this before in my earlier articles that property projects are sometimes subjected to one, two or more years of gestation period to obtain all the necessary approvals from the relevant authorities before they can be launched. The lengthy approval period will definitely affect the holding costs, and slow down the supply of housing units. If this approval time is not shortened, the rising demand will only further push the prices up. This is the basic market influence of supply and demand.

Another factor that influences the cost of housing, as highlighted by developers surveyed during the recent Real Estate and Housing Developers’ Association (Rehda) media briefing, is the unsold and unreleased Bumiputra units.

According to the latest half-yearly property industry survey by Rehda, the number one reason for unsold properties comes from unreleased bumiputra units and has been so for the past two years.

With the requirement to hold on to the unsold bumiputra units, the additional holding cost is inevitably spread out to all the other house buyers in the form of higher priced units. Unreleased bumiputra units may also create a false impression of supply shortage in the market, and these can cause the prices to increase again. While we recognise the need for a bumiputra housing policy, the various states should agree on a transparent, auto-release mechanism to release bumiputra units if unsold beyond 18 months of launch, to make houses more affordable for everyone.

Apart from land cost, holding, and construction financing costs, another cost component that adds to the price of properties is utilities costs. In the past, utility companies would be expected to build substations and water storage towers as well as lay electrical cables and water pipes. Today, all these are required to be completed by developers themselves.

In a roundtable discussion on housing affordability, Housing Buyers Association secretary-general, Chang Kim Loong highlighted that the privatisation of utility companies have turned them into profit-oriented companies. Taxpayers’ monies are no longer utilised to provide the basic necessities that they have paid for. This ends up making houses cost more because home owners end up bearing the cost of the infrastructure for these utility services.

In the illustration mentioned at the start of this article, a sprinter must stay focused on the targeted goal of winning the race without mental and physical disadvantages before and during the sprint. Imagine if Bolt needed to run against a headwind and carried a few pounds on his back all along the race. Would he still able to break the Olympic record and become a legend?

In the race to make the price of all housing units more affordable, the issues of high land cost, lengthy approval period, additional utilities expenditure and unreleased bumiputra lots are the burdens that are holding houses back from becoming more affordable. Solve these dilemmas and we will begin to break records.

FIABCI Asia-Pacific Regional Secretariat chairman Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email

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