Home ownership drive seen as unwise

Many consumers have been wrongly sold the idea that they need their own houses when what they need is shelter at a reasonable price, says a financial planner. (Bernama pic)

PETALING JAYA: A financial planner has questioned the wisdom of the government’s drive to encourage home ownership, saying it inhibits efforts to reduce household debt.

Robert Foo, who runs a financial planning company, noted that housing loans were one of the main causes of high household debt.

According to the government, household debt in Malaysia is now 82% of the country’s gross domestic product, and that compares unfavourably with countries enjoying higher income per capita.

“Many consumers have been wrongly sold the idea that they need their own houses when what they need is shelter at a reasonable price,” Foo told FMT.

“The narrative given by the government in encouraging home ownership echoes that of property developers. It’s an idea that leads to debt.”

He noted that most people in Germany, for example, live in rented homes.

He said the government should instead be encouraging financial literacy.

Putrajaya launched its Home Ownership Campaign at the beginning of the year in a bid to encourage Malaysians to buy houses and reduce the stock of unsold properties. The campaign was supposed to last six months, but it has been extended to the end of the year, as announced early this month.

Recently, Housing and Local Government Minister Zuraida Kamarudin announced that borrowers from the National Higher Education Fund Corporation (PTPTN) who are listed in the Central Credit Reference Information System would be allowed to buy their first home.

She said the prospect of owning a house would encourage them to manage their finances in order to pay both their housing and student loans.

Foo spoke of a client with a household income of RM10,000 who bought a house costing nearly RM1 million.

He said nearly have of the client’s income went towards repayment of his bank loan.

“Once you commit such a large portion of your salary to a loan, you’re not left with much,” he said. “And then you’ll find you have to use your credit card to pay for other things.

“People always think they can cover their credit card debt because they earn a certain amount, but when they lose their jobs, they’ll realise the mistakes they’ve made.”

He said people should separate their needs from their wants.

Economist Carmelo Ferlito, commenting on Zuraida’s theory that the prospect of owning houses would encourage study loan debtors to manage their finances, said it was a simplistic view of a complex phenomenon.

“Let’s not forget that we are in a situation in which it is difficult for PTPTN to get back its money because there seems to exist a mentality that debts do not need to be repaid,” he said, adding that he did not believe anyone with such a mentality could be helped by encouraging him to shoulder more debts.

Another economist, Mohd Nazari Ismail, said people should be encouraged to live within their means.

“If they can’t pay for something in cash, that means they can’t afford it,” he said.

“Debt should be resorted to only when one is truly desperate, such as not having food in the kitchen.” - FMT