Loans and home ownership
THE Housing and Local Government Ministry has announced that blacklisted National Higher Education Fund Corporation (PTPTN) borrowers who are listed on the Central Credit Reference Information System (CCRIS) will not be blacklisted if they apply to buy a home (“Good news for PTPTN borrowers”, The Star, July 11; online at bit.ly/star_loans).
Is this measure good for consumers, especially young workers, and the banks and property developers?
Firstly, being listed on CCRIS should not in itself become the deciding factor in rejecting loans to young workers, or for that matter, any consumer. But it certainly should be a contributing factor.
There are two possible scenarios when a consumer is blacklisted on CCRIS: Firstly, one has poor financial management skills resulting in, for example, spending beyond one’s means, having high credit card debt or having multiple loans beyond one’s ability to pay.
In a study by the Asian Institute of Finance, 75% of consumers in the age range of 20 to 33 had at least one long-term debt, possibly the PTPTN loan; however, another 37% had more than one long-term loan.
Further, a Bank Negara Malaysia study shows that 76% of consumers would find it difficult to raise RM1,000 to face an emergency while 47% have high credit card debts. For this category, adding an additional housing loan would only make matters worse.
On the other hand, there may be those who had to face some sort of personal or family catastrophe, and for a short term were unable to make the payments on a certain loan and was thus blacklisted. This group certainly deserves to be considered for a housing loan.
Thus, past credit behaviour should certainly weigh in on the loan application process, but the CCRIS blacklisting should not automatically be the reason to reject a loan.
While the Federation of Malaysian Consumers Associations (Fomca) recognises that owning a home is a basic consumer right, the key factor in acquiring a loan by the consumers and approving a loan by the bank must be the ability of the consumer to repay the loan.
Apart from the consumer’s financial habits, two key factors that determine repayment ability is income and the price of houses. In relation to one’s income, the house must be affordable. Are Malaysian houses affordable?
According to Khazanah Research Institute and Bank Negara, the sign of a well-functioning, affordable home market is when the median price across the whole housing market is three times the gross annual household income.
Overall in Malaysia, house prices are 4.4 times the median income. Further, zeroing in on the states and cities, house prices in Kuala Lumpur are 5.4 times the median income; in Penang, it is 5.2 times; in Johor it is 4.2 times; and in Selangor it is 4.0 times.
Furthermore, while Bank Negara says an affordable home is RM242,000, in actual fact the average price of houses in KL is RM490,000; in Selangor it is RM300,000; in Johor it is RM260,000 while in Penang it is RM295,000.
To put it simply, houses in Malaysia are simply not affordable to consumers.
The efforts, through policy and programmes, then should be to reduce the price of houses to the affordable range.
Thus, the first priority in assisting home ownership should be to build affordable homes as well as to get the private sector to build affordable homes.
The private sector is more keen to build expensive homes with very high rates of return, of course, but when these expensive houses cannot be sold, it puts pressure on banks to approve loans to consumers, especially young workers even though they may not be able to afford the monthly payments.
While young workers have a right to own a home, purchasing a home beyond their means can only result in severe financial hardship in the near or long term.
CCCRIS and other credit scores should help banks to determine if loans should be given; however, a more comprehensive and detailed study should be made to enable first-time home owners to buy their homes.
Consumers, on the other hand, need to take a comprehensive look at themselves and assess their ability to make regular house loan payments in the context of other current and long-term financial commitments.
What is seriously lacking currently is a strategic approach to financial literacy programmes for young workers and young families.
It is critical that young workers and young families develop the knowledge, skills and motivation to assess their current financial habits and management practises and develop more optimal practices towards enhanced spending, saving and investments, and debt management to develop more responsible financial behaviour.
Further, due to low uptake of insurance, especially medical insurance, as well as preparation for retirement, financial education is key to ensuring that young consumers are prepared to face financial challenges at every stage of their lives.
When a young consumer is blacklisted in CCRIS, there is a high possibility that there is a serious problem in the way he/she is managing his/her debts. The way forward should be to educate and empower young people to manage their finances, not make it easier for them to get a huge loan, which could only lead to further financial problems.
Source: TheStar