Should we rethink our property investment? Perhaps to hold back till the GDP starts growing faster again? The reason is because when we buy, we would add to the numbers for household debts and this would then impact the Household debts versus GDP percentage. I read a very long article in The Star yesterday. While the title does seem to indicate that Malaysia is in real trouble, the content within does not really indicate so. At least not yet. As usual, majority would not have the time to sit down and read newspapers these days. I understand fully.
Thus, let me summarise the content of the article as below, plus my usual conclusion at the end. Before we even start, do be reminded that with a slowing Gross Domestic Product (GDP) for Malaysia in 2016, the debt to GDP may get worse in 2016. UNLESS of course, property transactions in 2016 go down even further. From indications thus far, this is not really happening.
1. Debt to GDP ratio almost doubled between 2008 and 2015. It’s now at 89.1 percent versus 86.8 percent in 2014. (Yeah, extremely high when compared to all the regional peers)
2. Due to this high percentage, private consumption could come under pressure where domestic demand is really needed when the external demand slowing down.
3. As per Bank Negara’s Financial Stability and Payments System report, the household debt is actually supported by higher asset quality. An earlier report here: Household Malaysia: Financial assets up RM97.9 billion vs RM70.4 billion up in debt
4. Ability to service the debt remains sound. This is especially with the banks having taken a very conservative approach in approving loans. Earlier report here: Jan 2016: Whopping 62 percent loan rejection
5. Due to number 4. above, the growth in household debt has moderated. It’s only 7.3 percent up versus 9.4 percent in 2014.
6. Assets are more than two times liability.
7. Non performing loan is at 1.5 percent which is extremely low regardless of whatever country in the world that we are comparing to. It simply meant people who borrow has ability to repay what they borrowed.
8. Housing loans is however STILL expanding at double digits; 11.9 percent in 2015. This is still lower than the 13.3 percent in 2014.
9. Independent economist Lee Heng Guie said, “As we don’t have a recession or a major economic shock, I think we should still be alright,”
10. VERY IMPORTANT: Areca Capital Bhd CEO Danny Wong said, “We are in a situation where our expenses are rising. Do we continue waiting to buy a property? Prices will just keep going up. So sometimes, we just have to lock in that certain cost. If our salaries or even our normal increment can grow faster than the loan amount of an asset, taking on the debt is fine. The financial asset that we purchase will also increase in value.”
11. Moody’s is seeing GDP growth at 4.4% this year while Bank Negara is projecting 4%-4.5% growth. (Still low, when compared to the potential of household debt increases…..)
12. An economist from a local house said that while the household debt to GDP seems high, many of the property buyers are relatively wealthy people and thus are financially strong and would be able to service their loans.
Seriously, if I have evaluated objectively on the property that I would like to buy, I would still proceed. Do note that the household debt versus GDV numbers will definitely rise for this year and even next year as Malaysia’s GDP continue to moderate. If the world is not growing and the sentiment is negative, even the domestic consumption would be affected. The question is, should we buy when everyone is not buying or should it be the other way around? Happy deciding.
written on 2 Apr 2016
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