Mortgage slaves, do we have such a group too?

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Please do not believe property prices will always go up unless we are buying and keeping it for a very long time. Within a 10-year cycle, there are times it will drop, times it will be almost stagnant and well times when buying whatever in the market ends up with good profits if we sell it at the right time. That’s why there are those who cursed because they bought at the wrong time and were unable to hold and were forced to sell as well as those who swear by property investment because somehow all their purchases were sold at above the original buying price.

Have you heard of the term ‘mortgage slave’? As per wiki, this is the explanation: “Home mortgage slave is a term for homeowners who spend more than 70% of their disposable income towards repaying mortgage loans. “Click here to read more.

There’s an interesting article about Hong Kong home buyers for us to digest and understand as well. Article in SouthChinaMorningPost: SCMP.com Article talks about Hong Kong people who seem to think property prices will only go up. In fact there are now a couple hundred of negative equity cases (property prices lower than mortgage loan) and it could even reach 1,000 by end 2019. The article said that while this trend seems to be worrying, it is worth nothing that in 2003, the negative equity peaked at 105,000 households. (WOW!)

However, even during those times, default rates were extraordinarily low. The reason is because the Hong Kong’s banks did NOT simply lend to anyone. They had a good financial prudential management in times of crisis. As for their clients, somehow they continued to make their loan payments regardless of the circumstances. The article also mentioned the Americans who were allowed and even encouraged to take on housing loans they couldn’t afford and thus it’s not possible to expect them to continue paying as soon as prices started dropping. This triggered the Sub-Prime mortgage crisis. The article concluded with its confidence with the current generation of local mortgage holders and even their families who will continue paying. The current negative equity can be a good thing, at least people do not blindly buy… Article in SouthChinaMorningPost: SCMP.com

Source: housingwatch.my

We do not have the stats for negative equity BUT, it’s equally important to note that nearly three quarter of all borrowers are FIRST-TIME buyers. For these buyers, even if they were to lose their jobs, they will do their very best to continue paying because where else could they move to? This is the reason why I continue to believe the market is still full of ‘prime’ borrowers and the potential for ‘sub-prime’ crisis like that of the US is unlikely to happen.

Definitely not when even the developers keep talking about having to sell the same units again and again because the buyer just could not get their loans approved. I also hope that the banks in Malaysia will belike their HongKong counterparts too; exercise prudent financial management. This is not the time to be lenient or give unneeded leeways. As for the term mortgage slave; 70 percent of salaries going to mortgages, I think this is not in Malaysia. It’s more likely to be a loan for a car instead.

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Written on 7 Feb 2019

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