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Study indicates greater disparity between income and home affordability

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Khazanah Nasional Bhd recently rolled out an unflattering report on the state of Malaysian households. The study found that 74% of Malaysian households earn less than RM6,000 per month and house prices in general have gone up beyond the affordable levels of most households. A household with an RM6,000 monthly income is unlikely to be able to afford a home costing more than RM400,000.

The commonly accepted definition of affordability is three times median income, but Malaysia’s houses on average cost much more than that. “In median income terms, our houses are more expensive than those in Ireland and even Singapore. At 21%, the profit margins of our property developers are high – almost 2x those of the US (12%), 1.2x those of the UK (17%) and higher than Thailand (14%), although Singapore has higher margins (25%),” the report said.

“Over and above their usual expenses, households also have to make loan instalment payments, which are approximately 18% of their income at current interest rates. The recent hike in interest rates has increased the monthly loan instalment for households by 2% and they remain susceptible to further interest rate rises,” it added.

Data from investment fund Amanah Saham Bumiputera (ASB) last year also revealed that the bottom 71.4% of account holders have only an average of RM554 in the fund, the report noted.

The study’s conclusion was reinforced by the national household income survey (HIS) data on individual income registered with the Employees Provident Fund (EPF) in a joint paper released earlier by the University of Malaya (UM) and Khazanah Research Institute.

According to data provided by the EPF on employees’ total income, 74% the active EPF members earn less than RM6,000 per month. About 55% earn less than RM4,000 per month and 23% of its active members earn less than RM2,000 per month.

“We obtain evidence of steadily rising earnings inequality in both private and public sectors in the 2000s,” said UM department of development studies senior lecturer Dr Lee Hwok Aun and fellow author Khazanah Research Institute director of research Dr Muhammed Abdul Khalid.


“Property sales also show rising concentration in the upper rungs,” they noted on the development of luxury buildings, and pointed out the top 10% of property buyers controlled more than 40% of the total value of property purchases in 2011, up from 35% in 1997.

The share of the bottom 20%, however, hovered at just below five percent throughout that period. Khazanah’s State of Households report also revealed that Malaysia has one of the highest household debts as a percentage of gross domestic product (GDP) in Asia with the ratio exceeding 86%. According to Khazanah’s findings, households earning less than RM3,000 have debts at seven times their annual income, rendering them vulnerable to fluctuations in interest rates and inflation.

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