Are there mortgage-slaves in Malaysia?

Don’t fall for the myth that property prices will always go up unless you are buying and keeping it for a very long time.

Within a 10-year cycle, there are times it will drop or become stagnant. There will also be times when buying whatever in the market ends up with good profits if you sell it at the right time.

Hence, there are those who bought properties at the wrong time and were unable to hold on to it, and therefore forced to sell it as well as those who swear by property investment because somehow all their purchases were sold above the original buying price.

Have you heard of the term “mortgage-slave”?

According to Wikipedia, “home mortgage slave” is a term for homeowners who spend more than 70% of their disposable income towards repaying mortgage loans.

An article from South China Morning Post 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 was worth noting that in 2003, negative equity peaked at 105,000 households. However, even during those times, default rates were extraordinarily low.

The reason is that Hong Kong banks do not lend to just anyone. They exercise prudent financial management in times of crisis.

As for their clients, they continued to make their loan payments regardless of the circumstances.

The article also mentioned that Americans were allowed and even encouraged to take on housing loans they couldn’t afford, and thus it was 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 confidence that the current generation of local mortgage holders and their families will continue paying.

The current negative equity can be a good thing because at least people will not blindly buy.

It’s important to note that nearly three-quarters 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 why the market is still full of “prime” borrowers and the potential for a “sub-prime” crisis like that in the US is unlikely to happen.

Certainly not when developers keep talking about having to sell the same units again and again because buyers can’t get their loans approved.

Hopefully, banks in Malaysia will look at their Hong Kong counterparts, and exercise prudent financial management as well.

This is not the time to be lenient or give unneeded leeway. As for the term mortgage slave, it doesn’t apply to Malaysians. It’s more likely to be loans on a car.

This article first appeared in

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.