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. Is this measure good for consumers, especially young workers, the banks and the property developers?
Firstly, being listed on CCRIS should not in itself become the deciding factor in rejecting loans for young workers, or for that matter, any consumer. It certainly should be a contributing factor.
There are two possible scenarios when a consumer is blacklisted in CCRIS. Firstly, one has poor financial management skills resulting in, for example, spending beyond one’s means, high credit card debt or 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 PTPTN loans; however another 37% had more than one long-term debt. Further, a Bank Negara study shows that 76% of consumers would find it difficult to raise RM1,000 to face an emergency while 47% had 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 who for a short term were unable to make payments on a certain loan and were thus blacklisted. This group certainly deserves to be considered for a housing loan.
Past credit behaviour should certainly weigh in on the loan application process, but the CCRIS blacklisting should not automatically be the reason for rejecting a loan.
While 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 the ability of consumers to repay their housing loans are their 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 for the whole housing market is three times the gross annual household income. Overall in Malaysia, house prices are 4.4 times the median income. Zeroing in on the states, house prices in Kuala Lumpur are 5.4 times, in Penang they are 5.2 times, in Johor they are 4.2 times and in Selangor they are 4.0 times. While according to Bank Negara, affordable homes cost RM242,000, in actual fact the average price of houses in Kuala Lumpur 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 for consumers. The efforts, through policy and programmes then, should be to reduce the prices of houses to the affordable range.
Thus, the first priority in assisting home ownership should be the construction of affordable homes as well as regulation of the private sector in building affordable homes. The private sector is more keen to build expensive homes with very high rates of return. When these expensive houses cannot be sold, it puts pressure on banks to approve loans to consumers, especially young workers who may not be able to afford the monthly payments. While young workers have a right to home ownership, purchasing a home beyond their means can only result in severe financial hardship in the near or long term.
CCRIS and other credit scores should help banks determine if loans should be given; however, a more comprehensive and detailed study should be made to enable first-time home owners to buy homes. Consumers, on the other hand, need to take a comprehensive look at themselves and assess their ability to make regular house 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 practices and develop more optimal practices towards enhancing spending, saving and investments, and debt management to develop more responsible financial behaviour practices. Further, due to low uptake of insurance, especially for 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 life.
When a young consumer is blacklisted in CCRIS, there is a high possibility that there is a serious problem in the way he is managing his debts. The way forward should be to educate and empower him to manage his finances, not make it easier for him to get a huge loan, which can only lead to further financial problems.
Paul Selva Raj is CEO of Fomca.
The views expressed are those of the author and do not necessarily reflect those of FMT.