Is it enough?
An article from The Star, Saturday 14 July 2012.
WHEN I first started my job as an architect in the 1960s, I was on a three-year contract with a monthly salary of RM628. I bought my first car, a Peugeot which cost RM7,724, equivalent to approximately one year of my salary. The car became my reliable companion for 14 years. Those were the good old days, when a car could be bought with just one year of a fresh graduate’s salary.
Circumstances have since changed. Today, for a fresh graduate to own a car in Malaysia, it will easily cost him four years of his salary to purchase a foreign car, and even a local car costs around two years of his salary. If we take into consideration his living expenses and other commitments, it may take him even longer to settle his car loan. Hence, it has left him with very little option but to take the maximum car loan financing tenure of nine years.
In the table illustration below, a fresh graduate in the Washington D.C. earning about RM11,000 (about US$3,500) per month can easily buy a Japanese Honda Civic or Toyota Corolla worth RM50,000 as it is only 0.4 times of his yearly salary.
On the other hand, a fresh graduate in Malaysia earning about RM2,500 per month needs to pay RM120,000 if he would like to buy the same type of car. It costs him four times his gross yearly salary. This ratio is 10 times higher than his US counterpart.
For youths in Malaysia, buying a car is more expensive both in real terms, and in terms of debt-to-income ratio. In reality, it means they have to either purchase a car with lower price tag or commit to a longer term loan to own a car, which cost them the opportunity of owning a home.
This situation requires our youth to choose between buying a car or a house first, and many have committed to own a car first, considering our public transportation system is still in the process of being improved.
Many fresh graduates in Malaysia who start to serve their car loan tend to delay their plan of purchasing a home.
Unfortunately by the time they can afford to purchase a home, be it three, five or nine years later, the price of a property would have escalated due to among other things, inflation, higher construction cost and higher land prices.
While it may be safe to say that their salary would also increase, generally speaking the increment may not aligned to the rate of inflation. In most cases, owning a home will be a huge debt lasting 30 to 40 years of housing loan repayment.
What can be done differently to change the circumstances? Is there a better way for them to financially plan their future? These are questions that Malaysian youths ought to consider before purchasing any big-ticket items.
Let’s look at the table again. It also lists the median price for three-bedroom apartments in the suburbs of these cities. The median price of an apartment in the Klang Valley is around RM300,000, equivalent to 10-year gross income of our fresh graduates. The affordability level is more favourable compared to other Asian countries, such as Indonesia and Thailand. The prices of same size apartments in Jakarta and Bangkok range from RM350,000 to RM400,000, and costing their fresh graduates 13 to 18 years of gross yearly income to purchase a house.
Therefore, when it comes to the question of home affordability in Malaysia, we are blessed compared to our regional peers.
However, there are many factors that contribute to the challenge for our youths to own a house. Two primary factors are the additional financial commitment of purchasing a car, and the relatively lower income level in our country compared to our Western counterparts.
When fresh graduates spend a substantial amount of their salary paying for a car, they are left with little savings to own a house, and their house affordability level decreases over the years as prices rise due to inflation.
Clearly the income level of our graduates has to rise, to enable better quality of living and higher affordability level, which is the current government’s focus to make Malaysia a high income nation by 2020.
Perhaps it is also time to re-look at our national car policy and how it has affected the house affordability level in Malaysia. From the numbers above, it is clear that our cars are costing us our homes.
> FIABCI Asia Pacific chairman Datuk Alan Tong has over 50 years of experience in property development. He was FIABCI World president in 2005/06 and was named Property Man of The Year 2010. He is also the group chairman of Bukit Kiara Properties. (email at email@example.com)
I seriously believe that our salary (or maybe just my salary) is not enough to sustain the rising cost of living today. Even with a combined income, we (my husband and I) are still struggling to make ends meet.
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Now, with the Premium Beautiful income and bonus, I can safely say that we can now breathe easier and can look forward to a better future. InsyaAllah, with Allah’s willing, we shall try our best to provide for our growing family.
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