How housing and car loans are fueling Malaysia’s household debt crisis

The dream of home and car ownership has long symbolized upward mobility in Malaysia. But for many households, that dream is now weighed down by long-term debt commitments that outpace income growth. According to the finance ministry, home loans alone made up 65% of household debt in 2023, with vehicle loans adding another 13.2%. Together, they form the backbone of a national debt profile that’s both culturally aspirational and structurally unsustainable.

At a recent BBC World Questions event in Malaysia, economists and civil society leaders called out the quiet normalization of long-tenure loans and overstretched repayment plans. As financial planners point out, the real issue isn’t simply that Malaysians are borrowing—it’s how the system is designed to make borrowing the default option for basic mobility and shelter.

Malaysia’s car ownership rate is among the highest in Southeast Asia, driven in part by limited public transport access outside the Klang Valley. But while car loans may appear manageable on paper, they are often structured in ways that mask long-term financial drag.

Vehicle prices are inflated by multiple taxes and duties:

• Excise duties: 10% to 105%, depending on engine size and local vs. imported content
• Import levies: Up to 30%
• Sales and Service Tax (SST): 10%

Even after a vehicle is purchased, Malaysians face a cascade of recurring costs—insurance (1–3% of car value), annual road tax, and maintenance averaging RM2,000 to RM5,000 a year. Loan interest rates, typically between 3% and 5%, further compound the financial load.

As Professor Law Teik Hua of Universiti Putra Malaysia explained, the proliferation of 7- to 9-year car loans with high loan-to-value ratios (up to 90%) has enabled overborrowing. The system accommodates affordability on a monthly basis—but stretches repayment across nearly a decade, with little asset value retained toward the end.

The structure of housing finance in Malaysia reveals an even deeper tension. According to the National House Buyers Association, a house should ideally cost no more than three times a household’s annual income. But for most Malaysians, homes are priced at nearly five times that benchmark. Consider a household earning RM5,000 monthly (RM60,000 a year). Based on international affordability standards, a sustainable property price would be below RM180,000. In practice, few such units exist in areas with viable public services or job access.

To bridge the affordability gap, many borrowers take on 30-year mortgages—sometimes even longer. Developers have begun marketing two-generation home loans of 40 years or more, effectively pushing ownership timelines into the next generation. As Chang Kim Loong, secretary-general of the National House Buyers Association, put it: “Stretching a mortgage to 35 or 40 years may lower monthly payments, but it increases lifetime debt exposure and reduces long-term financial mobility.”

Financial planners recommend that combined housing and car loan payments not exceed 40% of take-home pay, with home loans capped at 30–35% and car loans at 10–15%. But in practice, many Malaysian households exceed these thresholds, especially for car loans.

V Rajendaran, a licensed financial planner, highlighted a concerning pattern: car loans alone consuming up to 25% of income in some cases. This points to both a financial literacy gap and a structural pricing mismatch. “We’ve seen many younger Malaysians mistake lifestyle goods for financial priorities,” he noted, “but even well-informed professionals face systemic affordability challenges.”

The issue is less about individual decision-making and more about a policy environment that makes debt the default entry point for what elsewhere might be considered essential infrastructure: shelter and transport.

What distinguishes Malaysia’s household debt landscape is the limited set of alternatives. Public transport infrastructure remains underdeveloped beyond major city centers, and affordable housing supply is neither sufficiently available nor equitably distributed.

At the BBC event, economist Tricia Yeoh called for a full policy reset—not just financial education. The current model leaves too much onus on individuals to adapt to structurally mispriced goods. As Yeoh put it, “The data on household debt should spur the government to reassess its housing and vehicle affordability policies, not just nudge consumers to budget better.”

Financial experts echo this call for structural intervention. Among the most frequently proposed reforms:

• Lower excise duties on vehicles, especially for first-time car buyers and lower-income households
• Loan ratio caps that limit car loan repayments to no more than 15% of income
• Expansion of public transport infrastructure beyond the Klang Valley
• Mandatory developer quotas for affordable housing, with stricter controls on resale and access to basic amenities

One often-overlooked factor is how deeply car and home ownership are linked to social status in Malaysia. Owning both is not just a financial goal but a cultural benchmark for adulthood and success.

That narrative, however, is now being quietly challenged. Among urban millennials and Gen Z earners, there’s growing recognition that a 35-year mortgage and a 9-year car loan are not signs of prosperity—but of survival within a broken system. Yet policy has been slow to catch up with this generational shift. Financial burdens that were once seen as a necessary tradeoff for upward mobility are increasingly viewed as unsustainable anchors on long-term wealth building.

Malaysia’s household debt-to-GDP ratio has hovered around 81%—among the highest in Asia. By contrast, Indonesia’s figure remains below 20%, and even Singapore, with its high homeownership rate, has achieved better alignment between income and mortgage duration via strong public housing subsidies and structured mandatory savings via CPF.

What distinguishes Malaysia is the privatized burden of both housing and car access. Where other economies use public policy to redistribute cost or improve access (via housing grants, leasing schemes, or mass transit investment), Malaysia places the financing responsibility squarely on households—many of whom borrow beyond safe thresholds.

The Malaysian debt landscape is not just a product of consumer behavior. It’s a mirror of how housing and mobility are priced, financed, and mythologized. What looks like personal financial overextension is often the result of structural pricing distortions and policy inaction.

As long as homes remain unaffordable and cars are treated as necessities without viable transport alternatives, household debt will remain high—regardless of how responsible individual borrowers try to be. Loan tenures may stretch, interest payments may compound, and yet the social script of ownership will persist.

But as younger Malaysians begin to question that script, the policy response must evolve too—not just with credit counseling or first-time buyer subsidies, but with deep structural corrections to affordability itself.