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See also: Rent-To-Own Scheme
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You’ve most likely heard about B40, M40, and T20 in the news many times recently, especially when it comes to receiving financial assistance amid the Covid-19 pandemic, but what do they actually mean, and where do you stand? This is an important topic that all Malaysians should know about.
Basically, these refer to income groups in Malaysia, where Malaysia’s population is classified into three different groups based on their household income – B40 represents the bottom 40% of income earners, M40 represents the middle 40%, and T20 represents the top 20%.
In other words, these income classifications split earners into different classes such as poor, lower-middle-class, middle class, upper-middle-class, and wealthy to help the government determine how to allocate social aid programs and formulate national economic plans.
Photo: Freepik (@diloka107)
It is important to keep in mind that these income group definitions are not fixed. The values may increase or decrease year-to-year, depending on the country’s economic growth.
Previously, based on the Department of Statistics Malaysia’s (DOSM) Household Income & Basic Amenities Survey Report 2016, the median household income for each of the B40, M40, and T20 groups are pinned at RM3,000, RM6,275, and RM13,148 respectively.
In 2019, the survey report by DOSM shows that the median income for each of the B40, M40, and T20 groups has shifted higher as compared to the 2016 figures, amounting to RM3,166, RM7,093, and RM15,021 respectively. These figures show that household incomes are growing over the years without taking into account the general economy, with the T20 tier seeing the largest increase in their incomes.
Besides, the B40, M40, and T20 income groups are further classified into a total of 10 sub-categories based on the latest 2019 Household Income Survey by DOSM, such as B1, B2, B3, B4, and so on – as compared to the 2016 report without the sub-categories. These figures are revised to be more impactful and precise in reflecting the escalating cost of living, living wages, inflation, and household size amongst other factors.
Check out the table below for a clearer picture of the income threshold and median incomes of the new classifications:
Based on the report – to know which income group your household belongs to – the income threshold for Malaysia’s B40 group of about 2.91 million households was RM 4,849 – which means households with earnings below RM4,850 per month in 2019 were considered B40.
The M40 group comprising another 2.91 million households are those that earn between RM4,850 to RM10,959 per month, while the remaining 1.46 million households earning more than RM10,960 per month are considered in the T20 tier.
Interestingly enough, T20 possesses 46.8% of the national income share (higher than 2016’s ratio of 46.2%), M40 has 37.2% of the national income share (lower than 2016’s ratio of 37.4%), while the B40 gets 16.0% of the national income share (lower than 2016’s ratio of 16.4%). This highlights the worsening income inequality in Malaysia with the top 20% of income earners generating almost half of the total household income in Malaysia.
Photo: Freepik (@wirestock)
Based on the Khazanah Research Institute’s (KRI) State Of Households 2018 report, the country’s household income has steadily increased since 1970, while the Gini coefficient – which measures income inequality – fell from 0.513 to 0.399. Simply put, a lower Gini coefficient value means the income inequality is lower.
This means that in the past few decades, household income has risen, and income inequality has declined. However, the Gini coefficient value increased to 0.407 in 2019, compared to 0.399 in 2016. This shows that income growth has become less inclusive as income inequality has widened in recent years.
The State Of Households 2018 by KRI also revealed a steady increase in the income gaps between the T20, M40, and B40 groups since 1970. The estimated real mean household income differences between T20 and M40, M40 and B40, and T20 and B40 increased to RM9,000, RM4,000, and RM13,000 respectively in 2016, as compared to the figures in 2000 at RM6,000, RM2,000, and RM8,000 respectively. This highlights that the absolute earnings gap between the Top 20% income earners and other groups nearly doubled in the two decades up to 2016.
Hence, despite the declining Gini coefficient for income distribution over the years, the general perception of the rich is getting richer, while the poor are getting poorer, becomes more visible. Indeed, the rising cost of living and low wages have put financial pressure not only on the B40s but also the M40 group – which are deemed “too rich” to receive government subsidies but “too poor” to enjoy a comfortable life in the face of the higher cost of living in urban areas.
One of the main concerns among the young M40 groups is that they can no longer afford to buy a middle-class home as they do not even earn enough in the first place. This is unlike the situation for the T20 households, which have disposable income for investment and wealth creation.
The State of Households 2018 report by Khazanah Research Institute (KRI) revealed that lower-income households (households earning below RM2,000) spent 94.8% of their income on household expenditure with a big chunk on food and non-alcoholic beverages as a result of the need to purchase raw materials for home consumption.
However, the higher-income households (households earning above RM15,000) only spent 45% of their income on household expenses, including shifting to more aspirational lifestyle purchases such as after-school private tutoring for their children and overseas holidays.
Meanwhile, the middle-class (households earning below RM5,000) spent 67% of their income mainly on consumption items and everyday essentials, whilst facing a spectrum of trade-offs in food consumption despite spending more money on it given the rapid food-price inflation.
This highlights households earning below RM2,000 are potentially very vulnerable to any economic shocks as they will not have enough savings for emergencies. Besides, more Malaysians, including the M40 group, may find themselves among the poor in reality amid the Covid-19 pandemic, despite being considered the country’s middle-class from the official M40 classification.
This is why the government’s economic stimulus incentives have always focused on improving the B40 and M40 groups’ purchasing power to boost domestic spending, which includes making homeownership more accessible too.
Talking about homeownership, you might want to have a look at some of the affordable housing schemes in Malaysia, especially for first-time buyers!
Photo: Kementerian Wilayah Persekutuan
Residensi Wilayah, formerly known as RUMAWIP, is an affordable housing program by the government to help lower and middle-income groups across the Federal Territories of Kuala Lumpur, Putrajaya, and Labuan to own their first property.
The Perumahan Penjawat Awam Malaysia (PPAM) scheme, also known as the Malaysia Civil Servants Housing Programme, was designed to help government civil servants, particularly low, middle-income civil employees, to afford their own homes in major urban areas.
The My First Home Scheme is an initiative that was first announced by the government in the 2011 Budget to assist first-time homebuyers who earn below RM5,000 per month individually, or below RM10,000 a month as a household, to purchase their first home.
Photo: Semakan Online
BSN MyHome is a youth housing scheme administered by Bank Simpanan Nasional (BSN), designed to help single or married youths to own their first home.
Visit https://www.bsn.com.my/ for more info.
PR1MA housing program was established by the government to help middle-income households looking to buy a home in key urban centres in Malaysia. The properties are offered via an open ballot, registering for PR1MA housing is absolutely free!
Photo: Portal Rasmi Kementrian Perumahan dan Kerajaan Tempatan
Rent-to-own (RTO) schemes are an alternative to traditional home loans. This model requires one to rent a residential unit, which differs from 12 months to 5 years, with an option to buy the property in the future at an agreed locked-in price or walk away without any obligation.
One of the main attractions of RTO is that no down payment is required. In other words, RTO can be thought of as a trial period for a buyer to experience living in the property he or she desires without forking out a hefty 10% down payment and additional transactional fees upfront.
A buyer will only need to prepare a security deposit of three months’ rent, and part of the monthly rent they pay will be credited to the property’s future purchase in the form of savings accrued to settle the down payment if a buyer decides to buy. They can be attractive to buyers, especially those who are still building their credit scores and expect to be in a stronger financial position within a few years.
Check out some of the better-known RTO schemes available in Malaysia:
HouzKEY is a homeownership financing solution introduced by Maybank to assist young couples and adults looking to own their first home but lack sufficient funds for a down payment. Maybank’s HouzKEY home loan is designed to assist homebuyers in their home financing with great flexibility and cash flow efficiency.
Visit www.maybank2own.com for more info.
Photo: Hi HOME : : Say Hi To Your New Home!
The PR1MA RTO housing scheme was tabled during the Budget 2021 in November 2020 to cater specifically to first-time homebuyers. It is expected to be launched in June 2021 and the scheme will be effective until 2022.
According to the Housing and Local Government Housing Minister (KPKT) Minister, Datuk Zuraida Kamaruddin, the ministry is in the midst of discussions on the housing scheme mechanism to be adopted with banking institutions.
Once the scheme is finalised, homebuyers can expect to apply from a list of 5,000 PR1MA homes nationwide.
Visit https://www.pr1ma.my/ for more info.
Photo: Twitter (@AmirudinShari)
The Rent-to-own scheme (2STAY), led by Lembaga Perumahan dan Hartanah Selangor (LPHS), is aimed to assist the lower-income bracket segment (B40), especially those facing difficulty in obtaining bank loans to own their dream homes at less than RM200,000.
Read more: Rumah Selangorku or visit http://phssb.com/syarat-syarat-kelayakan-skim-smart-sewa/ to know more.
As with most home ownership schemes, there is no one-size-fits-all. Homebuyers will need to identify their current needs and decide what is best for their pocket. For B40s, look at the bright side! The housing initiatives above are mainly aimed to help the B40 group secure their own home, some are even suitable for those M40 households fringing near the B40 threshold.
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