KUALA LUMPUR, April 1 — Malaysia’s easing property sector could turn the country’s household debt — the highest in the region — into a risk to economic growth, a Fitch Group subsidiary said today.

In a report on the dangers of growing corporate and consumer debt in the region, Business Monitor International Ltd (BMI) noted that Malaysia’s household debt rose sharply since 2008 and now amounted to 89 per cent as a ratio of the country’s GDP, an increase of 25 percentage points.

According to BMI’s data, mortgages remained the prime contributor to Malaysians’ debt over the past five years, even as consumers cut back of borrowing for other expenditure.

“Although the value of assets of households in Malaysia is two to three times the size of debt, which implies a low level of risk, with 49 per cent of debt used to purchase residential assets, we highlight that the risk of a softer housing market could weigh on consumers' balance sheets, particularly given the weaker currency and the implementation of the goods & service tax of 6.0 per cent in 2015,” BMI said in its report.

Property prices in Malaysia have stagnated due to the recent economic slowdown as well as increasing supply of both residential and commercial space.

Putrajaya also recently noted that real estate investments had dropped by 70 per cent.

Slowing growth in the value of property used for securitisation could limit consumers’ ability to obtain additional credit, and has already shown its effect on consumer sentiment, which has worsened in recent years.

Consumer spending was previously the main driver of the country’s economy and helped Malaysia weather global economic slowdowns such as the 2008 financial crisis.

Since then, exports have taken over as the main contributor to the GDP, although the manufacturing sector’s performance remains volatile.

Bank Negara Malaysia reiterated this month that Malaysia is set to meet its targeted annual growth of between 4.0 and 4.5 per cent, down from 5.0 per cent last year, although analysts predict that expansion will be at the lower end of the estimate.