Possible moves to curb property speculation

Bank Negara engaging with banks to avert property bubble

Bank Negara is engaging with banks on possible measures to curb excessive speculation on property prices while developers caution that it should not be imposed across the board to avoid dampening the property market.

Responding to queries on whether the central bank will be imposing a 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble, the central bank said: “Bank Negara regularly engages with industry players as part of its surveillance and supervisory activity. The engagements cover a broad range of issues and areas that relate to developments on the ground, safety and soundness of the institutions and the overall system.”

It added that to ensure prudent management of credit risk in the banks’ balance sheets, the central bank regularly engages with the industry on developments in the underwriting and selling practices of financial institutions.

The share of housing loans to total loans is about 26%, according to the central bank.

When contacted, banking industry players said it was likely that any measures to be introduced would be pre-emptive measures to target certain quarters of purchasers and would not be across the board.

The measures are believed to be targeted at the high-end and non-owner occupied house purchasers.

Currently Bank Negara does not impose any standard policy on mortgage loans but leave it to the banks to manage.

But following a rise of between 10% and 30% in the prices of landed houses in some parts of the Klang Valley (including Kuala Lumpur) and Penang in the past one year, banking sources said Bank Negara might be looking at discontinuing the 5:95 and 10:90 housing loan packages, and preferred banks to impose higher downpayment for property purchasers.

The bank sources concurred that over the longer term, there must be the flexibility to allow more relaxed loan quantum if the market needs it, especially if there is a recession.

OCBC Bank (Malaysia) Bhd head of secured lending Thoo Mee Ling said part of the rationale for the 80% LVR for mortgages could be to curb speculative property prices in the market currently.

“If it is implemented, home buyers will have to self-finance a higher amount than they do now. In the short term, coupled with entry costs such as legal, stamp and valuation fees, the property market will take a dive and it will subsequently dampen the mortgage business.

“In the long term, the measure would curb speculative property buying and promote a healthier property market. Therefore, both the banks and property market will become more resilient to any potential crisis,” she said.

Datuk Michael Yam, the president of Real Estate and Housing Developers’ Association Malaysia (Rehda), said Bank Negara should not impose a mandatory LVR cap on mortgage loans at this juncture as it would dampen buying sentiment with spillover effects on other related industries such as construction and building materials suppliers.

“The local banking industry is well regulated and banks are very prudent and stringent in their credit assessment of borrowers. Banks have, on their own initiative, cut down loan margins to borrowers and only those who are credible and can afford to repay their loans will be offered a higher loan margin.

“Banks also are very selective of what projects they extend loans to.”

Caution and prudence should be exercised when considering any measure for mortgage loans, said Yam, adding that it should not be across the board.

“It is better to leave it to market forces to decide as the banks’ stringent lending criteria is enough to ensure the quality of loans in the market,” he added.

Yam said that up to 90% of the country’s population are living in affordable houses priced below RM250,000, and the current low downpayment for property purchases has promoted home ownership among the lower to middle income group.

Mah Sing Group Bhd group managing director cum chief executive Tan Sri Leong Hoy Kum said a conducive financing environment was important to support the property industry, which was a significant engine of growth for the economy.

“We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.”

Leong said there was no property bubble at this juncture “as property price increases have not been across the board.”

“The properties which have been enjoying price appreciation are those with good concepts by branded developers, and sited in good locations.

“One must also take into account the construction cost, and also increasing price of good land in considering the prices of properties, which have gone up by 10% to 25% in the past 1½ years,” Leong added. - By Angie Ng and Sharidan M. Ali (The Star)


September 2, 2010 at 7:23 PMalan

The implementation will correct the market situation but it will aso cause short term pain. It will help the country/people to re-allocate the financial funds/resources to other more viable sectors rather to create bubble.

September 2, 2010 at 10:11 PMAndrew

I don't think it will help much. But if its implemented, I think 1st time house buyers should be exempted from this rule.

September 2, 2010 at 10:34 PMNgoh

yes Andrew I agree with you, when you buy first house should be still maintain the 10/90 loan. When you buy 2nd house onwards, that means you have more money, so should cap to 20/80 loan.....this will block some speculators which abusing the 10/90 or 5/95 loan loophole....of course still no effect to cash bulk buyers, but it somehow still help to control the situation.

September 2, 2010 at 10:41 PMtan

Bank Negara should implement the 80% loan limit

All this time these greedy and unscrupulous speculators have been exploiting the high loan margin of 90% and above

House prices have escalated too fast to a ridiculous level within a short span of time and if this is not checked, will give rise to dangerous 'bubble

Don't wait until it is too late.... bubble burst !

September 2, 2010 at 11:04 PMDavid

Mmm, is this one of the sign "the rich gets richer"?

September 2, 2010 at 11:25 PMST

Bank Negara must be firm in taking this long-awaited action to curb rampant speculation

we can expect those groups with vested interest like those greedy developers & real estate agnt coming out with statements to oppose these measures ....

do not be swayed by the 'tactics' used by these self-serving groups who have no social responsibility at all !

September 2, 2010 at 11:26 PMLike

I agree with David. The rich will get richer. The curbs and measures from banks alone is not good enough. The rich will eventually still have the $$ to fork out the 20% and the RAKYAT ho really need a home will suffer

The greatest culprit is bulk buyer and everyone knows that there are a few developers like these investors and prefer to have such an unethical trade with them. Why not regulate the developers to launch their product to all at the launch date and not by stages like.....employee first, bulk buyer 2nd and the remaining (left not so nice unit) 20% to people who really need a home. OR no BULK BUYERS allows.....

September 3, 2010 at 12:26 AMOng

Easy financing with high loan margin is one of the most decisive factor in fuelling the rampant speculation and property bubble !

It is a good measure to limit the loan amount to 80% .

It is better to have some pain now than to have a "Bloodbath" later... !

September 3, 2010 at 1:10 AMAlbert

Agree with suggestion from Andrew. I think the most effective way is to increase the property gain tax. The government can get more money for those rich people and utilize the money to improve the living standard for those average and poor people. I think government should know this is the best way to curb property speculation, but just can't do it. Continuous deficit in budget and discouraging export figure made the government not so keen in implementing measure to curb the property speculation. They want the highest possible economic growth within this and next year to prepare them for next election.

September 3, 2010 at 9:22 AMLee

This cap on loan limit is certainly a positive measure ... house prices will then stabilize and even come down for those highly overpriced
this is good news for genuine buyers

even singapore is now further considering imposing 70% cap on loan limit on 2nd house buyers beside the 80% cap already imposed

September 3, 2010 at 10:19 AMJohn

I think there should be different loan caps based on property price:
below 100k - 90%
101k to 500k - 80%
above 500k - 70%

There should also be different rates for 1st home and subsequent homes.

Last but not least, there should be an additional tax / fee for individuals and companies who are purchasing in bulk (more than 3 from the same developer/project; I do not think any normal person would buy more than 2 homes at the same time - apart from someone who genuinely wants to buy 2 units and break it into 1).

I think the above suggestions would help control the property speculation. But as usual, the government and Bank Negara would probably just say it's too complex to implement, etc, etc. Read between the lines, too complex for some individuals with vested interests to manipulate it and profit from it.

September 3, 2010 at 10:27 AMjeffrey

Speculator means the investor only? I dun think so, how about developer? land owner? they are the one who make most of the money! investor (or so call speculator) is not the root cause! sometime the land also own by the government, so they are also land owner, when they sold to developer with high price, so what the developer do?
so sometime they act like save the bubble but at the back, they are the bubble maker... so dun simply push all the faults to investor to cover the truth!

September 3, 2010 at 2:01 PMJeff

I don't see how this loan limit is going to help cooling down the speculation, this only help the rich to get richer. Investors who are rich in cash will not mind the 10% difference, there was also news that foreign buyers eg. from china started to chip-in, these people may not even need a loan. So at the end, only the pity low-medium class malaysian who requires a 30yrs loan woul suffer.

September 3, 2010 at 2:06 PMDD

One of the best solution is to implement build before you sell. Agree, the biggest speculators are the developers and G agencies who sell public land to developers. The old Pudu jail is a good example, the Sanctuary (ex-military camp) another. Speculators/investors mentioned here merely taking advantage of the price difference between launch and OC. If G can implement build before sell, then it will reduce the price speculation as well as prevent abandoned projects that buyers are the ultimate victims.

September 3, 2010 at 3:54 PMLeong

Since the begining of this year, house prices have escalated alarming and just recently developers & real estate associations have trumpeted that the "housing market is simmering and the banking sector very liquid, prices are set to rise further 20 per cent more within the next six months" !


September 3, 2010 at 4:19 PMDD

Hinting it and not implementing the policy creates more speculations than preventions. More people are going to rush to get 5/95 loan before the implementation of loan limit. Again, developers and banks tend to benefit at least short term.

September 3, 2010 at 7:14 PMOng

Bank negara should act impartially to protect the wider interest of the ordinary people and not cater only to the self-serving interest of a select privilege group (developers, bankers, ... )

Intense speculations due to easy financing with high loan margins and unethical sales practices by greedy developers have pushed the house prices to a ridiculous high level within a short span of time .

Bank negara should act FAST to implement the necessary measures .....

September 7, 2010 at 9:14 PMPenang Fan

Government should only allow a person to own one below $500K properties as at this price range that is the most speculative. Little speculators can afford to take up a few of such units thus inflating the demand to an artificial high. Also disallow foreign buyer eg. rich speculators from Singaporeans, Indonesians and H.K. to buy anything below $500K will work to reduce the demand too. Raise the down payment for 2nd or 3rd property ownership. This way more local can afford to own at least one affordable home.