There are growing calls for Bank Negara to look into easing the stringent lending policy, especially for first-time house buyers in an effort to reduce the rising number of unsold properties in the country.
While the broad cooling or macro-prudential measures imposed on the property sector should not be lifted at the moment, some industry observers and analysts opined that the central bank should give some leeway or flexibility to first-time home owners by relaxing the current stringent lending policy.
They said this would help ease the glut of unsold properties amid the slowing economy and external headwinds impacting consumer sentiment.
National House Buyers Association (HBA) honorary secretary-general Chang Kim Loong told StarBiz the central bank could allow a directive for banks to provide 100% financing for first-time house buyers subject to conditions. At the moment, he said, financing for properties albeit first-time home buyers was based on a case-to-case basis.
“The 100% financing should only be for affordable property category costing not more than RM300,000. Furthermore, the property that is bought should not be allowed to be sold for the first 10 years and should be for self occupation. This will assist first-time house buyers who lack capital to buy their dream home. However, this group of buyers must meet the bank’s credit requirements,’’ he added.
Chang felt the measures imposed by the central bank should be maintained as it would combat speculation in the property sector and eradicate “bogus” house buyers.
AllianceDBS Research analyst Quah He Wei agreed the stringent financing guidelines could be relaxed for certain targeted groups, especially the first-home buyers or young families with low household income to make it easier for them to obtain financing facility. He, however, believed the overall cooling measures should not be lifted as it had been effective at curbing excessive speculation in the property market.
Although the property sector on the whole is moderating, this should be viewed also as a function of high property prices.
“If developers continue to launch products at premium pricing, a slow take-up is imminent. On the other hand, we continue to see healthy demand for affordable homes despite the high loan rejection rates. Affordably priced properties at strategic locations with public transport accessibility and lifestyle amenities would still be well received, Quah said.
RAM Ratings co-head of financial institution ratings Wong Yin Ching said that despite a weaker outlook for the property market, the rating agency did not expect a relaxation of macro-prudential measures in the near term.
“We are of the view that these guidelines serve to curb excessive speculative activities while continuing to allow access to financing for eligible borrowers, particularly first-time house buyers. For instance, the loan-to-value (LTV) ratio limit was only targeted at borrowers with three or more house financing and was not imposed on a broad-brush approach. The central bank’s requirement for banks to observe prudent debt-service ratios in their credit assessment to ensure sound lending practices is also viewed positively,” she added.
The current slowdown in the property market, Wong said, was not only attributed to these measures but was also reflective of the sluggish consumer sentiment and banks’ more conservative lending stance given the current challenging economic environment.
Although home loans grew by a strong 12.6% year-on-year (y-o-y) as at end-July (2015), partly due to the drawdown of previously approved loans, their approvals on the other hand had contracted by 10% year-on-year during the first seven months of this year.
Meanwhile, OCBC Bank (M) Bhd head of secured lending Thoo Mee Ling felt it might be too early to review the measures as the easing of these measures depended on several factors – state of economy, the market’s supply and demand and wage growth.
If the cooling measures are lifted too soon, there may be a push-back from consumers if asset prices continue to escalate, she said. On whether the property sector may worsen with more unsold properties this year or next year, Thoo added: “Buyers’ and investors’ sentiments have turned cautious with many adopting the “wait-and-see” approach due to the challenging economic outlook and the weakening of commodity prices.
“The implementation of the goods and services tax has also contributed to weak buyers’ sentiment. The slowdown in the property market may continue but it will not be much worse than the existing market condition.”
The Real Estate and Housing Developers Association Malaysia (Rehda) in its latest Property Industry Survey said that in the first half of this year, property sales fell 9% compared with the same period last year. For the period under review, from the 10,877 units launched of which 10,550 were residential units, only 4,373 or 40% were sold.
Double and triple-storey units sold well while apartment and condominium sales were dismal, with only 779 of the 4,259 units launched being sold.
The survey also revealed that the number of unsold units rose to 78% in the first half of this year from 64% in the first half of 2014 – a 14% increase.
Rehda president Datuk Seri Fateh Iskandar Mohamed Mansor attributed the bulk of unsold units to unreleased bumiputra lots and loan rejections by banks, adding that the unsold units were mostly in Kedah, Penang, Selangor and Johor. These units were mainly in the RM500,000 to RM1mil price range, he said.
Among some of the broad cooling measures which had been introduced by Bank Negara for the property sector were the 70% LTV cap on a borrower’s third and subsequent property-financing facility, lowering of the maximum tenure for property loans to 35 years from 45 years, the abolition of developers interest bearing schemes, raising of the real property gains tax and increasing the cap on foreigners buying properties to RM1mil from RM500,000.
The responsible lending guidelines have also made lending more stringent as more documentation is now needed for approval of loans and approval is based on the borrower’s net income rather than gross income.
Meanwhile, Bank Negara governor Tan Sri Zeti Akhtar Aziz in a recent news report had defended the guidelines stating that it was not fair for Rehda to blame the stricter financing rules as the reason for the drop in property sales.
Bank Negara had introduced these guidelines which had a requirement for financial institutions to make an affordability assessment, she said. “A lot of flexibilities have been given. Maybe some banks have taken it too far, but that is not the intention of our responsible lending guidelines. We continually engage with banks and are seeing healthy credit growth. We are also looking at approval and rejection rates,’’ Zeti said. - By The Star