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Pressure on property, new ruling likely to impact housing loan growth

November 20th, 2013 Leave a comment

A new circular from the central bank that took effect last Friday will pile more pressure on an already hard-hit property sector, even if its merits are likely to be felt in the long-term, analysts and industry executives said.

In a bid to make the property market sustainable, the new rules have put the brakes on interest capitalisation schemes (ICS) and the developer interest-bearing scheme (DIBS).

It also calls for the use of the net selling price of a property as the benchmark for obtaining bank loans, which raises the amount to be paid upfront.

Alliance Research’s banking analyst Cheah King Yoong said the measures were “more onerous” than anticipated and posed downside risks to his 9% loan growth estimate for the banking sector next year.

“Although the guidelines on the prohibition of the DIBS was not a surprise, the new rule on using the net selling price to determine the loan-to-value (LTV) ratio is a negative surprise to us.

“While it is difficult to gauge the impact on banks, the fact that this new rule applies to all property financing, including first-time home buyers, means that property buyers’ affordability will be affected, and this will lead to lower property loan growth,” Cheah said in a report yesterday.

“We believe the latest policies illustrate the sheer determination of the authorities to contain the growth of household debt.

“These measures, together with potential rate hikes in 2014, fiscal tightening by the federal government and subsidy rationalisation next year, could further drag on loan growth in the retail segment, temporarily leading to a rise in credit costs, and dampen investor sentiment on the banking sector,” he added.

The circular prohibits financial institutions from granting end-financing facilities to individuals or non-individuals for the purchase of property offered under an ICS, including the DIBS.

Financial institutions are also barred from granting a bridging facility to finance a property development that offers ICS.

According to Alliance Research’s Cheah, this effectively removes any alternative incentives that developers might concoct to replace the DIBS.

“Nonetheless, our channel checks show that for the banking groups under our coverage, property loans with the DIBS only made up 1% to 3% of their outstanding mortgages,” he said.

Affin Bank is the exception, with some 7% of its mortgage loanbook comprising loans tied to the DIBS.

“Given that property loans with the DIBS are immaterial to overall outstanding mortgage loans as well as new mortgage loans approved, we do not expect the restrictions to have a significant impact on the banking sector,” Cheah said.

Public Bank has the highest exposure to housing loans at 56% of its gross loans, followed by Alliance Bank with 55% and Hong Leong Bank, 46%, company data showed.

Another key item on the circular requires banks to calculate the LTV ratio based on the net price of a property instead of its gross price.

To illustrate, a property with a list price of RM1mil, rebate of 5% and 90% financing would incur a down payment of RM50,000 after discount.

Under the new regime, the down payment increases to RM95,000 because the 90% loan will be computed using the discounted price tag of RM950,000.

While property executives expect a slowdown in sales, they believe that genuine buyers will remain undeterred.

Mah Sing Group Bhd group managing director and CEO Tan Sri Leong Hoy Kum toldStarBiz via email that demand for properties would continue to be robust, especially among those buying to own or for long-term rental income.

“There is still a large supply-demand gap as supply growth for properties has been on a decreasing trend since 2003, with Malaysia’s supply growth in the second quarter of this year at only 0.8%.

“The fundamentals driving the property market’s growth in recent years have not changed, for example a younger population leading to new household formation, a rising middle-income group, the supply-demand gap and stable employment.

“Initiatives in Budget 2014 may remove the speculative element, but not the fundamentals,” he said.

Leong noted that the lending environment was still conducive, with low interest rates and banks offering BLR minus 2.4%, from BLR minus 2.1%-2.2% a year ago.

Mah Sing had stopped offering the DIBS for most of its launches since the start of the year. None of its projects in Iskandar Malaysia feature the DIBS.

Source: StarProperty.my

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  1. Po
    November 20th, 2013 at 09:01 | #1

    ooopss… no more rebate in any form?

  2. TNB
    November 20th, 2013 at 09:05 | #2

    So its harder to own a property with higher dpymt and no DIBS. Low growth impacted.
    Lets see, maybe banks will offer BLR-3% instead for first 3yrs during construction to attract buyers and maintaining loan growth? At least this statement was not in circular..

  3. hoho
    November 20th, 2013 at 09:06 | #3

    THat mean new property development project will be affected.
    However, we can think back to prior years that no DIBS and the loan is only on solely selling price. What is the property outlook on that time?

    At the same time, secondary market will not be affected as you all need to bear all the legal costs and no DIBS involvement.

    FRom my opinion, secondary market will grow further……..

  4. YH
    November 20th, 2013 at 11:18 | #4

    No more discount for downpayment?this policy very bad for new project and speculator who like to make quick profit with zero cost

  5. so so
    November 20th, 2013 at 11:24 | #5

    Hoho

    yes ..it will benefit secondary market more..developers will having hard time to launch a new projects and searching new land banks…yet, the new regulation wont help the 1st house buyer much.. they also benefited from the dibs scheme.. so, kudos for those who already own multiple properties before this..

  6. SiaoLang
    November 20th, 2013 at 11:35 | #6

    Controlling speculation is only part 1, part 2 is coming. Hang on tight guys!!….:) Well afterall, it’s for the good of the country and everyone. Those who stand in the line of fire, well, too bad….:)

  7. SiaoLang
    November 20th, 2013 at 11:41 | #7

    But it’s ok lah, for those who cannot sell their properties, just hold lor. Anyway you need a house for the weekend, one for the mistress, and one for keeping all your s&p documents mah. Right?….:)

  8. wkl
    November 20th, 2013 at 12:30 | #8

    siao lang with his utopian dream..

  9. Truth
    November 20th, 2013 at 12:36 | #9

    @SiaoLang

    I think you are the only affected by the new ruling on property.

  10. Po
    November 20th, 2013 at 13:10 | #10

    What would you do if you are developer? Free this and that laa…. reduce price would be the last resort…

  11. Bryant
    November 20th, 2013 at 13:27 | #11

    Somehow doubt price will reduce…maybe for a short period of time, but after that will shoot up again, but this time, gradually.

  12. Response
    November 20th, 2013 at 13:28 | #12

    No problem. As part of “rebate” system, Developer can delay longer time to the first drawdown from bank. Then Buyers can have a longer honeymoon period before start servicing the interest of the loan.

  13. wkl
    November 20th, 2013 at 13:36 | #13

    saiolang

    i rather keep my excess money in properties rather than dump in FD or currencies or stocks..so whether my properties got secondary buyer or not its a non issue ..if the subsale price is very attractive i have to sell and have to look for other property to invest, but more jobs to me..if it is not i just wait for few years until the correct timing..and yeah u r right i can convert one of the unit to keep all the SNPs

  14. SiaoLang
    November 20th, 2013 at 14:40 | #14

    @wkl

    I know, it’s very difficult to sell, what other choice do you have!!?….:)

  15. Po
    November 20th, 2013 at 14:52 | #15

    @Response

    Would developer state it in S&P first drawdown = VP? We better stay away from these kind of developers laa….

  16. wkl
    November 20th, 2013 at 14:56 | #16

    siaolang

    u bet.. the population graf on exponent pattern is not tally with the properties growth..not to include foreigners who buy the local properties.. thats why u will only see the price will always go up and not down..land is scarce.. so in order to achieve your dream u better government will impose policy to regularize childbirth..that way they will cut the demand

  17. Penangkia
    November 20th, 2013 at 15:07 | #17

    @SiaoLang

    Ya. For your additional info, some of my existing unit just leave it un-vacant for birdnet. This is another advantage of empty unit. All the current regime seem like helping me to push up my current sub-sale price. Hold and wait is the best stragtegy.

  18. Sam pat lang
    November 20th, 2013 at 15:12 | #18

    Siao lang is a fire brand. Appears in a number of forums in Penang Property talk. Full time fire brand. Probably does not own any property hence just keeps confronting and agitating others with the in your face attitude. Best to ignore him. Sour grapes. Not that this person’s views are worth anything.

  19. SiaoLang
    November 20th, 2013 at 15:28 | #19

    @wkl

    Aiyo, until today you still think the price increase in the last few years is due to population increase? God bless you!….:)

    @Penangkia

    Ehh…just a gentle reminder. Part 2 will be coming real soon. However, if you want to hold (1 for weekend, 1 for mistress, and 1 for keeping your s&p docs), afterall it’s your money and your bank loan (but I am sure you bought all your properties by cash, right?), you make the decision….:) God bless you too.

  20. SiaoLang
    November 20th, 2013 at 15:36 | #20

    @Sam pat lang

    I shall not defend myself. Everyone is entitled to their own judgement….:) You are entitled to yours too….:) *peace*

  21. wkl
    November 20th, 2013 at 15:47 | #21

    Siaolang
    When is the last time u see penang property price drop..the worst crisis was in 97′ and penang market wheathered it fairly..no slump.. This measures by fed govt more to encounter subprime crisis. .but the price for secondary market will still going up considering people are harder to get new properties and developers reluctant to launch new projects.

  22. Rich or Poor
    November 20th, 2013 at 15:48 | #22

    How many property you have, enough for your mistess?

    SiaoLang :
    But it’s ok lah, for those who cannot sell their properties, just hold lor. Anyway you need a house for the weekend, one for the mistress, and one for keeping all your s&p documents mah. Right?….:)

  23. Swan
    November 20th, 2013 at 16:04 | #23

    With this new ruling, actually, it deters the speculative activity only, for sub sale market, it doesn;t have much of impact, the market should go back to healthy instead of unhealthy activity like speculation to make the price spikes ridiculously, for long run, the price will definetely go up but will be slower pace based on propert supply vs demand, in fact, the market will be adjusted and driven toward healthy manner rather than speculative and may resulted in housing bubble if the new cooling measures are not in place.

  24. low
    November 20th, 2013 at 16:30 | #24

    Observed the speculator club members and their Sifu became not active.
    What will be the selling point to promote property investment.
    Any property Sifu here. Pls advise.

  25. Bryant
    November 20th, 2013 at 17:07 | #25

    Just a thought:
    buyers now will be paying almost the same entry amount to get a property. Why should these buyers wait for a newly built property? They could get their keys in 2 or 3 months for a subsale unit.

  26. Swan
    November 20th, 2013 at 17:20 | #26

    @Bryant
    I think there is difference in term of legal fee (S & P) and loan agreement for buying sub sale property, it could save you at least 10K+ depending on your property price, for new launch property, those items could be absorbed by developer, it depends on what is the new package or strategy come up by developer since the cooling measure has implemented.

    In some points, there is also a reason to buy new property instead of sub sale, in the end, it is up to individual of how urgent you want to get your house.

  27. yoyo
    November 20th, 2013 at 17:21 | #27

    I am not property sifu, but would like to give my 2cents.

    When government announces ZERO inflation then it’s the time to stop property investment. Hahaha….

    Just look back the history from a lay man point of view. When government announced 3% inflation, but the fact seems to be things priced 5% – 10% increased.
    Just take the average price increases at 7%, still higher than the FD interest you get. Therefore investing in property still better than keeping money in the bank.

    Bear in mind, adequate inflation level is important to cultivate the country economy. The reason simply we hope our next year salary will be higher than this year.
    What can you expect if your boss sell things same price forever…your salary will be same forever then. We need adequate inflation, and seems like we cannot run away from it.
    What we can do is we need to be smart enough to surf on the wave.

  28. yoyo
    November 20th, 2013 at 17:25 | #28

    @Swan
    Buying sub sale property is what you see and what you buy. Where buying new project is you only can imagine your property. And we should know how the people do business now days.

  29. SiaoLang
    November 20th, 2013 at 17:40 | #29

    @yoyo

    A few points to highlight with regards to what you said.

    “Just look back the history from a lay man point of view. When government announced 3% inflation, but the fact seems to be things priced 5% – 10% increased”——– property prices in certain hot spots are going up more than that, that’s something that got the gov worried.

    “Just take the average price increases at 7%, still higher than the FD interest you get. Therefore investing in property still better than keeping money in the bank”—– only a small group of people buy properties with cash. Most speculators and investors are highly leveraged (especially flippers). We must not forget that all these tightening measures are targeted at SHORT TERM SLIPPERS.

  30. YH
    November 20th, 2013 at 17:54 | #30

    @wkl, it is true demand for house will increase ,but is demand for house below 300k,the young population majority earn less than 5 k per month. Not because of people dont want to buy,but unable to buy, i dont think the price will go up further,unless very good location lah

  31. yoyo
    November 20th, 2013 at 17:55 | #31

    @SiaoLang

    You brought up a very good point

    “property prices in certain hot spots are going up more than that” – more reason why you should invest in property.

    ” that’s something that got the gov worried.”- Unless you are gov survant. Myself and I think most of the people only can work in private sector. Company no profit, we are out of job. I can’t worry too much what gov worries. Gov got bonus during down turn. Private company pay cut during down turn. What I can worry is how to make more money. If really gov is concern, they should build more LMC and really do the enforcement to ensure those LMC is allocated to the really needed people…Of course if I got a job in gov, I will worry what gov worries. I think got to wait long long to work in gov.

    “only a small group of people buy properties with cash.” – Do you understand what means by “using a small knife to chop a big tree?

    haha….that’s all for this round. Logging off.

  32. TNB
    November 20th, 2013 at 18:27 | #32

    @SiaoLang
    What is short term slippers? Y not selipar? Or shoes?

  33. wkl
    November 20th, 2013 at 18:30 | #33

    YH

    tell me where can we get 300k properties in prime area.. 400k is now common in butterworth..unless u are prepared to live in LMC or outskirt part eg teluk kumbar, bukit minyak, alma ..rental is another option for the low incomes..

    siaolang

    smart people use other people money to make more money – basic kiyosaki ..thats y u dont see rich man buy properties using cash.. that is a way to protect your wealth below IRD radar.

  34. Swan
    November 20th, 2013 at 22:41 | #34

    @wkl
    I agreed with those financial experts who provide the excellent concept or method in generating the money and make even more money using money, howver, how much of risk one can take, not all people is able to accomodate the concept as it is basically a theory, ultimately, it is taking too much of risk in getting into this game, my 2cents

    One thing you are absolutely right, nowsday, i don’t think developer is interested on building a property with 300K anymore, using the same piece of land, they rather to build a bit highend for expediting higher price with more profit, even now, Goverment affordable project initiated by goverment under One Malaysia project, 400k is capped under affordable category, do you think 300k is still available in Penang island, it is unlilkely to happen in future, especially by 2015, when the GST policy starts take into effect, the material cost for construction will be impacted, developer will include all GST charges into property price.

  35. TNB
    November 21st, 2013 at 13:03 | #35

    Awesome!!

  36. Steve
    November 21st, 2013 at 14:26 | #36

    In my opinion I think ICS and DIBS should not be abolished.
    To tackle property bubble and housing affordability issues I would suggest the government increase the property capital gain tax. Instead of 30% should increase to 50% like in Australia. Does not matter whether you sell the property after a year or after 5 years. People who make money should pay tax. People who can’t afford a house should get help. The government should let ICS and DIBS applied to first home owner ONLY. In addition to this may be the government can support first home owner by giving them let say 20k when they purchase their first home for owner occupied.

  37. x factor
    November 21st, 2013 at 14:30 | #37

    They wanted the government to curb the price of property that keep on rising
    that is out of reach of the common people. So RPGT was raised to 30% , No
    DIBS and now net selling price to determine the loan. I hope they are fully
    satisfied by now.
    Don’t ever complaint that these measures have in fact make it more difficult
    for them to buy a house of their own.
    As I had said before, they should ask the government to provide more
    affordable housing with faster completion rate to cope with the demands. So
    can’t they afford now with all these measures implemented ?
    “They asked for it, they got it”.

  38. wkl
    November 21st, 2013 at 15:02 | #38

    Swan

    say that u have 2 million savings and 20k monthly salary..would u buy a 500k property by cash or use bank instruments?. same goes to the super rich who have tonnes of money they still using bank facilities for their business to generate more money.

    steve

    u r right, only 1st house buyers should be entitled to ICS and DIBS…

  39. Po
    November 21st, 2013 at 15:06 | #39

    The value has gone up. No point to bring it down. Slow down the price increase is fine… Since demand for affordable house is so high now, why no supply? Everyone wants affordable house at prime location?

  40. None
    November 21st, 2013 at 15:17 | #40

    I m just wondering, what is the definition of affordable house in Penang island?

  41. x factor
    November 21st, 2013 at 15:18 | #41

    @Po

    You are wrong !!!!.Everyone wants the government to curb the price of
    property that keep on rising that is out of reach for them. So RPGT was
    raised to 30% , No DIBS and now net selling price to determine the loan.

    Those people never asked for affordable houses. They should be happy
    and satisfied since they asked for it, they got it.

  42. Po
    November 21st, 2013 at 15:30 | #42

    @x factor

    Everyone? I don’t think I am wrong laa…..

    So demand for affordable house is not real?

  43. x factor
    November 21st, 2013 at 15:49 | #43

    @Po

    I think you don’t get it. The demand for affordable houses is high. Why are
    they not asking for the the government to build more affordable houses ?

    Why asked the government to curb the price of property that keep on rising
    in the first place instead of building more affordable houses.

  44. Sunhill
    November 21st, 2013 at 17:17 | #44

    @wkl

    Outskirt part for Alma?? This area cannot including lo… Thier house > 400K for double storey house. Since Tesco bring in Alma the house already booost up and further now is AEON Jusco in progress build in Alma, the house price, population, rental, shop lot all increase!

  45. wkl
    November 21st, 2013 at 17:59 | #45

    Sunhill

    haha my bad… that good news

  46. Chocolate
    November 21st, 2013 at 20:57 | #46

    Spend some time to understand Alma before comment. More and more high end project coming to Alma. Indeed location wise is outskirt from Butterworth, but very suitable for own stay as it is a self-sustain township.

    Why want to stay around industrial area which full with KA license trailers on the road every day?

  47. tomyam
    November 22nd, 2013 at 07:33 | #47

    I agree if work in BM area stay in Alma is a good choice. Quite like the development progress there, but myself will not consider there as work in Penang island. Currently stay in BM area (not that depth in like Alma) already facing super jam issue during 5pm to 8pm this time.

  48. Chocolate
    November 22nd, 2013 at 09:25 | #48

    tomyam :
    I agree if work in BM area stay in Alma is a good choice. Quite like the development progress there, but myself will not consider there as work in Penang island. Currently stay in BM area (not that depth in like Alma) already facing super jam issue during 5pm to 8pm this time.

    State gov is going to widen the road soon after SBK Rd. Traffic is everywhere nowadays, depends on how you judge that and worthy or not when u reach home.

    I am going to handle a project in Island for 4 years duration, so have to travel the bridge everyday too..:)

  49. elle
    December 4th, 2013 at 12:05 | #49

    Hi all property market experts,

    Now that the DIBS is no longer available, can someone share with me what kind of other promotion/deal/discounts will likely come in place of DIBS in order to continue to attract buyers?

    How will the developers counter this setback?

  50. TZ
    December 4th, 2013 at 12:39 | #50

    According to the new guidelines or ruling, any form of DIBS replacement or compensation is not allowed. So my guess is from developer, they could offer a partially reno package, discount 20% (of course they will increase the selling my 25% upfront), 0 legal fee, free title transfer and even 3 to 5yrs free maintainance? In addition maybe RM30k reno voucher or furniture.

    On the bankers part, interest during construction as low as maybe BLR-5% until VP.

    Or both can collaborate whereby first disbursement will only take place when construction is at 80%. so, dibs is not offered, but with disbursement of progressive payment only happen when conpletion is near, basically buyers dont have to pay any interest too.

  51. wkl
    December 4th, 2013 at 13:52 | #51

    all that i can expect, property growth will be slow down next year onwards..demand will be less because speculators/investors are reluctant to invest…developers will delay in launching new projects or acquire new land banks…real house buyers also harder to own property bcoz no more DIBS and no more discount upfront, so they need to have fork out 30k-40k for deposit serve rm200-rm500 monthly for interest…not many youngsters will be able to have that sums of money..

  52. Meranti
    December 4th, 2013 at 15:09 | #52

    “……Hong Kong stocks will trail the rest of Asia next year as property values sink in the world’s most expensive real estate market, according to JPMorgan Chase & Co…..JPMorgan’s chief Asia strategist, said in an interview in Hong Kong last week. Developers will trail as home values tumble about 30 percent in two years,…..Barclays Plc, UBS AG and Bank of America Corp. are also expecting a Hong Kong real-estate slump….”

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