LEADING think-tank Malaysian Institute of Economic Research (Mier) is disappointed that the 2011 Budget did not provide measures to address high household leverage.

Executive director Dr Zakaria Abdul Rashid described it as a key disappointment in the Budget, besides the lack of measures such as those to address property speculation or tax on gaming and brewers or lower personal tax.

Economists have warned of a household bubble taking place in Malaysia if the high household debt levels are not addressed immediately.

They expect the government to announce policies to check on debt service burden.

US investment bank Citi recently remarked that aggregate household assets were 2.5 times household debt, while aggregate US household financial assets were 3.5 times their debt before the subprime crisis.

According to a Bank Negara Malaysia report, total household borrowings grew at an average annual rate of 9.5 per cent to RM561.5 billion as at end-August 2010 over the past four years. This accounted for 78.1 per cent of gross domestic product (GDP).

About 45 per cent of household borrowings were to finance the purchase of residential properties, while financing for car hire purchase accounted for 20 per cent of total debts.

Mier senior research fellow Dr Foong Kee-Kuan said the loan-to-value ratio (LTV) must be lowered to check on the growing debt level.

"With the Overnight Policy Rate at 2.75 per cent and the economy moderating in the second half of the year through 2011, servicing these loans would pose a problem as disposable income shrinks," Foong said at a Mier media briefing on the third quarter economic outlook.

He said it was expected that the central bank would lower the LTV in line with similar moves undertaken by Singapore, Hong Kong, China, Korea and Taiwan.

It has been rumoured that the LTV could be reduced for the third and subsequent house purchases after the Prime Minister's earlier announcement last month that house financing might be capped at 80 per cent from 90 per cent for third and subsequent mortgages.

Foong said while the banking sector may not favour the move as it would affect the revenue, lowering the LTV ratio and imposing tighter credit card conditions would address the household debt problem.

Meanwhile, Zakaria said Mier maintains its GDP growth forecast at 6.5 per cent for 2010 and 5.2 per cent for 2011.

Economic growth is expected to taper off in the second half due to weaker global environment and disappearing low-base effects.

"These forecasts are supported by recent in-house surveys," he said, referring to the surveys on the automotive industry, residential property, tourism market, retail trade as well as business and consumer sentiments.

The Business Conditions Index declined to 104.9 points in the third quarter, which more than offset the surge in the Consumer Sentiment Index to 115.8 points.

Other indices also painted a similar gloomy environment ahead although they remained above the 100 points-mark.

Meanwhile, Mier anticipates the OPR to remain at 2.75 per cent till year-end and trend higher to 3.25 per cent in 2011, in tandem with a higher overall CPI forecast of 2.5 per cent year-on-year.

It also forecasts the ringgit to trade at 3.200 by end-2010 before strengthening further to 3.100 in 2011.

Recent forex liberalisation measures had lifted the ringgit's sentiment and should be conducive for further development of the financial market.

However, these measures also generated more volatility to exporters and may therefore require active monitoring by the central bank, Mier added.

SOURCE: Business Times

The Malaysian Institute of Economic Research (MIER) is concerned with the rising household debt level which stood at 77 per cent of Gross Domestic Product (GDP) last year.

In Bank Negara Malaysia (BNM)'s 2009 annual report, household debt was reported to have risen to 76.6 per cent for the year, the highest in Asia, from 63.9 per cent of GDP in 2008.

"Loan-to-value (LTV) ratio should be reduced to address the rise," said Senior Research Fellow Dr Foong Kee-Kuan.

"Going forward, there should be more business loans than household loans. More business loans will contribute to our growth," he said. The concern was highlighted during a media briefing on the Malaysian Economic Outlook report released here today.

Quoting the central bank's Banking and Monetary Indicators report, MIER said household loan in April, May, June, July and August this year stood at 10 per cent, 11.7 per cent, 12.5 per cent, 11.9 per cent and 11.8 per cent respectively.

"Our household debt level is a concern and no measures were mentioned to address this in the Budget 2011.

"If this scenario continues along with slower economic growth, it can translate into unemployment and lead to people having problems in servicing their loans," he added.

He said although lowering LTV would not be favourable for the banking sector as it would reflect in revenue, the escalating household debt must be addressed to prevent risk in future.

In its report, MIER said it was anticipating the OPR to be steady at 2.75 per cent until end of this year. "This along with reduction in mortgage LTV ratios and tighter credit card conditions would address the rising household debt problem," it cautioned.

The OPR would trend higher to 3.25 per cent in 2011. In a recent research note, Kenanga Research had also said the central bank should consider imposing tighter borrowing limit for the property sector to avert potential over-leveraging on the household segment and speculations.

It suggested that bank loans should be lowered to between 70 and 80 per cent value ratio for a third mortgage. — Bernama


SOURCE: Business Times

Property developer Tambun Indah Land Bhd has received the Securities Commission's (SC) approval to list on the Main Market of Bursa Malaysia Securities Bhd.

In a statement today, the company said it has appointed MIMB Investment Bank Bhd adviser, managing underwriter, underwriter and placement agent for the initial public offering (IPO) exercise.

Its managing director, Teh Kiak Seng, said it was timely to seek a listing in view of the increasing demand for properties in mainland Penang.

"We believe it will enable us to strengthen our position as a major property developer here.

"Since the group's inception in 1994, we have been guided by our key principle to design and develop contemporary and high quality homes at affordable prices," he said.

To date, he said, Tambun Indah has sold more than 2,800 units of residential properties, mostly in mainland Penang, with a gross development value of more than RM800 million.

Tambun Indah's portfolio of completed/on-going projects include Juru Heights and Pearl Garden townships, Casa Impian and Casa Permai as well as Scotland Villas. — Bernama


SOURCE: Business Times

The turf club is the single largest prime land plot owner in George Town.

Mah Sing Group Bhd (8583) group chief executive Tan Sri Leong Hoy Kum confirmed that the company has indicated its interest for the Penang Turf Club land.

"We are always on the lookout for good development land, especially in the hotspots of Klang Valley, Penang island and Johor Baru where we've established a strong branding," he said via e-mail.

Other companies invited for the bid are believed to be Berjaya Land Bhd, IJM Land Bhd, IGB Corp Bhd and Eastern & Oriental Bhd.
There was speculation that SP Setia Bhd had also put in a bid but sources said the company was not involved in the submission.

Sources familiar with the plan said the companies were invited by Datuk Seri Teh Choon Beng, a horse trainer and chairman of the turf club, to make the submissions.

Teh could not be reached for comment.

Business Times reported recently that tenders for the land sale were called two months ago and closed on September 30.

Over 20 companies submitted their proposals for the pre-qualifying round, which closed on June 16.

"The validity of the submission is one year, which means Teh can award the land deal anytime during this period," a source said.

The reserve price for the land is RM200 per sq ft or around RM500 million.

The source said the land, located behind the horse racing track, will include a residential development, comprising high-rise and landed properties.

"There will be some commercial elements but very minimal," the source said.

The expected gross development value from the proposed project is around RM1.5 billion.

The club, set up in 1864, is the oldest horse racing club in Peninsular Malaysia. It owns some 104ha of land in the vicinity.

"For now, only 23.1ha have been offered for development. There may be more parcels later but it will depend on many factors," the source said.

SOURCE: Business Times

PETALING JAYA: To promote home ownership among Malaysians, the Government has proposed to introduce First Home Scheme whereby Cagamas Bhd will provide a guarantee on the 10% down-payment for houses priced below RM220,000.

The scheme is for first-time house buyers with monthly household income of less than RM3,000. It is aimed at young adults who have just joined the workforce.

With the guarantee from the national mortgage corporation, it means that eligible house buyers will be able to obtain a 100% loan.

First-time house buyers will also be given stamp duty exemption of 50% on instruments of transfer on a house priced at not more than RM350,000. The Government has also proposed stamp duty exemption of 50% be given on loan agreement instruments to finance such first-time purchase of houses.

To expedite the process of property registration, the Stamp Act 1949 had been amended to enable the Valuation and Property Services Department assess properties after the payment of stamp duty to the Inland Revenue Board. This will reduce the property registration process from 30 days to one day.

Welcoming the First Home Scheme initiative, Real Estate and Housing Developers Association (Rehda) deputy president Datuk FD Iskandar Mohamed Mansor said the scheme was good news for the housing sector, “as just over 73% of houses transacted falls under the category of below RM220,000.”

The 50% stamp duty exemption for houses below RM350,000 covers an estimated additional 10% of the market, and together the incentives benefit all-in-all roughly 87% of housing transactions throughout the country.

While Rehda views the measure as a very positive step towards closing the income gap, it acknowledges that properties which are found within these price brackets are not easily found in Greater KL or Penang due to higher land and construction costs in these vicinities.

Concurring with Rehda, C H Williams Talhar & Wong Sdn Bhd managing director Foo Gee Jen expects the First Home Scheme to have a lesser impact on the Kuala Lumpur market as the prices of most houses here exceeded the ceiling set by the budget.

“There will be more significant impact on housing demand in other cities such as Johor Baru, Malacca, Ipoh, and Kuantan,” he noted.

Reapfield Properties Sdn Bhd managing director David Ong said the Government’s “invisible hand” in steering the housing market was important in the light of the current market conditions.

“The Government is wielding its influence on two fronts – to help first time buyers and to signal to developers that a certain type of housing within a certain price range is needed. Developers can probably consider townhouses or condominiums within a certain price range,” Ong said.

Ong said hopefully, with this move, developers would build houses within this pricing category.

Khong & Jaafar managing director Elvin Fernandez said the Government’s move not only recognised first-time house buyers, “but also acknowledged them as newcomers into the workforce.”

“The perimeters set out in the budget are correct. This is the type of house this group will be able to afford. They will need this kind of assistance,” he said.

The move, he said, did not mean that the Government was not considering raising the downpayment for house purchase to 20% or 30%.

“That may still come later on as increasing the percentage of downpayment does not fall within the budget,” Fernandez said.

Ireka Development Management Sdn Bhd chief operating officer Lim Ech Chan said the First Home Scheme would enable first-time buyers to afford their first home and promote a healthy property market overall, encouraging more affordable housing to be made available.

Amphil Corp Sdn Bhd chief executive officer PK Poh said it was an excellent measure to provide the means for young households to purchase “starter” homes “as it will be a sort of forced savings and a hedge against inflation, besides saving money on rental.”

“In our major cities, this would often mean buying small one- or two-room apartments in areas a little further from their workplace than they might like. However, the securing of such a loan is still subject to the banker’s determination of the repayment ability of the borrowers.”

On the development of the 1,072ha Malaysian Rubber Board land in Sungai Buloh by the Employees Provident Fund, Poh said most developers were looking forward to the finalisation of the master plan and the granting of conversion and planning approval from the state.

“The land area comprises both freehold and leasehold lands and needless to say, developers would want to see how they could position themselves and participate in the roll-out of this massive development,” he added.

The mixed development comprising affordable houses as well as commercial, industrial and infrastructure facilities, is estimated at RM10bil and is expected to be completed by 2025.

SOURCE: The Star