KUCHING: The Urban Wellbeing, and Local Government Minister had recently announced that property developers are now eligible to obtain license to provide loans to buyers.
This has garnered mixed views from analysts as the new rules could see property developers’ sales improving, slightly. However, it could also cause complications for the developers.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) opined that on the positive side, the new rules are expected to increase property developers sales slightly and hence may reduce the number of unsold units in the market.
“Having said that, we believe that property developer will be very selective in applying the new scheme to their products as the cash flow from repayment periods exceeding 10 years is slower than the current period of between three to five years,” it said.
On the flip side, equity analyst Thomas Soon of AmInvestment Bank Bhd’s research arm (AmInvestment Bank) believed that the new rules could be a double-edged sword for property developers.
“It could be positive for larger developers, as it gives them the option of doing so in good and bad times, with each having the ability to assess and staking it up against its own balance sheet strength.
“However, unlike household goods, housing is a big-ticket item that carries much greater risks,” Soon said.
He added, “In our view, the downside includes the high interest rate being charged, the likelihood of bringing back speculative activities (though not necessarily a bad thing on a moderate scale), and part of the risks and costs, including defaults and chasing of monthly installments, shifting to the developers.
“It will also introduce new risks to banks’ lending to developers themselves.”
In default scenarios, the research house noted that the developers would have the security of the properties likely to be used as collaterals, and any down payments likely to be forfeited.
“The administrative matters would be more clear-cut in terms of full financing from the developer, while partial financing could engender some uncertainty, including caveats to property being issued by both the bank and developer,” it added.
“We believe that upfront, buyers must be obligated to provide proper disclosure on any intention to obtain developer financing as any additional loan may actually result in a worse-off credit rating than what was assessed, and thereby, affect the bank’s original approved loan-to-value rate.
“If spared from paying interest during the construction period, it could be beneficial for some buyers whose credit profile may improve over time,” AmInvestment Bank commented.
Overall, Soon noted, “Broadly, we do not believe the initiative would have a significant impact in the near and medium term as the high interest rates would be a hindrance, but more significant risks could emerge over the long run if such balance sheet items built up and needed to be off-loaded.
“The memory of the 2008 to 2009 subprime mortgage crisis is not that far in the distant past.”
Meanwhile, the latest Bank Negera Malaysia (BNM) statistics have shown a steady decline in Approved Loan for Purchase of Property with a continuous 18 month decline since February 2015 and a 13 per cent year over year (y-o-y) decline in July 2016, the research arm noted that the decline in approved loans were mainly due to a lower applied loan amount.
A recent report by Bernama, indicated that BNM is confident that their series of measures introduced in the last couple of years are sufficient to maintain current household debt a prudent level.
Additionally, in a 2015 report by Standard & Poor, it was highlighted that Malaysian household are accumulating debt faster than their incomes are growing, which will likely lead to repayment difficulties when the credit cycle turns.