Wednesday September 8, 2010
BEHIND THE NEWS
By ANGIE NG
PROPERTY, especially the hot housing market, has become a favourite topic these days. Malaysians are generally quite savvy investors and their penchant for viable investment instruments have contributed to the current run-up in the housing market.
The availability of easy housing facilities, including the 5:95 and 10:90 packages, is also fuelling the strong buying interest.
According to the National Property Information Centre in its latest property market report, average house prices have risen 19% to RM273,000 in the first half of this year, from RM220,000 in the same period last year.
In Kuala Lumpur, prices rose about 35% to more than RM700,000 in the first half of the year, up from RM523,000 last year.
The strong jump in house prices in the past six months in some parts of the Klang Valley and Penang have raised concerns that unchecked speculative buying may cause overheating and result in a property bubble.
Bank Negara is keeping a close watch on the market and is engaging with banks on possible measures to curb excessive speculation on properties. It may consider imposing a 80% loan-to-value ratio (LVR) cap for mortgages to avert the risk of a potential property bubble.
The news have caused concern among industry and consumer groups over its dampening effect on affordability level and buying sentiment.
They worry that if the loan limit is brought down to 80%, many first-time house buyers, including those who have just joined the work force and the lower income group, may not be able to fork out the 20% downpayment for a house.
Their contention is that the proposed mortgage loan limit should not be imposed across the board and should give due consideration and flexibility to first-time buyers and those buying lower priced units priced below RM500,000.
Bank sources said Bank Negara’s aim of imposing the 80% mortgage loan cap was to reign in on speculative buying by certain quarters and the measure would be targeted at the high-end and non-owner occupied houses.
A blanket LVR cap will unlikely be imposed given the differing level of speculation in the various housing segments.
Given that houses of less than RM500,000 still constitute the bulk of transactions, accounting for 94% of the total number of units sold and 68% of sales value last year, the mass housing market may be spared. First-time house buyers may also be exempted from the proposed measure.
Should the proposed LVR cap materialise, houses priced from RM500,000 may be affected the most.
The mortgage loans market is now quite liberalised as the central bank does not impose any standard policy on mortgage loans but leaves it to the banks to manage.
Most banks have traditionally provided loans of up to 90% of the value of the property until about two years ago when market sentiment was impacted by the global financial crisis.
To stem the weak property sales, developers and their panel of bankers came out with different variants of housing loan packages that allow buyers to sign up for a house with just a 5% downpayment of the property value. Some even go as far as doing away with any downpayment and eligible buyers are granted the maximum 100% loan.
Although it has been almost two years since the introduction of these easy financing facilities to raise the affordability level for house buyers, these packages are still around in various forms today.
In fact, banks are still flushed with liquidity and are competing to get a bigger slice of the mortgage loan market. The stiff competition among banks has resulted in a mortgage price war with lending rates dropping to as low as base lending rate minus 2.3%.
But things have changed substantially in the past six months or so, and it should be time to review these housing packages.
If house buyers are made to pay higher downpayments for their purchases, the risk of their loans turning bad will be lower compared with if they have paid lower or zero downpayments.
We must not forget that the massive sub-prime housing debts in the United States that turned bad had triggered the global financial crisis two years ago and the world is still paying a heavy price for it today.
Although the LVR cap could dampen property market, demand for quality products in prime locations is expected to remain strong although buyers will be more selective.
Ultimately, if the proposed mortgage cap succeeds in cooling off the rapid rise in prices, especially for landed upper medium to high end residences, it should ensure a more sustainable and resilient property market.