By TEE LIN SAY
| Sept 3, 2010 KUALA LUMPUR:
Preemptive measures to curb purchases in certain property segments may yield temporary results as buoyant consumer sentiment and demand for good locations are expected to sustain.
Property analysts said there could be a short-term knee-jerk reaction to Bank Negara’s possible imposition of an 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble.
CIMB research head Terence Wong is not overly concerned over such moves, pointing out that the previous imposition of a 5% real property gains tax last October had only resulted in a short-term cooling of demand. “This will be effective in cooling down the market for a few months. People will step back and pay more attention to the launches and product offerings instead of simply jumping onto the bandwagon,” he said. Wong, however, feels that the measure should not be imposed across the board. It should be applied to landed homes rather than condominiums, as it is mainly the prices of landed properties that have gone up extremely fast.
On the other hand, price increases for high-rise condominiums and apartments have been relatively subdued due to an oversupply situation. “We know there is a finite supply of land in the Klang Valley. Everybody wants his own plot of garden. So logically, that is why prices of landed properties are going up. In that sense, this potential move (to curb certain property loans) is not a serious concern,” said Wong.
Analysts are not surprised by the possibility of a cap on the LVR as the prices of selected properties in prime locations in the Klang Valley have shot up in recent months due to a combination of factors including pent-up demand and speculation.
Bank Negara is currently exploring this measure to reduce excessive speculation and prevent the housing market from overheating as the economy recovers amidst a low interest rate environment.
Developers have enjoyed record sales this year and in some instances, sales have been so strong that some developers have the luxury of slowing down their launches.
NewAsia Capital associate director Sherilyn Foong agreed that the possible measures would, to an extent, cool down speculation in the property sector. In Foong’s view, these potential measures could affect the take-up rates, especially among the higher value primary transactions which have benefited from innovative financing schemes. “Pending more details, if the cap is only imposed on higher value transactions of say, RM1mil and above, the lower-middle range should, technically, not be affected. “This is unless the entire sector turns bearish against the sentiment induced by sector-specific measures such as impositions of capital gains tax,” she said.
Credit Suisse research head Tan Ting Min, in her report on Tuesday, said capping the LVR at 80% would put a dent on the Malaysia property sector and dampen sentiment in the near term. “The cap on LVR will indirectly reduce affordability and may cool demand in the mass market and mid- to high-end segments. “We may also see some downtrading as affordability will be determined by the higher 20% equity upfront requirement.” In the longer term, Tan views the preemptive role taken by Bank Negara as positive. “It is critical in ensuring the sustainability of the Malaysia property market and reducing the risk of a major ‘shock’ to the sector should the economy slow or interest rates rise,” she said.
In the region, similar moves have been made to cool the property market over the past 12 months. Singapore announced another round of cooling measures on Monday, including lowering the LVR to 70% for buyers with one or more outstanding loans, from 80% previously.