By G. Sharmila
The rising cost of living coupled with stringent loan requirements implemented by the central bank are causing potential homebuyers problems in financing their purchases of auction properties, according to experts.
An auctioneer who KINIBIZ spoke to expressed concerns about homebuyers being unable to afford auction properties, which are typically lower than market prices.
“The demand (for auction properties) is still there, but people are facing a lot of problems to obtain financing. We find that after paying the 10% downpayment for the property, many potential buyers can’t get loans from the banks,” licenced auctioneer Jeffrey Choong told KINIBIZ over the phone.
Choong said that this trend has been seen “across the board” ever since Bank Negara Malaysia (BNM) began implementing stringent loan requirements.
Among the cooling measures introduced by BNM for the property sector are the 70% loan-to-value ratio cap on a borrower’s third and subsequent property-financing facility; lowering of the maximum tenure for property loans from 45 years to 35 years, abolishing Developer Interest Bearing Scheme; raising of real property gains tax; and increasing the cap on foreigners purchase of properties from RM500,000 to RM1 million.
BNM’s guidelines have made lending more stringent because borrowers need to produce documentation for approval of loans, where the approval is based on the borrower’s net income, not gross income. This has made it tougher for prospective homeowners to obtain loan financing.
The number of properties being put up for auction appears to have increased, indicating that property owners are finding it difficult to service their loans.
Sheldon Fernandez
PropertyGuru Malaysia country manager Sheldon Fernandez told KINIBIZ via email that recent data by the Malaysian Association Of Borrowers & Consumers Solution (4PM) point to an increase nationwide in the number of properties being auctioned.
“Buyers especially middle-income homeowners are having difficulty affording homes, including keeping up with monthly instalments. This goes back to financing, where policies need to be reconsidered to make financing not just available but affordable to this market segment,” Fernandez said.
He added that it is important to look into this area as it is arguably more easy to control compared to land cost, cost of raw materials and so on.
“Given the increasing rising cost of living due to rising petrol cost, toll charges and the goods and services tax, these cumulatively do have an impact on disposable income (take-home pay) which can potentially impact repayment ability,” he said.
“Nobody buys a home just to give it up later because they can’t service the loans. So while we need measures to curb speculation and keep the market healthy, financing must also be addressed to make it easier for people to buy and keep their homes,” Fernandez urged.
According to news reports, 4PM president Rosland Mohd Arif said in early September that 30,000 houses across the country would be open for auction by local banks soon and that 90% of the houses, which included bungalows and flats, were owned by bumiputeras.
Rosland urged banks to be more lenient especially towards borrowers who are faced with difficulty in paying their mortgages, given the rising cost of living.
PropertyGuru also conducted a survey in the first half of 2015, comprising 1,438 respondents in Malaysia. Titled the ‘Property Affordability Sentiment Index Report H1 2015′, the survey found that a major source of dissatisfaction, according to 86% of the respondents was the expensive/overpriced domestic properties. 61% of the respondents also believed the prices were rising too quickly.
“Aside from expensive property prices, another factor in the dissatisfaction in Malaysia’s real estate climate is the rising discontent towards the government’s efforts to address the affordable housing issue. In the first half of 2015, 78% of the respondents thought that the existing efforts were insufficient, compared with 73% in the first half of 2014,” the report said.
Siva Shanker
Property consultant Siva Shanker of PPC International Sdn Bhd said that while there hasn’t been a noticeable increase in residential auction properties in the past few months, some sectors of the market are oversupplied, particularly that of high-end condominiums.
“Many people have bought multiple condos based on the advice of so-called property gurus,” Siva told KINIBIZ, adding that he foresees a large portion being unable to afford repayments, the effects of it which will be seen in 2016 and 2017.
Siva, who is also the former president of the Malaysian Institute of Estate Agents also believes lending requirements should be eased.
“The market has cooled enough, any cooler and the market will be frozen,” he said, adding that the authorities cannot make rules and “leave them forever”, but the rules must be able to react to market forces.
“What we want is slow and steady growth which is sustainable,” said Siva, adding that the affordable housing market needs to get it right as hasn’t met its targets yet. He also suggested that various affordable housing parties be parked under one roof for easier management.
When asked what measures need to be taken to help prospective homebuyers, Siva Shanker said: “I echo Real Estate and Housing Developers’ Association of Malaysia’s call for the developers’ interest-bearing schemes to be reintroduced, at the very least it should be just for first-time homebuyers. Let’s do something to help them own their first homes.”
Siva also urged banks to relax the loan criteria for homebuyers. “The market needs more transactions so growth can happen,” he said.
“In the long term, I am confident the property market will regain lost ground, in fact over the next 20 to 25 years it will see growth. All indicators point to a buoyant property market in the medium term. Unfortunately, the short-term outlook remains uncertain due to oversupply in some sectors of the markets as well as the current political and economic situation,” Siva said.
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