By Samantha Joseph
Traipsing through housing loan tenures Tiger finds that there’s hardly a person out there in the overbuilt concrete jungle who requires a loan for more than 35 years. Thus, what happens when Bank Negara Malaysia reduces the maximum tenure to 35 years from 45? Why nothing of course. Which means the central bank needs to do more.
It’s a jungle out there when it comes to the household debt of Malaysians. Weeding through the credit card charges, property repayments, car leases, college loans and personal loans for weddings, businesses and a shinier pelt than the next tiger, we find families and individuals who cycle their bill-paying and use their half-dozen credit cards to pay off each other.
But what does Tiger care? Once upon a time, there were plenty of trees for Tiger to do his business under. Now the trees are replaced with concrete buildings. If Tiger is going to lose his home, he would damn well want the people living in those concrete blocks to enjoy them.
They don’t seem to be though. Last Tiger heard, the level of household debt in Malaysia was at a worrisome 140% debt-to-income ratio, with 56% of the debt being property loans (46.8% for residential properties, and 9.2% for non-residential properties). What is to be expected when even ‘affordable’ housing has a going rate of RM400,000 now?
So Bank Negara Malaysia (BNM) steps in to save the day and the middle income consumers, limiting household loans to 35 years as opposed to 45 years previously. That’s still longer than a tiger’s lifespan, and a bit much if you ask any practical animal. Taking a loan for a house at 30 would require you to still be paying for it after retirement!
But the best part of this would be that analysts expect little to no impact from this ruling on the banks.
“First, we gather from various sources that average tenure for residential and non-residential loans currently stands at around 35 and 25 years. While some banks do stretch the repayment tenure up to 40 years, we understand from management that the proportion is minimal and as such will not be expected to have any significant impact on the mortgage loan portfolio,” a report on the banking sector by Alliance noted.
What does this mean?
This means that there will be little impact on consumers as well. BNM is essentially enforcing a regulation that is rarely flouted as it is.
It sounded like a good idea
The idea behind reducing the length of loans is that monthly repayments will be bumped up, thus bumping out those who won’t be able to afford it and shaving off a significant number of people who would have otherwise gotten loans.
“If the number of people applying for loans are restricted due to tighter loan regulations, demand will invariably decrease,” said economist Andrew Tan of Universiti Sains Malaysia. “Overall, there should be a reduction in demand, leading to property prices being lowered in the long term.”
Bar high-income speculators who would not be affected by BNM’s regulations either way, practical steps would result in lower property prices (although this would probably not affect the industry in the next few years) something that many thought they would never see as the property bubble failed to burst year after year, despite assurances from aunties, uncles and friends.
At the rate things are, the 35-year limit will have zero impact on demand. Combine that with margins of financing in Malaysia that can go up to 100%, we can see the trap that most of the middle class and lower have fallen into.
“When loan amounts increase and length of repayment is extended, it makes it artificially easier to buy homes,” Tan pointed out. “When people are able to take easy loans via high financing percentages, even though they cannot afford the repayment, many will do so. This is dangerous, as evidenced by the property bubble in the USA in 2007. Those who are marginally qualified are given maximum housing loans with long term repayment periods.”
With BNM’s new rulings, Tiger sees no change in the above situation.
In spite of the modest Sang Kancil as its symbol, Tiger thinks BNM should be more tigerish about its steps in helping to cut the debts that arise from property loans. Get rid of DIBS (developer interest bearing scheme), limit margins of financing and further reduce the maximum number of years for loans. A three-pronged approach would do more than this sop to loan length that has little foreseeable benefit.
Tiger awaits stronger moves from BNM.
GRRRRR!
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