Higher Interest Rates & Affordable Housing

Bank Negara announced that the Overnight Policy Rate (OPR) would be increased by 25bps, translating to an increase of the BLR from 6.6% to 6.85%.

I don't think Bank Negara have any choice but to raise interest rates, especially to curb inflation, at 3.4% forecasted for this year as well as to control excessive speculation. Gradual increases would stabilise the markets and protect the wealth of the people.

Currently, the FD rate among the local banks hover between 3.1% and 3.2%. Savings rates are a dismal 0% to 2.5% depending on the amount of deposits. Anything below 100k will likely give you up to a maximum of 2% at today's rates. In short, keeping money in the bank earns you pittance.

OK. Back to housing loans.

Looks like DAP is pretty quick to object.

New rate hike could bury hopes of would-be homebuyers, says DAP 

• The central bank’s move to increase interest rates will further burden prospective buyers already struggling to finance their first homes unless measures are introduced to cushion its effects, DAP secretary-general Lim Guan Eng said today.

• Lim suggested that Putrajaya reintroduce the Developer Interest-Bearing Scheme (DIBS) for affordable houses as a measure to help first-time buyers to purchase the homes.

• common grouse from first-time buyers was the difficulty in securing financing for their intended homes

• over two in three loan applicants for affordable housing costing below RM400,000 were rejected

• You can’t give the same conditions and interest rates to a buyer of a RM1 million house as someone buying a RM40,000 house says Jagdeep Singh Deo

I think DAP is missing the point in their criticism regarding the rise of interest rates. I also find that they are not being honest in their excuses. Blaming a .25% increase in BLR to the problem of unaffordable housing is a poor excuse.

Is DAP speaking up for the buyers or the developers? The root of the problem is the price!

1. RM400k - Whoever came up with the figure of RM400k as affordable housing clearly does not belong to the group that needs affordable housing. Who came up with this figure anyway? I'll hazard a guess that it would most like be the developers! RM400k IS NOT affordable to the lower income! RM40k is affordable. 100k-200k is still affordable. The simple reason why so many from this group could not get their loan applications approved is because they can't afford it!

2. The way I see it, state governments are not doing their part. Instead of earning revenue by selling state lands at a premium to developers who then build expensive luxury properties, the state should instead allocate some land specifically for affordable housing. Are you telling me that the developers can only build them at RM400k per unit?

3. Developer Interest-Bearing Scheme (DIBS). DIBS is the main contributing factor that led to speculation. Those who could not afford RM400k houses should buy cheaper ones. If they can't even service the interest during construction, how are they going to pay the installments when their houses are ready? Moreover, developers would have marked up the selling price of the property to include the interest charges. If they abandon their projects, the buyers still need to repay the loan plus the interests. 

Providing housing for the people is one of the responsibilities of governments.

4. What happens to the low income then? Banks won't lend to them because they actually could not afford a RM400k property? Some would be able to afford 100k houses, even 200K. I don't think those with a household income of less than RM6k should take up a 400k loan. Those with kids and compounded by the rising cost of living, rising interest rates, GST, removal of subsidies for fuel, etc... will face problems servicing their loans.

The low income group needs public housing, which happens to fall under the purview of state governments. I'm not seeing any of these being built.

Instead of DIBS, perhaps the developers & state government should build first, then sell, so that buyers only start servicing their loans when the houses are delivered. All the buyer has to do is come up with a 10% deposit, and their loans are only activated upon delivery. Now, that will be a "people-friendly" policy!

The Federal Government should do their part as well by drawing up better laws to protect the buyers, especially in cases of abandon projects, material quality and specifications.

And lastly... RM400k is NOT AFFORDABLE housing!

Only those who belong to the HIGH INCOME group would think RM400k is affordable!

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New rate hike could bury hopes of would-be homebuyers, says DAP

GEORGE TOWN, July 11 — The central bank’s move to increase interest rates will further burden prospective buyers already struggling to finance their first homes unless measures are introduced to cushion its effects, DAP secretary-general Lim Guan Eng said today.

Opposing the interest rate hike announced yesterday, Lim suggested that Putrajaya reintroduce the Developer Interest-Bearing Scheme (DIBS) for affordable houses as a measure to help first-time buyers to purchase the homes.

“Reinstating the DIBS for houses below RM400,000 would benefit first-time buyers and promote housing democracy,” he said in a statement issued today.

DIBS is a form of interest capitalisation Scheme (ICS) where interest costs are capitalised or built into the sale price, instead of being paid by the borrower as they are incurred.

The government prohibited DIBS at end of last year to curb speculation on properties.

The Penang chief minister said the reintroduction of DIBS would alleviate the pressure on homebuyers arising from the rate increase.

“This allows buyers to purchase their houses by paying 10 per cent and giving them breathing room by not paying interest payments and rent at the same time whilst waiting for their houses to be completed,” he said.

Saying that a common grouse from first-time buyers was the difficulty in securing financing for their intended homes, Lim asserted that Bank Negara Malaysia’s move yesterday would further exacerbate the problem.

Yesterday, Bank Negara raised the overnight policy rate (OPR) by 25 basis points to 3.25 per cent, the first such increase in three years.

The OPR determines interbank loans and affects other interest rates such as the base lending rate (BLR) and other interests on consumer banking services including home mortgages.

State executive councillor for housing development Jagdeep Singh Deo also expressed concern on the difficulty for new homebuyers in getting loans for affordable houses, saying this nullified efforts to build more units to alleviate spiralling home prices in the state.

“I appeal to the government, Bank Negara and the banks to come up with a programme or scheme just for first-time buyers of affordable housing because it is pointless for the state to be building affordable homes when they can’t get loans to buy the homes,” Jagdeep said at a press conference at his office today.

He said over two in three loan applicants for affordable housing costing below RM400,000 were rejected.

“This means, out of 10 applicants, only three get loans so how can the lower income group buy their own homes if they can’t even get loans?” he asked.

In a parliamentary reply to Lim on the issue, the Finance Ministry revealed that a total 50,224 loan applications worth a total RM10.3 billion were approved to buyers of affordable housing costing below RM400,000 for the first four months of this year.

However, a total 34,662 applicants for loans amounting to RM7.3 billion were rejected within the same period.

Last year, a total 170,886 loan applications for houses below RM400,000 amounting to RM34.5 billion were approved while 120,291 applications amounting to RM24.8 billion were rejected.

The ministry said that the applicants were rejected because they do not fulfil borrowing requirements that include their income, unsatisfactory credit record with high debts or financial commitments.

It added that the banks did not approve loans to those who fell short of requirements to avoid borrowers from falling into deeper debts that they could not pay.

Today, Jagdeep said the interest rates and loan application process should not be applied across the board for all borrowers as it would highly disadvantage the lower income group.

“You can’t give the same conditions and interest rates to a buyer of a RM1 million house as someone buying a RM40,000 house,” he said.

He added that all buyers of low cost and low medium cost housing were thoroughly vetted for eligibility so there is no question of them misusing any special loan schemes that could enable them to purchase their first homes.

The federal government formed Syarikat Jaminan Kredit Perumahan Bhd (SJKP) in 2008 to encourage people to buy their own homes.

The SJKP provides financial guarantee to loans given out to buyers of low and low medium cost houses costing below RM100,000 but as at March this year, only 3,684 applicants obtained the financial guarantees from SJKP.

- See more at: http://www.themalaymailonline.com/malaysia/article/new-rate-hike-could-bury-hopes-of-would-be-homebuyers-says-dap#sthash.knuPu7Xl.dpuf

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Bank Negara ups OPR for the first time since 2011

PETALING JAYA: Interest rates are set to rise with Bank Negara having raised the benchmark overnight policy rate (OPR) by 25 basis points (bps), or 0.25%, to 3.25% as part of measures to curb rising household debt.

The hike was within most economists’ expectations after the broad hints given in the last monetary policy statement in May, in which policymakers had expressed concerns over the continued build-up of financial imbalances....... - http://www.thestar.com.my/Business/Business-News/2014/07/11/Bank-Negara-ups-OPR-for-the-first-time-since-2011/

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Maybank to revise deposit, lending rates on Wednesday

KUALA LUMPUR: Malayan Banking Bhd will revise its deposit and base lending rates effective July 16, in tandem with the 25 basis points increase in the Overnight Policy Rate (OPR).

It said on Friday its deposit rates will be revised upwards by up to 15bps.

Maybank's base lending rate (BLR) and base financing rate (BFR) would be increased by 25 basis points from 6.60% per annum to 6.85%.

Its last revision in BLR and BFR was on May 11, 2011 when they were revised from 6.30% to 6.60%. - http://www.thestar.com.my/Business/Business-News/2014/07/11/Maybank-to-revise-deposit-lending-rates-on-Wednesday/

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‘New OPR will have little impact’

PETALING JAYA: An increase of 0.25% in the overnight policy rate (OPR) will not have a significant impact on borrowers for low-cost and affordable housing priced between RM45,000 and RM450,000, according to a senior executive of a real estate agency.

VPC Realtors (KL) Sdn Bhd director James Wong said there would only be an estimated marginal increase of RM5 to RM53 per month in loan repayment compared to the previous interest rate for a 30-year tenure with a 20:80 margin (see chart).

“As for high-end residential properties, most buyers are either cash buyers or they buy with a minimum loan margin. Hence, an increase of 0.25% per annum will be insignificant,” he added.

Bank Negara has raised the benchmark overnight policy rate by 0.25% to 3.25%, the first rate hike since June 2011.

Mortgage rates are based on the base lending rate (BLR) which in turn is correlated to the central bank’s OPR.

Wong felt that speculators would be hit the most.

“If they are unable to service the loan, they will be forced to sell. But it will not be as easy as before due to the real property gains tax,” he said.

- http://www.starproperty.my/index.php/articles/investment/new-opr-will-have-little-impact/

Is Malaysia's Property Market Over-regulated?

I think not. It's actually under-regulated.

Property sales and launches has slowed down quite a bit this year. I've highlighted it in a previous post last month HERE. Since then, every other day, there'll be industry players giving their opinions in the media on the latest market sentiments and government cooling measures.

I'm always wary of the opinions or views coming from people who are vested.

Below is an article highlighting the views from the property agents group. Obviously, similar to developers, they are not in favour of strict regulations. Members from the group which I would loosely term as the "unholy trinity" of the property market:- Developers, Agents & Banks, are responsible for the current unhealthy property speculations.

Homes are a basic need. People need homes. The commercial properties, on the other hand, can be unregulated, by all means. Residential properties on the other hand should be regulated. Those who are exploiting the market are very irresponsible.

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Property market should not be over-regulated

KUALA LUMPUR: The Malaysian property market, which saw cooling measures instituted in Budget 2014 to arrest steep property price increases, should not be over-regulated by the government, but be allowed to grow at a normal pace.



Making the call, Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector president, Lim Lian Hong, said a price increase of between 5% and 7% annually, is justified.



“I think, the central bank is also very careful that they don’t kill the market … We want to practice free market, so that foreign investors will feel more at ease to come into the system, to buy and sell.

“If you have a very restrictive market, foreign investors will feel that this market is artificial, on the whole,” he said at a press conference in conjunction with the Seventh Malaysian Property Summit 2014, on Feb 25.



Lim said that if the local property market is highly regulated, it may pose a problem to foreigners, if they want to resell their units. “We have to balance the laissez-faire, which is the free market,” he added.



Laissez-faire should be applied in the appropriate context. In a country where there are even ownership regulations between citizens of different races, I think foreign ownerships should be the least of our concerns for now. It's not a totally free market. Foreigners can always invest in commercial properties. Or residential properties above a certain price, over RM5mil maybe?

The problem now is that property prices are not rising at a normal pace. While I agree that price increases of 5%-10% is reasonably healthy, but the price increases for the past 3-4 years have reached levels that would normally take 10 years to reach.

 
Rahim & Co managing director, Choy Yue Kwong, said that Bank Negara Malaysia (BNM) regulations on housing loans are most effective in regulating the Malaysian property market, as the regulations are targeted at speculators.

“Speculators are people who make use of the banking system, take out very little money, [use] 95% loan to buy and speculate. These are the people, the system should target at.



“The main reason why there was so much speculation in the past, was because loans were so easily available. Some developers would price it at a certain level, give discount and then sign the agreement at the gross level effectively.”

Choy said, new BNM guidelines that stipulate that loans will be based on the net price, rather than the gross price, will take out a large segment of customers, who depend on loans to speculate.

Yes. BNM regulations are effective. It protects people from over extending themselves & speculating beyond their means. But what he is actually saying is that we should take out speculators who need loans, while those who have the cash can continue to speculate.

Home buyers should be allowed to borrow with higher margin of financing, especially for their first home. What the government should do is to ensure the prices are affordable and not allow developers to rake in excessive profits with high prices.

Property developments should be categorised according to owner-occupied or investment segments. Singapore's model should be emulated.



However, he is doubtful that the imposition of real property gains tax (RPGT) will have any significant impact on sales of houses.



“I think, house prices have gone up so much in the the last few years. No doubt, RPGT has its effect, but the effect is not much anymore. If you had RPGT three or four years ago, then it would have had more effect, because at that time, the prices hadn’t gone up so much.”



RPGT is the most effective way to control speculation. In fact, the rates & duration should be increased to prevent prices from rising further. RPGT keeps prices of new launches at reasonable levels. It is not meant to dampen sales but to control prices & speculation.

Choy is also sceptical about the effectiveness of the government’s intention to stop bulk-buying of properties by investors, by imposing restrictions on the number of properties bought by an individual.



“You can’t stop people from buying, if they have the money,” he noted.

Choy said, there are methods other than government regulations, that can be utilised to control the property market.

 He argued that housing planners have a role to play, in ensuring that developers are not “carpet building” or overbuilding to feed the speculative market.



Yes. The government can, and should stop these bulk buying practises. It is the most damaging form of speculation. If these investors are so rich to buy in bulk, they should build their own instead. Again, residential properties are not vegetables to be made available in bulk. Those with money can always buy up commercial properties. You can even buy the whole building if you want.

“Government planners [should] become more proactive. Let’s say, if the developer wants to build 9,000 units in a certain place, the planners should step in, even though the guidelines allow it. If they know that 9,000 are too many, they may say, tone it down to 5 phases [or] 10 phases,” Choy explained.

 He said that property developments now have an excess of investors, but not enough occupiers, leaving many units empty, years after the development has been completed. The scenario could also apply to the Iskandar Malaysia development.

Government planners should control the number of units, not because of over supply, but most importantly to control population density which if left unchecked could lead to traffic and pollution problems. They should also regulate the prices and types of property as well.

The empty units are the result of excessive speculation which led to over supply. Which means that there's excessive speculation in the market. The culprits are the speculators and developers. Regulators should control the quantity of units allowed to be built.

This article first appeared in The Edge Financial Daily, on February 26, 2014. - SOURCE

Malaysian Property Market in 2014 & 2015

For the past year, those vested have painted a bullish and rosy picture of the property market. Everyone would deny that there is a bubble. Even as recent as last month, they were still denying that the market has tapered off. I guess it's true when they say it's not a bubble until they officially deny it.

So, there you go. 2014 & 2015 will be a slow year for property... at the ridiculous prices these days, I not surprised. Depending on the world economy, I think it will last a while longer.

To those who had a good run these past few years, congratulations. For those who are still dreaming of owning their own home, don't worry. You will find your dream home soon enough. You may take your time because prices will taper a bit. Do not rush into any big purchases because you will be committing for the long term. So, it's prudent to find a property you like at the price you are comfortable with. The economy is not doing great and business has been slow since last year. So it is prudent to ensure that you have strong financial standing when the time comes.

We've seen many Boom Bust cycles throughout history. It's the same every time. Usually those who speculate will be affected. Those who buy for their own stay, doesn't matter to them whether the price goes up or down really. Just make sure you can afford the installments (you should take this seriously or else you will lose your home and still end up with debt).

Developers will build according to demand. Any business will always try to sell at the highest price the buyers are willing to pay. Supply & demand.

Amidst rising prices and slowing economy, those in power forgot to give the most important advice: Try not to lose your job.

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Malaysia's property market to take a breather this year and next

PETALING JAYA: The property market might need at least two years to digest and recover from the various cooling measures that came into effect this month, but expect it to surge again in 2016, say industry officials.

According to Malaysian Institute of Estate Agents president Siva Shanker, 2014 is expected to be a tough year for sales, but the market will find its footing next year and catch the next upcycle in 2016.

“The market ground to a standstill after Budget 2014. There was a knee-jerk reaction in sales.

“It will probably stay in the doldrums for the first half of 2014. The second half may be better,” Shanker, who is also CEO-Agency of property consultancy PPC International Sdn Bhd, told StarBiz by phone.

Shanker believes that speculation over the past few years in the primary market, resulting in “far more properties bought than needed”, had been put to a stop by the new curbs.

“The days of 20%-40% appreciation in property prices after only a few years is over, ” he said.

Even so, Shanker sees the secondary market, which he said had languished for years, regaining its lustre.

“A new launch in Bangsar could set you back RM1,500 per sq ft, compared to RM800-RM1,000 per sq ft for an existing property. The discount goes up to 50% in some prime areas,” he said.

An analyst with TA Research said that unlike previous years, many listed developers have held back on their 2014 sales targets – a departure from their usual forward guidance in December – until a clearer picture emerges from the effects of Budget 2014 and other tightening measures.

The exception is Mah Sing Group Bhd, which is aiming for a 20% increase in sales this year to RM3.6bil.

According to the analyst, policy uncertainty on several fronts – such as whether Iskandar Malaysia’s Medini is exempt from real property gains tax, or the pricing of bank loans using the net selling price of a property – remains an overhang on the market.

“The sector’s fundamentals are intact, but in terms of share prices, the catalysts are lacking,” she said.

Property players have noticed a marked slowdown in sales since the various curbs were put in place, although it is unclear by how much.

A number of high-end launches were also shelved, as developers switch their focus to the affordable segment of the market, where demand is more resilient.

Some of the projects launched post-Budget 2014 include block B of YTL Land & Development Bhd’s Fennel@Sentul East condominiums, which saw a take-up of 80% soon after it was opened for sale in mid-November, while tower A and B of Sunway Bhd’s Geo Residences were 85% sold within two weeks, HwangDBS Vickers Research noted.

In Iskandar Malaysia, however, the response to UEM Sunrise Bhd’s Almas Suites and WCT Holdings Bhd’s Medini Signature Tower 2 have been lukewarm, Maybank Research said in a report last week.

The brokerage’s only “buy” call is Glomac Bhd, even though the firm has cut its own sales target for the year ending April 30, 2014 by 18%.

CIMB Research is more upbeat. It expects buying interest to return in the first half of this year, albeit gradually, when potential homeowners realise that prices are unlikely to fall, and that inflationary pressure from the impending goods and services tax, along with other subsidy cuts, leads to higher prices.

“As these macro prudential and policy measures are meant to curb speculation and not restrain genuine demand, the impact (though negative in the short term) should be positive over the longer run because they should help to remove froth from some segments of the market.

“Also, affordability remains close to its highest ever. Robust sales by developers should provide impetus for a re-rating of property stocks,” the research house told clients earlier this month.

Hong Leong Investment Bank Research, which believes the market will stage a recovery in the second half of the year, advocates a buy-on-weakness strategy for shares amid trough valuations.