UPDATE: Housing Ministry asked to formulate guidelines for developer lending scheme

KUALA LUMPUR (Sept 15): The urban wellbeing, housing and local government ministry has been tasked by the cabinet to formulate a set of guidelines for property developers wishing to use moneylending licences to provide bridging loans to buyers facing constraints in meeting the initial payment.

In a statement issued after he briefed the cabinet on the developer lending scheme yesterday, its minister Tan Sri Noh Omar said the ministry was instructed by the cabinet to review and improve the scheme, given that it already exists under the Moneylenders Act 1951.

A study will be undertaken to determine the following: the policy’s effectiveness to improve the rakyat’s ability to afford a home purchase, interest rate and payback period that must not burden consumers, and to formulate clear and easily understandable guidelines for property developers with moneylending licences and the borrowers.

“At the same time, my ministry will also take proactive measures to assess in whole the effectiveness of the financing facility under the Moneylenders Act so that it will not be misused by irresponsible licence holders,” said Noh.

Ministry officials met with the Real Estate and Housing Developers’ Association Malaysia (Rehda) on Tuesday, Rehda president Datuk Seri FD Iskandar Mohamed Mansor revealed at an association event yesterday.

FD Iskandar said they spoke, among others, about the interest rate. Although the Moneylenders Act allows the licence holder to charge an interest of up to 12% per annum for secured lending, and 18% for unsecured lending, he said it will be counterproductive to impose the maximum allowable interest rates.

“Nobody wants to come to you if you charge 12% to 18% interest rates. We have cost of funds, so we are looking at anything that is reasonable, 2% above our cost,” said FD Iskandar.

He said the main problem purchasers are facing is when they get a margin of financing of 75% to 80%. As property developers are not as well-capitalised as financial institutions, he said homebuilders want to assist buyers seeking homes that are priced at RM500,000 and below only. But they would not provide 100% facility.

“Only some of us which have the balance sheet can come in to bridge the 10% to 15% [needed by prospective buyers],” said FD Iskandar.

Yet, he said it would be unfair for developers to lend to only first-time homebuyers.

“They already receive incentives from the federal government. They have MyHome and MyDeposit schemes.

“But what about second-time homebuyers who genuinely want to upgrade — like when they have children? Are we going to ignore these buyers? That won’t be fair. Upgraders make up the largest segment of homebuyers,” he said.

LBS Bina Group Bhd managing director Tan Sri Lim Hock San said Noh’s idea may have been misunderstood.

“His intention is for [this to be taken up by] those developers who cannot sell houses due to the hire purchase problems,” he said.

In other words, the developer lending scheme is not for all developers to turn into moneylenders and compete with banks, Lim said.

“It is up to the developers ... I think some are already doing it on a very low scale,” he said.

This article first appeared in The Edge Financial Daily, on Sept 15, 2016. Subscribe to The Edge Financial Daily here.

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