Displaying flexibility and resilience in tough times

WHEN the going gets tough, the tough must get going.

Developers, sweating from the cool response to recent property launches, are starting to “fight” back.

Sales have slowed significantly for many months and there is no immediate relief in sight, therefore the urgent need to push new launches, clear unsold inventory and remarket units that were already sold but had to be put back on the market because buyers had failed to secure loans.

Standing in the way of developers are obstacles, top of the list being end-financing approvals. It has been reported that some projects had experienced bank loan rejection rates of up to 60%.

Still hopeful yet not optimistic that the government will soon be liberalising mortgage lending, developers are coming up with creative ways to woo buyers – by offering them financing options and flexibilities.

Schemes that have been unveiled so far vary in details, but in essence, some developers are happy to accept a small portion of the down payment from buyers, allowing them to settle the outstanding sum up to 24 months later, or in some cases, when the property is handed over.

How the respective developers are financing their schemes is not clear. A build-then-sell model? Or a hybrid of the developer interest-bearing scheme (DIBS), which was banned in 2014?

What is clear, however, is that the hurdle of having to secure a bank loan immediately to conclude a sale is done away with.

What then could happen two years from now?

One should take comfort from the prospect that the property market will bounce back, although no one knows for sure exactly when. Some quarters have cited the second half of this year, 2017 or even 2018.

If we are convinced that property prices will continue to rise in the days ahead due to the growing costs of land, building and construction, those who buy now will be in the money. This, of course, will be the case only if one were to buy at the right location from developers with strong track records.

For developers now offering financing flexibilities, their safety net would lie in the expected value creation in the property, should a buyer decide to change his mind.

A risky bid on the part of the developer you say? Do developers have a choice?

Au Foong Yee is the managing director of The Edge Communications Sdn Bhd and The Edge Property Sdn Bhd

This story first appeared in TheEdgeProperty.com pullout on April 1, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com here for free.