KUALA LUMPUR (April 10): The residential property sector is envisaged to remain sluggish this year, checked by depressed consumer sentiment and selective lending by banks, said RAM Rating Services Bhd.

As such, transaction volumes are likely to stay muted, it added.

"Nonetheless, the availability of affordable housing has been gathering momentum. Depending on the speed of the roll-out of homes under the 1Malaysia People's Housing Programme (PR1MA), RAM estimates that the new, more accessible end-financing scheme for PR1MA units could contribute about 1–2 percentage points to the banking system's overall loan growth over the next two years," the local rating agency said in a statement today.

Thus, RAM is expecting the credit quality of banks' housing loans to stay relatively stable in 2017 despite the spiralling cost of living.

"The gross impaired loan (GIL) ratio for the industry's residential property loans remained at a low 1.2% as at end-February 2017. Households' debt-servicing ability is largely supported by Malaysia's healthy economic growth and low interest as well as unemployment rates," said RAM co-head of financial institution ratings Wong Yin Ching.

"Even for properties priced below RM250,000 at origination, which typically exhibit poorer credit quality, the weakening has not been significant," he added.

However, Wong warned that some homebuyers may face repayment issues under the new affordable housing end-financing scheme, which features interest-only payments for the first five years of the loan.

"We will be closely monitoring this new segment of borrowers. Some of them may face repayment issues when the interest-only period ends and the full repayment of principal and interest kicks in, especially if macroeconomic conditions become unfavourable," he said.

Nevertheless, he noted that banks' credit risk will be partly mitigated by their ability to call on the government guarantee of up to RM100,000. — theedgemarkets.com

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