Fitch: Malaysia's property developer lending 'could stoke risks'


KUALA LUMPUR (Sept 15): Malaysia's decision to grant money-lending licences to property developers could add to the risks associated with rising household debt, Fitch Ratings said.

In a statement today, Fitch said the scheme could result in higher debt among those with weaker credit scores.

"The scheme is likely to encourage unregulated lending to households with weak financial profiles, and could undermine the strength of the financial system, if not implemented prudently," Fitch said.

Last week, Urban Wellbeing, Housing, and Local Government Minister Tan Sri Noh Omar said the government was allowing property developers to apply for money-lending licences to help homebuyers finance their property purchases.
Noh said the interest rate was capped at 12% a year for borrowers with collaterals, and 18% for those without. He said the initiative was one way to reduce homebuyers' hardship in obtaining loans.

Today, Fitch said the country's household debt was still rising, and high by regional standards at around 89% of gross domestic product.

Fitch said leverage ratios were high among lower-income households.

"It is precisely those households with weaker financial profiles and poor access to bank loans that are likely to be targeted by developers. Moreover, developers have been told they can charge interest rates of up to 12% on loans backed by collateral, and up to 18% on unsecured loans, compared with an average home loan rate of around 4.5%," Fitch said. — 

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