Rehda: New LTV ratio good move, but could affect genuine homebuyers

KUALA LUMPUR: The 70% cap on home loans announced by Bank Negara Malaysia (BNM) for purchases of third homes effective Wednesday, Nov 3 is welcomed by housing developers, but a nationwide application of the measure would affect genuine house buyers, cautioned the Real Estate and Housing Developers Association (Rehda) president Datuk Michael Yam.

Speaking to theedgeproperty.com on Wednesday, he said the blanket implementation of the move — which is intended to curb speculative investment properties that are driving up residential property prices in certain "hotspots" — could affect genuine purchasers looking at properties outside of urban areas where most of the rising prices are recorded.

He added that investors living in outlying areas intending to purchase homes for their children to inherit would be wary if they were purchasing their third property.

Yam added that some of the challenges to implementing this move effectively were in identifying speculative investments as well as properties bought for this purpose.

He noted that volatility in prices could be addressed if the government ensured more housing supply into the market to balance the supply and demand forces, which was caused by scarcity of land in prime areas.

He points out that the government is expediting approval processes to address the issue of scarcity.

However, he said Rehda did not object to the "defensive move".

"It is a preemptive strike because in our announcement earlier, we see no bubble except in isolated hotspots (like KL, Penang)," he said.

He also saw no significant effect on overall consumer sentiment in the market from the move.

"In the short term, the market might adopt a wait and see attitude, but in the long term, it would have no impact. Not many properties are suited for speculative targets, the prices might cool a little," he said.

He also felt that developers would not change their marketing strategies, financial packages or products due to the loan-to-value (LTV) as their products already meet the demands of the market.

Moreover, responsible developers will not sell their products purely to speculative buyers, he added.

"They will want to cast a wider net to encourage customer loyalty. Buyers come from all strata of society after all," he said.

BNM had introduced the new LTV ratio of 70% effective today in a bid to rein in the "excessive investment and speculative activity in the residential property market" that had caused prices of homes in select locations along with their adjoining areas to increase, lowering overall housing affordability for genuine buyers.

"The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public," the central bank had said in a statement on Wednesday.

The LTV will only apply to the third house financing facility taken out by a borrower, and borrowers may continue to get financing for the purchases of first and second homes at the current LTV levels applied by individual banks, it said.

It noted that while the overall trend of steadily-rising house prices following economic growth and rising income levels is mostly controllable, certain areas especially in and around urban centres have a greater increase in transactions and house prices lately.

"This is further supported by an increase in financing provided for multiple unit purchases by a single borrower, suggesting increasing investment activity that is of a speculative nature," it said.

Meanwhile, the Association of Banks in Malaysia (ABM) applauded the move as "timely and pre-emptive".

"Whilst the banking sector is wholly in support of house ownerships, we agree that appropriate measures should be adopted to avert unhealthy speculative activities which could lead to a property bubble," said ABM chairman Datuk Seri Abdul Wahid Omar in a statement today.

Abdul Wahid, who is also president and chief executive officer of Malayan Banking Bhd (Maybank), added that the implementation of the move is "clear and specific" while the ratio itself was "optimal".

He also foresaw no negative impact from the move on the growth of the housing development industry and the house financing business of banks.

"Affordability of homes for genuine house buyers will be preserved as banks continue to lend prudently under their respective risk management framework which is well tested and has proven to be effective," he said.

Mah Sing Group Bhd's group managing director and CEO Tan Sri Leong Hoy Kum does not expect the LTV to majorly impact the overall sentiments of the property market as most buyers were purchasing homes for the first time or looking to upgrade.

The group does not perceive that a property bubble exists because only properties with "good concepts" by recognised developers in good locations have shown price increases, he said.

"As long as developers offer quality properties with good concepts in prime locations, there should still be takers due to our strong employment market, low interest environment and good liquidity in our financial system.

"Bank Negara has given earlier indications of such a move so this should not come as a surprise to many," he said.