BNM’s ‘right stand’ on lending guidelines

Bank Negara Malaysia has been forced yet again to defend its lending guidelines for home purchases against the clamour from property developers who claim that their sales are hurting because buyers of their affordable houses cannot get loans.

Earlier this year, the central bank had published an in-depth article to counter its critics entitled “Debunking the Myth: Property Measures Have Led to Higher Loan Rejection Rates”. A key statistic showed that housing loans approvals had remained at around the 70% level in the years following the introduction of its new lending guidelines in 2012.

In its latest statement, the central bank said for the first five months of 2017, RM40 billion worth of housing loans was approved to more than 152,000 borrowers, three quarters of whom were first-time home buyers — an approval ratio of 74%. Furthermore, banks had also introduced more flexible financing solutions to improve affordability, such as that offered for 1Malaysia People’s Housing Programme (PR1MA) homes. As at May 2017, outstanding housing loans have continued to outpace over- all loan growth, increasing by 8.6% year-on-year to RM493 billion.

Yet, the stock of unsold residential properties continue to rise, which by some estimates may take several years to clear. Certainly, government data from the Malaysian Property Market Report 2016 paint a bleak out-look for the property market, with only 31% of the 52,000 new homes launched for sale last year being taken up. The residential property overhang — homes that have been completed and ready for occupation for more than nine months that remain unsold — stood at 90,491 units at end-2016, worth some RM8.5 billion.

Contrast that with recent developments at PR1MA, the agency that is spearheading the government’s affordable housing programme to promote homeownership among the urban middle-income earners, who have had to bear the brunt of runaway home prices in major cities.

PR1MA currently has 89 projects nationwide, comprising 89,449 units of homes with an estimated gross development value of over RM23 billion, in the works. To date, it has managed to sell 9,791 units worth RM2.36 billion, which suggests a sales performance of only 10% — very much lower than the 2016 national average.

In terms of value, the 2016 residential property overhang largely comprised units costing RM500,000 and more, but the number of units costing less than that remaining unsold have also been

rising. PR1MA could potentially add a significant number to the overhang inventory, considering the number of homes it would complete within the next three years, and its sales performance to date. Should such a scenario materialise, the current problem of not having enough affordable housing could suddenly transform into that of having too much of it, with the government saddled with the cost of paying to build homes that people can’t afford to buy.

The real problem with the nation’s mounting property overhang appears to run deeper than the central bank’s strict lending policies. Essentially, at its core, residential property prices need to come down even lower. This should enhance affordability among the masses so that more can qualify for a loan based on their existing income. The central bank’s assertion that potential home buyers should not be allowed to take on debts that they cannot afford, just to buy property, is indeed the right stand.

  • Fahmul Azhar is a consultant with 30 years in the construction industry.