Liberal lending guidelines may lead to speculative buying

Lenders have to be careful to avoid the situation faced by the market 3 years ago


The proposal for a more relaxed lending guidelines with higher allocations for housing loans might not be the solution to alleviate the current housing affordability issues as it would lead to speculative buying and selling.

PPC International Sdn Bhd MD Datuk Siders Sittampalam said such a move might also induce a sharp increase in property prices.

He said lenders have to be careful in undertaking such exercise to avoid similar situation faced by the market three years ago, when house prices escalated within a short period of time due to increased demand.

“If banks were to relax the lending guidelines, it must be handled carefully and in line with the Bank Negara Malaysia’s enforcement for a more stringent lending policy to balance out loan performance, house prices and buyers’ income level,” he told The Malaysian Reserve (TMR).

Siders said any “artificial demand” within a speculative market should be avoided.

He said any increase in financing limit would lead to artificial demand and encourage more property flippers that are looking for quick investment returns to enter the market, instead of genuine buyers.

Siders conceded that the move for a less stringent lending policy and higher housing loan allocation would increase the volume of transactions, but it would only be for the medium and short terms.

He said the impact on the market is not going to be dramatic as banks would not loosen the lending guidelines without being supported by strong fundamentals.

The Real Estate and Housing Developers’ Association Malaysia had recently proposed to the government to make non-appreciating and not protected assets lending free for greater property financing.

On the classification of loans based on purpose as at February 2018, loans for passenger vehicles stood at RM160 billion, credit card (RM37.3 billion) and personal use at RM69.8 billion.

The value of loans for residential properties was RM526.9 billion of the country’s total RM1.59 trillion lending.

Global Business Transformation Consulting Sdn Bhd MD Ramlan Ahmad said the suggestion to reduce non-appreciating loans will not solve the property overhang situation as these properties are overpriced by 30% to 50% from the original rates.

“There has been some market corrections with reductions of 5% to 15%, but this is not enough to prompt more buying activities or for banks to give higher loan allocation amid the current volatile employment market,” he told TMR.

Ramlan said banks would still need to be cautious to avoid any increase in non-performing loans, along with the escalating cost of living that has eroded household monthly expenses substantially.

“Unless property becomes affordable, it is better to buy a car that helps a person find employment and generate additional income — via Grab, for instance — rather

than purchase a property which value might fluctuate, or with the risk of being auctioned once buyers fail to service the monthly mortgage,” he added.

Meanwhile, some property experts are of the opinion that more housing loan allocations and relaxed lending guidelines would expedite the absorption rate for the present overhang stocks.

Esprit Estate Agent Sdn Bhd MD Aldrin Tan said higher allocations for home purchase could soften the overhang that has been escalating over the past three years, as end-financing plays a huge role in the absorption of unsold stocks.

“Property loans compared to other types of commercial loans have lower lending risks, which are reflected in the cost of finance and interest rate against other commercial loans,” he told TMR.

Nevertheless, such a measure would not absorb the entire overhang stocks as the mismatch between supply and demand, buyers’ affordability level and stagnating wages remain the main issues.

He added that the overhang situation is expected to take between three and five years before the market could fully stabilise.

At present, Tan said the main hindrance for buyers in proceeding with sales and purchase agreement is the insufficient loan margins.

“Most people want 80% to 85%, but the average approved margin of financing is only hovering at 75% — which is hindering more transactions to take place,” he added.