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Monday, April 7, 2014

Moves to curb property financing?


Published: Monday April 7, 2014 MYT 12:00:00 AM 
Updated: Monday April 7, 2014 MYT 6:41:30 AM

PETALING JAYA: More measures to curb lending to the property sector may be in the offing this year, judging from the resiliency of lending to the sector.

Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias said he expected the pace of lending to the property sector to continue to be strong this year.

“Lending to the sector will still remain resilient this year. Part of the reason as documented by Bank Negara in its latest annual report is that property prices remain elevated. This will induce investors to keep focusing on property investment, as it is often the safest investment with lucrative returns in Malaysia,” he told StarBiz.

As of January this year, growth in loans for residential property rebounded to 13.4% after softening to a cyclical low of 12.4% in March 2013. Loans to residential and non-residential properties accounted for 40.8% of total loans in January. This does not include the amount of loans given for the purpose of construction.

Residential property loan growth maintained its momentum at 13.5% year-on-year in February 2014 versus 13.4% in January.

Zahidi added that there was now increasing possibility that more stringent measures could be imposed if the trend did not reverse in the near future.

The loan-to-value (LTV) ratio could be lowered further or be imposed on the second property purchased, he said, adding that other measures as imposed in 1997 when there was persistent robust expansion in lending to the sector could be considered.

In 2010, Bank Negara announced a 70% LTV cap on a borrower’s third and subsequent property-financing facility. Under the 1997 measures, among others, banks were required to observe a limit on credit facilities extended to the sector at 20% of their total outstanding loans. Houses and apartments costing RM150,000 and below, infrastructure projects and industrial buildings and factories were excluded under this measure.

No credit facilities were also granted to property projects where construction had not started.

For construction that had started, banks were required to assess the viability of such projects under changed economic conditions. Under strict selectivity, credit could be extended for the construction and purchase of residential properties costing RM150,000 and below.

Alliance Research banking analyst Cheah King Yoong said he did not rule out further measures being implemented in the future if lending to the property sector remained robust.

“We believe the authorities will review the impact of these measures on the underlying economy first before taking the next step. After all, it is a delicate task juggling between curbing excessive speculation and hurting real demand.

“Besides that, we believe there is a 50:50 chance of the overnight policy rate being raised by 25 basis points in the latter part of the year, which could also serve as a precautionary measure to curb speculative activities in the market,’’ he said.

Cheah said overall lending to the property sector would continue to constitute a significant amount of the banking loan portfolio.

He said outstanding loan growth was 7.3% in February and property loans remained the key driver, where loans for the purchase of residential and non-residential properties accounted for 68% of credit growth.

OCBC Bank (M) Bhd head of business banking Ong Eng Bin said he expected the pace of lending to the property sector to moderate slightly with the cooling measures initiated over the past few months.

However, property prices could be expected to hold up well since land prices continued to be high and the cost of labour remained to be on the rise, he said, adding that building materials and associated costs were also on the uptrend from the reduction in fuel subsidies, higher utility costs and the upcoming goods and services tax (GST).

RAM Ratings co-head of financial institution ratings Sophia Lee said while the rating agency anticipates residential property lending to ease this year, the continued drawdowns from previously approved loans and genuine buying activities should support growth.

She agreed that the impending introduction of the GST in April 2015 would drive up prices of building materials and, consequently, property prices. This would also motivate buyers and spur demand for housing loans this year, Lee noted.

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