BNM’s status quo on property curbs divides opinions Sep 06, 2013 Mixed signals: Ahead of Budget 2014 next month, Tan Sri Dr Zeti Akhtar Aziz, Governor of Bank Negara Malaysia (BNM) announced that it would not be introducing any more cooling measures on the property market in the near future, taking some industry observers by surprise. Prior to BNM’s announcement, many analysts and industry players were expecting further measures to be enforced towards the end of the year or even in early 2014 to dampen speculative activities, such as further tightening of the LTV (Loan-To-Value) for property loans and even abolishing the controversial DIBS (Developers Interest Bearing Scheme), a popular easy financing scheme that some critics say encourages speculators and not genuine home buyers. Artificial controls Responding to BNM’s announcement, Datuk NK Tong, Group Managing Director, Bukit Kiara Properties Sdn Bhd says that it is good that the government has decided to hold off any further cooling off measures for now because it has been shown to be ineffective in the long run across the Asian region including Singapore, Hong Kong and China. Tong feels that the key to keeping homes affordable is to increase production, not to slow it down. “Artificial or short-term “cosmetic” price controls are not sustainable in the long run. What needs to be done is to address the need for us to move ahead to become a high-income nation. Malaysia is in dire need of more housing and the current production has not been able to keep up with demand. If we compare our urban population of 20 million with that of Australia‘s total population of 22 million, we would need to increase our housing stock by at least 70 per cent from the current 4.8 million homes to 8.3 million, compared to Australia‘s 9.1 million homes. If our 8 million rural population decides to urbanise, that would put further pressure on housing in urban areas,” Tong reveals. The MD firmly believes that the key to this ongoing debate of affordable housing globally lies squarely on the shoulders of governments around the world in ensuring a smooth housing delivery system that is sustainable and encouraging more housing to be produced each year. He hopes that with the introduction of PR1MA (Perumahan Rakyat 1Malaysia), there can finally be real impact on the issue of making more houses affordable. Faizul Ridzuan, Head of Research for Far Research echoes Tong’s sentiments by saying that “unnecessary, extreme cooling measures can potentially stifle Malaysia‘s economy and that is the last thing BNM would want to do. Today, most of our banks are sufficiently capitalised with low housing-loan NPL (Non-Performing Loans) ratio, thanks to stringent borrowing guidelines introduced progressively since 2011. In essence, both the property market and the banking sector are reasonably healthy so no additional measures are required, at least for now.” Balancing act Sr James Tan, Associate Director of Raine & Horne says that there are signs that the property market is slowing down already, with the existing policies slowly but surely having an impact on the market. “Developers are finding sales to be slower compared to before. Loans are generally more difficult to get. The way l see it, Bank Negara is doing a balancing act because the construction industry, which is closely linked to the property market, has a huge impact on the GDP (Gross Domestic Product) growth of the nation that is showing signs of softening. There has been a huge outflow of funds regionally and this is an issue that will affect the market. Most of the banks are slowing down in their lending to the property market. DIBS should be scrapped on a selected basis to deter unhealthy speculation. The greater impact would be if interest rates were to go up. Thus, the impact of BNM’s recent announcement on the property market would be pretty much status quo,” observes Tan. Market correction On the other hand, Dr Ernest Cheong, Chartered Surveyor, Registered Valuer, Auctioneer, Arbitrator and Principal of Ernest Cheong PTL claims that this move of not implementing further measures could lead to disastrous consequences. “Right now, most genuine buyers already cannot afford to buy homes. Most of those who are in the market now are speculators and developers themselves trying to talk up the market, and not genuine buyers. No cooling measures is equivalent to letting the rocket run out of steam, so, naturally, it will surely crash! I strongly feel that if there is no government intervention, at the rate things are going, the market is going to crash. Speculators and developers cannot be expected to regulate themselves. We have to abolish DIBS, it should not have been allowed in the first place. There are no free lunches. Clearly, the costs are already factored into the selling price. It’s another smart gimmick by the developers. We should not sugarcoat these things to young Malaysians who will suffer in the long run. If there’s no intervention, we should at least control some of these speculative elements,” says the outspoken valuer. V. Sivadas, Executive Director of PA International Property Consultants admits that by announcing that no further cooling measures will be put in place, it appears that the authorities would prefer to let the market correct itself, if a correction is at all needed. “Nevertheless, the market would still be looking at the coming Budget 2014 where it is widely predicted that the RPGT (Real Property Gains Tax) will be reinstated back to its original rates, or widening the threshold of the first period to 3 years, instead of the current 2 years. In the meantime, I believe the developers will naturally take advantage of this inaction by BNM as a go-ahead to continue offering DIBS options in their projects,” admits Sivadas. ‘Bubble creation’ He is also in agreement with Cheong in thinking that the DIBS should be curbed. “With no mandatory 10 per cent required to be paid up-front, speculators with minimum capital outlay have been buying almost everything that has been launched over the last two years. The primary aim of these speculators would be to flip or sell upon completion. While some economists may feel that speculation is good for the economy, I believe the right to own a property i.e. a roof over one‘s head, supersedes the need for speculation. A speculation-driven property market increases the risk of an unnecessary bubble creation.” The executive director also cites the raising of the foreign property ownership threshold from RM250,000 to RM500,000 in January 2010 as contributing substantially to an “artificial“ price increase in many properties throughout the country. “Double-storey terrace houses that were once in the price band of RM200,000 to RM250,000 were suddenly being marketed at RM450,000 onwards under the pretext that it was caused by rising costs. While there is no doubt that cost has risen over the years, I believe profits from property development have risen even higher. It is now rare to see developers selling such units below RM500,000 in the Iskandar region,” says Sivadas. Notwithstanding all the above, Datuk Abdul Rahman Dahlan, the Minister of Urban Wellbeing, Housing and Local Government has stated last week in his keynote address at a property convention that “moving forward, the government will not hesitate in further tightening the fiscal policies in order to curb property speculation and ensure reasonable and affordable property prices in the country.” - News Straits Times
Posted on: Fri, 06 Sep 2013 02:07:14 +0000
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