Ludicrous for developers to be money lenders

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Shuttered shoplots - The property market is slowing down

Excellent piece by MBPP councillor Lim Mah Hui:

The proposal by the Urban Well-being, Housing and Local Government Minister, Noh Omar, to permit developers to be money lenders is fraught with risks.

We all know that the property market is slowing down and developers are doing all they can to resuscitate the languishing market – ranging from giving free trips, cars, paying for settlement expenses; and now a proposal to give loans to buyers who don’t qualify for housing mortgages. In fact, it was reported that house buyers be given loans equivalent to 100 per cent of the house price. In other words, no downpayment is needed.

This is a recipe for disaster for a couple of reasons. First, the normal and prudent downpayment ratio for house purchase in most countries is 20 per cent. This equity contribution by the buyer acts as a safety buffer for bank lending.

Second, zero downpayment is an incentive for a borrower to walk away from his obligations and monthly payment in times of difficulty. Without this equity stake in the house, buyers would hand in their keys and happily walk away in the event of default.

There is an inherent conflict of interest in having developers also provide loans. Developers would like to sell as many houses as possible and hence are incentivised to provide financing for the products they sell. Developers, unlike banks, do not have expertise to do due diligence and credit analysis.

Developers are not deposit-taking companies that provide financing. They have to borrow from banks in order to on-lend to borrowers, earning a fee in between. This no doubt pushes up interest rates to borrowers (estimated at between 12 and 18 per cent). Now, if a borrower does not qualify for a bank for at 5 per cent interest rate, how is she able to service a loan at 12 per cent? It just doesn’t make sense.

Most developers are highly leveraged – they borrow from banks to purchase land and for working capital. If they provide loans to buyers, they will also be borrowing from banks to finance their house buyers and become even more leveraged.

Presently, housing loans at RM418bn is the largest category of bank lending accounting for 29 per cent of total outstanding bank loans as at December 2015. By piling more financial risks on to developers who are now more closely connected to banks and the financial system, we are effectively introducing more risks and fragility to the whole financial system. Such lending will be outside the purview of Bank Negara which is in charge of financial stability.

The problem with lack of affordable housing to a large portion of Malaysia’s population is not because of lack of financing. The primary reason is because house prices have run way ahead of income growth.

A healthy and sustainable housing affordability ratio (ie, median house price divided by median household income), should be in the region of 3 to 4. However, this ratio is over eight times in Kuala Lumpur area and over 10 times in Penang island. This is totally unsustainable has to be brought down.

House price inflation due to many factors

House price inflation is due many factors such as low interest rate environment, too many purchases by foreigners and overseas Malaysians, marketing gimmicks by developers, and poor government policies that have not curbed prices but in fact encouraged speculation and housing price inflation.

Bank Negara did introduce a few policies, though too little and too late, to control property price escalation. These policies include higher property gains tax for shorter holding periods, and a lower loan-to-house value ratio for purchases of third property.

Policies curbing speculation should be further strengthened. State and local governments can also play their part with better policies that discourage the building of expensive houses and policies that encourage and incentivise the building of affordable houses.

The right to shelter is a human right while the right to ownership is not. Not every one has to own a home upfront. Different schemes have been introduced in other countries to provide affordable and decent shelter such as subsidised rentals, public housing, rent with option to own, shared ownership between state and private individuals. These should be explored and adopted.

Finally, property growth and house prices cannot be expected to grow forever, defying the laws of gravity. Healthy and balanced development cannot be just adding more bricks and mortars in the economy. A certain amount of healthy correction can be expected in a property market. The last thing for the government to do is to encourage more speculation and unsustainable property market growth by allowing developers to become lenders.

43 COMMENTS

  1. Before a graduate could pay off his or her PTPTN loan, he or she will be saddled with a car loan (to get to work place) and then a home loan. No wonder the household debt is on the rise, while banks continue to make profits. Most people carry the loan until retirement age, so now it is 62 years old.

     
    • Do not forget credit card loan – for wedding expenses, honeymoon travel, yearly upgrading of latest smartphone, furnitures for new home… Having debt is a norm among the young generation today as a means to affordability.

       
  2. My reply to Malaysian First on Madam Kee’s ‘humble accomplishment’ for Penang Tourism:

    One fact many don’t know of Penang tourism marketing prior to 1999.
    Then Pg tourism was marketed differently from what we now see as a multi-cultural potpourri representation of Asian diversity (which KL copied? as their brand strategic focus on Truly Asia).
    The focus then was very Malay culture as upfront (using cultural dancers) putting others as mere ‘complementary’ to feature Penang as a destination of festivals, sun, sea, sands & hills. The mundane approach year after year was a churning of the old predictable formula by then PDC tourism department based to some degree on whatever 35mm slides sandwiched till blue in their library of slide folders.
    Then came Madam Kee who dared to challenge the status quo. She being a Peranakan herself had a genuine passion for all things old world charm Pulo Pinang. A strategist herself, she dared to see things differently & came out with the idea of Visit Penang Year ’99 – a refreshing approach indeed with countless possibilities to explore the old world charm USP (unique selling proposition) within budget. Hence the appropriate tagline: “Timeless Impressions”.
    Tourist arrivals increased since 1998 due to greater awareness prior to the official launching of VPY’99. And they liked what they saw in the marketing campaign & were thrilled by the authentic old world charm of Penang upon arrival as reported in the press.
    And there were the Annual National Floral Floats Top Winners won by Penang year after year which she masterminded with the best creative float designer also from Penang.
    We owe much to Madam Kee’s fight for autonomy in Penang state tourism marketing with the “dare to be original, exciting & true to the sense multicutural” in the face of run of the mill orthodoxy of doldrums of Penang tourism practice & conformity to KL Tourism Ministry tunnel vision without the feel & x-perience of authentic Pulo Pinang.

    Want to ‘joget’ with a passionate Peranakan Madame?

     
  3. Chinese calendar 7th Month Hell gate opened and by already closed, and those naughty ones reluctant to return to stay on with humans. These ho hia tees can seek refuge in many empty unoccupied condos and shoplots (Anil your posted pic looks like D’Piazza Mall?).

    So when you enjoy your kopi do leave a cup by your side as they may be wandering next to you and making peace.

    Enjoy kopi
    https://m.youtube.com/playlist?list=PL5XS_iA-HkRG2HncFr8VgOYP3Vo8QV8dr

     
      • Anil,
        If you sense the voice calling out Ah Tee, Ah Tee, Ah Tee…. in weird way, don’t ever mistaken it as “Siam Poh” calling. It may more be in hunger mode looking for chicken rice.
        But I bet your next doors are human occupied so no need to worry.
        For those who move into condo with few human occupants, better be alert. No play play here.

         
      • It’s been about 3 yrs of ghostly existence for D’Piazza?
        Suggestion: Do away with privatised parking. Who would want to come?
        Repackage it as IT & Communications rendezvous. Heath & Fitness & Cycling are potentials.
        Present F&B is too near to competitive businesses nearby.
        Last desperate measure: Change name.

         
      • Umno can turn it into Mara Digital offering free rental to Malay traders. No need for Umno to buy properties in Australia, this one will do.

         
      • You are a bumi what!
        So, you should be happy lah if ever UMNO takes a proactive action to help Bumiputra traders.
        Unless you are not business-minded but merely too happy makan gaji!

         
      • D’Piazza too Italian sounding for locals to identify with.
        During launch it was meant to be F&B centre for Bayan Baru, now there is no niched tenants there.
        Should get marketing guru like Mdm Kee and her disciples to strategize revival, if Feng Sui analysts still fail to energise the place to attract good fortune.

         
      • Then it shows CAT Deity read his readings wrong!
        Or over read his PISA multiply effect.
        At least humble Madam Kee helped Penang hotels big & small to increase business opportunities without boasting to the world!

         
      • Madam Kee was the tourism marketing chief during Gerakan era. I think she was the mastermind for Upper Penang Road Sunday morning market (mostly for western educated folks), and the Campbell Street pedestrian night market that unfortunately not able to take off well until now.
        Probably her accomplishment is for Nagore Lane but it caters for big pockets folks do not beneficial to the masses at large.
        May be her disciple a regular commentator can add on?

         
    • Everywhere you go, there are spirits, ghosts, jins, etc.
      It’s up to an individual whether he or she can sense or see them. Even to interact with these entities.
      The place I now usually go for some contract work has a jin, sent to the previous renter of the shop lot.
      It will on time cause the water boiler to ‘tuck’, once in the afternoon, once at dusk (approx. 7.30 pm).
      Here in anilnetto.com, we also have such entities in the form of a Troll.
      Troll – (in folklore) an ugly cave-dwelling creature depicted as either a giant or a dwarf.
      or a person who makes a deliberately offensive or provocative online post trailing others’.

       
  4. Good, nobody is going to invest and no one going to spend. No body is going to buy and shops cannot sell. Keep keep and save save. Business down down and people no job and could resort to robbing and stealing. Happy days are here again. There is hope for future. Who collect tax and gst? Who distribute finance to states? State less income from federal, nothing left. Happy hours. By

     
    • The number of Real Estate and Housing Developers’ Association Malaysia (Rehda) members with project launches and the number of units launched has reduced significantly in the first half of 2016 (1H 2016).

      According to Rehda’s Property Industry Survey 1H 2016 & Market Outlook for 2H 2016, 32% of respondents had project launches in 1H 2016 compared with 42% in 2H 2015 while the number of units launched has dropped to 7,172 in 1H 2016 from 9,938 in 2H 2015.

      http://www.thesundaily.my/news/1971319

       
  5. Already most households are saddled with debts up to their throats, to bring this rescue-thy-developers ‘brilliant’ ideas to fruition is going to add more households saddled with debts up to their forehead in the coming months!

    Already, many businesses are slowing down after Chinese New Year, can’t these politicians see the financial predicaments of Rakyat & small businesses? Who want to take the rescuer risks of developer home loans just b’cos the housing industry is in deep s…?

    My Question: Since this housing ‘drama’ was a totally free-laissez market in the first place as touted by developers, property gurus, housing agents & even by some Aduns + Trader Politicians, isn’t it fair & square that they face the music as all businesses do for their recalcitrant marketing behaviour of excess greed, arrogance & carelessness?

    As daringly preached by some: “No Risks, No Gains” (Confidently Speaking), shouldn’t it also come with an attached caveat of “Got Risks, Got Rugi”? So, as a businessman, you already reaped some high-end profits from ‘bleeding blood, sweating sweat & flowing tears customers (who press b. to get a home-sweet-home, is it fair for some more innocent customers to take this rescuer risk & go to ‘Holland’ (in Hokkien: Hor Lan = fail together) with you?

    My Suggestion:
    DO NOTHING as long as Bank Negara holds its gun of not making home loan applications any easier.
    DO NOTHING but save every cent for more rainy days (not restricted to monsoon December) to come.
    DO NOTHING but wait like a vulture for the coming Jual Murah of this greed-induced housing industry, then you can DO the picking as in a laissez-fair market of “No Buy, No Go Holland”
    Don’t tell us home ownership cannot wait for a while.

     
      • why wait end of next year? you have been long before us. which property went. 70 years record which property went down? all negativeness and prophet of doom. cant evrn tell?

         
    • Take 35-year housing loan at age 25, then better have guaranteed job til 60 years old else any retrenchment will see your home repossessed! So do not be greedy, buy a home that is within your means!

       
      • My nephew is renting a room while working in Penang as he is saving up to buy a house in Sungai Petani.

         
  6. Half-way thro’ the pipeline of Urban Well-being, Housing and Local Government?
    Otherwise, who wouldn’t announce it in the press & get brickbats?
    My analysis: Desperado developers might have had meetings with this Minister beforehand to help them out of the woods.

    It wouldn’t be surprising if developers add a Merc S300Lansi to their home loan offer (if this proposed lending by developers gets thro’ Cabinet)!
    Sometimes, they think this housing loan is like Courts Mammoth’s financing of customer purchases, some of whom may ‘beli & guna satu tahan, buang balik kedai selepas shiok-shiok’. They developers should consult Courts Mammoth how they do it profitably!

    My second analysis: Greed is not reaping what it sows i.e. unaffordable housing within their whims & fancies.

     
  7. Ideal Properties condo king Alex Poo in a full page article in recent The Sun somehow said more opportunities in Penang to be “plucked” for his business ventures.

    He says do as he may be using Donald Trump way of subsidizing future ventures with cadh thrown into present ongoing projects to keep the business cycled going on. So current properties slow down may affect his cash flow (Anil being a qualified accountant can help to explain further) resulting in bubbles bursting from both buyers and sellers.

    What we can see is that more small medium scale businesses are now having difficulties (could be slow GST refund), factories dwindling orders etc to send negative sentiments to the public to be more prudent in spending hence defer big purchases like homes. Speculation risks increase as well. All those not august well for housing developers.

    Domino effect starts to happen. Karma is happening?

     
    • It is not just house sales that are slowing down. I heard from a couple of people working for car dealers that car sales have also slowed. A supervisor at a well known Indian restaurant also told me that they were having fewer customers.

       
      • Adding ‘bling-bling’ gimmicks to any business like Korean K-Pop won’t do to add customers & get cash registers to ka-ching, ka-ching, ka-ching to the beat of K-Pop.
        Better stick to “Siam Ke” Recipe as original as Kentucky’s, regardless of relocating to Kek Seng Kopitiam.
        Fatty Loh Chicken Rice is still Fatty Loh Chicken Rice. Not Fatty K-Loh Pop Rice!!!

         
      • Strong resistance to change due to strong ego is part of anger management processes, ultimately reach final acceptance stage.

         
      • Pls for heaven sake, ask your Venerable Niao Kong what’s the reality of UBAH, a done deal for Penang. Unless you still lick for 9-lives to experiment Penang till Kingdom comes!

         
      • Damien with your good friend to discuss and brainstorm for solution or just the Brutus??

         
  8. Don’t get too excited prematurely lah ! It’s just a whimsical idea from one dream-alone Nor Omar and hasn’t even really been discussed by all yet ! 杯弓蛇影 ?

     
      • Better for them to ‘lelong’ than to get nothing back to cover initial costs.
        Time to be humbled & customer friendly.
        Think out of the box:
        Option for Reasonable Renting (for a period) To Convert To Purchase.
        Or Option To Rent (also) @ Reasonable Rental Fees + Reasonable Car Park Fees.
        If too desperate for Renters, may add Daily Breakfast of Bread + Half-Boiled Eggs + Kopi-O kau kau.

        Now is not the time to twist the little towel until it is desert-dry.
        This towel twisting propensity I know of some developers I dealt with in the past.

        Hey, developers in Penang.
        Still want to justify a surreal hike in housing prices just b’cos measly water rates have gone up???
        Curious: Where is the water beds in your ads to justify your water rates-linked price hikes some 2-3 yrs ago?

         
    • These BeeEnders are simply ‘testing the water’ of how deep the Rakyat households are willing or capable to hold their breaths in deep underwater of debts.

      Bank Negara should know better & earlier before the property balloon started to inflate.
      But who cares to learn from the wisdom of Bank Negara.
      Woes be to the country led by reckless leaders & snake-oil trader-politicians.

       

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