Wednesday, November 3, 2010

Loans for 3rd Homes capped at 70%

Effective yesterday 3rd of November 2010, our Bank Negara has thrown us this stinker:
Measures in Promoting a Stable and Sustainable Property Market and Sound Financial and Debt Management of Households
Bank Negara Malaysia wishes to announce with immediate effect the implementation of a maximum loan-to-value (LTV) ratio of 70%, which will be applicable to the third house financing facility taken out by a borrower. Financing facilities for purchase of the first and second homes are not affected and borrowers will continue to be able to obtain financing for these purchases at the present prevailing LTV level applied by individual banks based on their internal credit policies. The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public. At the national level, residential property prices have increased steadily in tandem with economic development and the rise in income levels. This aggregate growth trend remains largely manageable and has not deviated from the long term trend in residential property prices. In the more recent period, however, specific locations, particularly in and around urban centres, have experienced faster growth, both in the number of transactions and in house prices. This is further supported by an increase in financing provided for multiple unit purchases by a single borrower, suggesting increasing investment activity that is of a speculative nature. The targeted implementation of the LTV ratio is expected to moderate the excessive investment and speculative activity in the residential property market which has resulted in higher than average price increases in such locations.
This has also led to increases in house prices in surrounding locations, thus contributing to the declining overall affordability of homes for genuine house buyers. This measure therefore remains supportive of the objective of encouraging home ownership among Malaysians which continues to be an important national agenda.
Bank Negara Malaysia3 November 2010
© Bank Negara Malaysia, 2010. All rights reserved.
It's another one of those badly thought out policies. I can understand if the government wants to control low cost, medium cost or even lower band high cost properties, because the objective is provide affordable housing to the masses. However, I do not think people who purchase RM2.5million semi-D or RM1.5million condos as the poor masses. This will obviously have a huge impact on property prices, especially in the higher pricing band by reducing the demand in the sub-sale market.
The policy would work well if it was targeted towards homes valued at RM500k or below. However, by enveloping all property ranges, it would do more harm than good to the national economy.
Which foreign investor would now be keen to invest in Malaysia if the capital appreciation of properties is going to be flat?
As for new launches, how many Malaysians can afford to spend a few million on luxury properties?


Learner said...

My thoughts is that it is good for Malaysia. By requiring 30% cash upfront, it will reduce the no. of speculators and those who buy are able to hold on to their properties. Hence, a property bubble could be prevented.
Property price rises in the high-end market filters to all segments. Note that the recent price increases in RM100K apartments.
But dont be surprised there is a u-turn if there are adverse effects of this new ruling. Malaysia boleh :)

kitkat said...

personally, i dont think this policy will last long. sooner or later will revert back to normal.

esoa said...

it's not the end of the world if the ruling stays .. in every danger comes opportunity!
In this case, guess where is the opportunity?? ;)

Anonymous said...

hopefully it should stay...becos at 90% alot of dev co. cronies can just sapu sapu without thinking

with 70% one got think deeply before committing

Steven said...

By implementing this, will the prices of the properties fall? Since there are less buyers in the market.

Anonymous said...

that would be the expectation...