Sunday, November 7, 2010

Reuters Report - Malaysia sets new rules to cool property market

Malaysia sets new rules to cool property market
Reuters - Thursday, November 4
*Central bank implements new loan-to-value ratio of 70 pct
*Analysts see short-term impact on property sales
*Household debt still a concern
By Royce Cheah
KUALA LUMPUR, Nov 3 - Malaysia on Wednesday moved to cool its real estate market by imposing a new loan-to-value ratio on homeowners buying their third residential property, but analysts saw the move having only limited success. The central bank said in a statement that the new loan-to value ratio of 70 percent would not be imposed on first and second residential property purchases.
"The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public," it said.
Loan-to-value is the percentage of a property's value that is mortgaged.
The step follows measures by other Asian governments who have tried to clamp down on property speculation to soothe worries over asset bubbles and housing affordability.
But the central bank played down fears of a property bubble, noting that the aggregate growth trends for property prices remain largely manageable. Governor Zeti Akhtar Aziz, had said previously the bank would not wait for a bubble before taking action. [ID:nSGE69R0FG].
Analysts said the new measure reflects the rising concern over questionable mortgage lending practices and household debt in Malaysia, which at 77 percent of GDP, is the highest in Asa.
House prices in Malaysia rose 32 percent between 2000 and 2009, but some areas of the country have seen a big jump in prices this year.
"I think the intention is not to overkill the property sector. It is a very targeted measure aimed at speculation," said CIMB economist, Lee Heng Guie.
Citi analyst Kit Wei Zheng said macroporudential measures such as the new LTV ratio effectively served as a subsitute for further rate hikes to curb financial imbalances.
The central bank held interest rates steady at its last meeting after raising them three times to 2.75 percent and is not expected to announce any changes this month.
"In any case, the high level of household debt ties the ability of the central bank to raise rates too aggressively, lest it crimp consumption spending," Zheng said.
Emerging economies are struggling to cope with the impact of the foreign capital flooding into their markets. With the U.S. Federal Reserve expected to announce further quantitative easing later on Wednesday, the flows are unlikely to slacken in the near future.

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