The move approved by the Government could help home buyers tremendously, providing a second chance for Malaysian property buyers who could not secure a loan, as well as to boost the sales of properties in the gradually slowing Malaysian market.
Under the Moneylenders Act 1951 and Pawnbrokers Act 1972, developers may provide up to 100% of financing to buyers, or just the amount that their (buyers) bank loans do not cover.
If you are one of the many Malaysians who were not able to secure a loan, read Top 10 Reasons Why Your Loan Application May Have Been Declined to find out more.
No significant impact
Most analysts and market watchers predict that this is the beginning of some relaxation efforts by the government, signalling the end of initiatives to cool down the property market.
Despite the hype surrounding the scheme, a research by CIMB Research Equities had found that the impact of its introduction was not as consequential as predicted.
Developers not keen to provide financing
The reason for the insubstantial impact on the sales of properties, as reported by the research, is the fact that developers are not too willing to begin providing financing to buyers.
“Based on our checks, most developers are not keen to start providing financing to their buyers in the near term,” stated the CIMB Equities Research report.
High risk for developers to give out loans
The research detailed that risk was a major factor causing developers to be hesitant in giving out loans to buyers. Key factors to this reluctance include:
Substantial amount of funds is required to be able to offer such financial facilities.
As the CIMB Equities Research explained, “…we believe only the developers with strong balance sheets will be keen to explore this option to boost their sales”.
The report added that developers which are more likely to be able to provide financing (or some form of it) to buyers, would be those which are “in net cash or near-net cash positions”. Realistically, such a position applies only to a few major developers.
2. Interest rates
The scheme also caps interest rates at an annual rate of 12% (or 18% without collateral), which, as the report asserts, “…is lower than the return thresholds required by most developers”.
Apart from that, the CIMB Equities Research also voiced concerns that the move not only poses the risk of defaults to developers, but also adds to the purchase cost of homebuyers, as banks are already allowing a 60% to 70% debt service ratio.
Giving loans not the only way to boost sales
CIMB Equities Research adds that mass-market housing remains a potential goldmine, given the high demand for the mass-market properties launched in recent years. In fact, there is not enough supply of affordable homes to meet the demand! Thus, honing the potential of this largely untouched market is a conceivable way for developers to boost property sales without having to take on the risks of providing financing to buyers.
Though the report had found that developers may not be too enthusiastic to provide financing to homebuyers, it does not completely eliminate the idea, stating that perhaps developers with firm balance sheets would offer other ways of financial assistance in the future.
So if you’re planning on buying a home, check out the things to look for when applying for a housing loan as it won’t be any time soon that developers will be giving out loans.
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