VARIOUS cooling measures introduced by the Malaysian government and Bank Negara Malaysia (BNM) for the last nine years. Let’s recapped all the cooling measures in summary.
It was reported that in 2007, the Developer Interest Bearing Scheme (DIBS) was first introduced by a property developer in Penang, as a precursor to the Built-Then-Sell (BTS) 10-90 concept stated in the Housing Development (Control and Licensing) Regulations, 1989 (amended 2007).
At that time, the demand in the real estate market was high and property developers were offering creative products and marketing schemes to attract house buyers.
It can be observed that the total housing loans approved went up by 59.57% (RM5.07 billion) for quarter on quarter change in 2008 Q1.
YEAR 2008 TO 2009 Q2
House prices in Malaysia only had a growth of 0.9 index points in 2009 (Table 1) during the subprime mortgage crisis in the US which also affected economies around the world.
It can also be observed that the amount of loans approved for residential properties suffered a contraction. In the same year the total housing loans approved fell by 14.13% (RM1.91 billion).
In November 2010, Bank Negara Malaysia (BNM) implemented the policy of a maximum loan-to-value (LTV) ratio of 70%, which will be applicable to the third house financing facility by a borrower.
The policy aimed at moderating the excessive investment and speculative activity in the residential property market.
It is strongly believed that the increase in the prices of newly launched properties (primary market) beginning in 2011 are the results of speculative buying.
At that time DIBS was popular among property developers to attract ordinary house buyers. The scheme also made it cheap for speculators to earn relatively large profits because it only warrants an initial 5% or 10% of property price and two to three years’ time period for them to sell the investments.
From April to July 2011, BNM has raised the Statutory Reserve Requirement (SRR) Ratio three times to 4% from 1%. It is observed that there was a large shift in global liquidity which resulted in significant capital flows into emerging economies, particularly the Asian region.
The decision to raise the SRR was undertaken as a pre-emptive measure to manage the risk of this build-up of liquidity. From Table 1, annual quarter-on-quarter national House Price Index (HPI) began to increase the highest from 2011-Q1 to 2012-Q1.
In 2011-Q1, HPI was at 149.1, while in 2012-Q1 HPI was at 167. Thus, the difference shows an increase of 17.9 index points in 2011. For the same period, performance for residential loans approved is maintained at RM20.4 billion.
In January 2012, BNM issued guidelines requiring financial institutions to make appropriate enquiries into a prospective borrower’s income after statutory deductions for tax and EPF, and consider all debt obligations in assessing affordability.
The guidelines promote better protection for financial consumers and a sustainable credit market.
The government has also revised the Real Property Gains Tax (RPGT) to 10% from 5% for properties held and disposed within two years as the previous rate of 5% is not effective in curbing real estate speculative activities.
The government have also expanded My First Home Scheme to help those earning below RM3,000 by increasing the limit of house prices qualified to RM400k from RM200k. The scheme is available to house buyers through joint loans of husband and wife.
At the same time, the high sovereign debt within the Eurozone was posing a threat to global economies. It started in 2009 whenGreece was at risk of defaulting its debt.
There were allayed fears that Malaysia’s current government debt to Gross Domestic Product (GDP) ratio of 53.3% in 2012 was vulnerable to any economic collapse from the Eurozone.
Malaysia’s government debt to GDP ratio has always hovered below the limit of 55% since 2010. Meanwhile, the country’s gross external debt which includes external offshore, public enterprises and private sectors loans) to GDP ratio has been rising from 62% (RM602 billion) to 72.1% (RM833 billion) from 2012 to 2015.
Loans approved for residential properties climbed in 2013.
In November, BNM issued guidelines to banks tightening lending practices which include abolishment of Developer Interest Bearing Scheme (DIBS) and enforcement of stricter LTV ratio calculations, while the government imposed a higher RPGT at 15% for properties held and disposed within 2 years and 10% for properties held and disposed between two to five years.
It can be observed that following the counter measures taken in 2014 such as revision of RPGT and curbs on LTV ratio, the amount of loans approved the following year in 2015 fell by 4.38% (RM1.11 billion) while Q1 quarter-on-quarter change in HPI for 2015 increased by 15.8 index points (Table 1).
In June 2015, the National Higher Education Fund Corporation (PTPTN) began listing borrowers who have never paid back their loans into Central Credit Reference Information System (CCRIS).
It has been reported that 30%of the loans submitted in 2016 were rejected due to applicant’s debts with PTPTN.
From Table 1, quarter on quarter HPI has slowed to a growth of 15.3 index points between 2015-Q1 to 2016-Q1. Recall earlier on that in 2011, HPI increased by 17.9 index points.
Performance for residential loans approved also fell drastically by RM5.6 billion from 2015-Q1 to 2016-Q1. HPI continues to rise (moving towards right) despite a drop in the amount of residential loans approved since 2014.
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