Govt open to reintroducing DIBS

August 27th, 2014 9 comments

The government is open to reintroducing the Developer Interest Bearing Scheme (DIBS) for the residential property market if there are indications that the ban is creating a negative impact, said Urban Wellbeing, Housing and Local Government Minister Datuk Abdul Rahman Dahlan.

“There are some suggestions made by the industry, we will look into it. There are pros and cons, there’s no hard and fast rule on this. If it is not abused, it’s a tool for everybody to sell their houses and to make it more affordable for the people. We will look at it on a case-by-case basis. It’s not cast in stone. Some policies can be changed mid-term,” he told reporters at the 17th National Housing & Property Summit 2014 yesterday.

“If there are some indicators that DIBS can reintroduced we have no problem with it but the most important thing is we must be flexible and nimble,” he added.

During the Budget 2014 announcement last year, Prime Minister Datuk Seri Najib Abdul Razak announced the removal of DIBS, amongst a slew of cooling measures for the property market. Since then, some developers have urged the government to allow DIBS for first-time home buyers.

MKH Bhd group managing director Tan Sri Eddy Chen who spoke at the summit debate titled ‘Are the Cooling Measures Good for the Market and House Buyers?’, for one is confident that DIBS can be reintroduced in a manner which could deter past abuses from happening again. He however did not elaborate on this.

National House Buyers Association secretary-general Chang Kim Loong, who also spoke at the debate, is adamant that it not be reintroduced in any shape or form saying that DIBS encourages speculation which artificially inflates property prices.

“In the event of an economic downturn, banks saddled with too much DIBS end-financing could collapse as the losses from such DIBS end-financing will erode the banks’ capital,” he added.

Meanwhile Abdul Rahman said in his keynote address that the ministry is proposing to apply for funds from the Ministry of Finance to buy strategic land in urban areas to develop low cost and affordable housing in the future.

“Some people say that government should not buy land. I disagree. We should be aggressively buying more land in the urban areas. The government of Sarawak is doing it and I know Johor is looking into it but for the federal government, I find it increasingly difficult to find land in good strategic location to build PPR (People’s Housing Project) within urban centre.

“That’s why buying land now would be a very interesting strategic policy. It may be expensive but you all know the price of land will always go up. The government will not lose in terms of value,” Abdul Rahman said.

Chang questioned the ministry’s move to buy land, stating that it would be more meaningful for the government to take over responsibility for all low-cost housing in the country instead.

Source: The Sun Daily

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6 Property Factors That May Result In Your Home Loan Being Rejected

August 26th, 2014 1 comment

Owning your first home is a great achievement, especially recently, where the prices of property exceed the income of the people. Most people start to think about buying their first home when they get married, to accommodate their growing family.

Obtaining a home loan can be easy if you know what to do, and how to prepare for it. However, if the your property is in an undesired location, then getting your loans rejected or being offered unattractive loan packages may be expected.

There are various factors that can result in a home loan being rejected – from bad credit score due to defaulted or late payments from other credit facilities, to low debt service ratio (DSR). However, even if you have stellar income and credit report, you may still be at risk of having your property financing rejected by the banks, due to the following factors:

1. Types of land

If you find yourself unable to get a loan for the property you want to buy, it may be due to the land tenure. If the property you are buying is a freehold property, this probably won’t be a problem.

However, for leasehold (with less than 60 years left) and Malay reserved land, it may be difficult to secure financing from certain banks. These lands are considered high risk for banks as they are difficult to resell in an auction, due to its restrictions.

For example, if you purchased a property on a 60-year leasehold agreement, it may be difficult to refinance or resell it 15 years later, as the balance tenure is only 45 years.

As for Malay reserved land, if the loan is in default by the owner, it will be difficult for the banks to auction it, as only Malay buyers will be eligible to purchase.

2. Price of properties

Believe it or not, most banks are skeptical about giving out loans for properties below RM100,000. Even if you manage to find a low-cost property that costs less than RM100,000, it will be difficult to secure financing for it.

Though the repayments may be low for properties in this price range, the risk of defaulting is generally higher. Hence, banks would rather not take the risk for the minimal interest earned.

3. Developer of the properties

If your housing loan is rejected by the banks due to this reason, you can treat it as a blessing in disguise.

Most banks will do a Credit Tip-Off System (CTOS) check on the developer or seller to make sure the company or individual is not under bankruptcy. If the result is not a favourable one, you may not be able to complete the house purchase transaction.

This is to safeguard the bank and also you, from dealing with an incomplete project due to the developer’s bankruptcy.

Most of the developments by MBF raise the banks’ red flags due to the company’s controversialfinancial turmoil when the company fell in the late 90’s.

4. Location

As everyone is adamant in buying a Klang Valley property, it’s time for a reality check. Not all properties in the Klang Valley are good for investment.

You may find yourself unable to get a loan for properties in certain areas due to various reasons.

Some locations may have slow movement of appreciation or due to a history of landslide – namely places like Bukit Antarabangsa.

Some other areas that are not favoured by lenders are certain housing areas in Rawang, Puncak Alam, Sungai Buloh, Puchong, Semenyih and Bandar Mahkota Cheras – to name a few. The reasons for the lack of enthusiasm by the banks to approve loans for these areas are the low marketability, occupancy, and increasing cases of auctions.

Some of the areas frowned upon by bankers due to natural disasters like landslide and flood are certain neighbourhoods in Batu Caves, Hulu Klang, Ampang, Wangsa Maju, TTDI Jaya in Shah Alam and Bukit Gasing.

5. Maintenance and upkeep

If you find an affordable property in a hot location, don’t celebrate yet. There could be a lot of reasons why the property is at that price point.

Most banks are not willing to approve home loan for old properties (more than 10 years) especially if it is badly managed and maintained.

There have been a number of properties in a good location that buyers find difficult to obtain a loan for – namely, Palm Court Condomimium in Brickfields, a few properties in Batu Caves, Perdana Residences in Selayang and De Tropicana Apartment in Kuchai Lama.

There are many more properties that fall under this category. One factor that new buyers must look out for before deciding to buy a property is the surrounding area. Certain properties that are located too near high-tension cables (Sri Sentosa Apartment, Taman Sri Sentosa), or have bad parking access (Palm Spring Condominium, Kota Damansara) may face difficulties in getting financing, too.

6. Title

Most property buyers don’t consider the status of the property title when deciding on a property. However, this is important as it may be the reason why your home loan did not go through.

A title deed is a document showing the land registration number. The property title starts with the master title under the developer and later on will be split into individual (for landed properties) or strata titles (for non-landed properties such as condominiums and apartments).

These titles will grant the owner of each unit a title number and banks will usually expect buyers of sub-sale properties to have these titles. If a property does not have an individual or a strata title after 10 years, most banks may not want to finance the property, leaving the buyers with limited options when it comes to financing.

Deciding to buy a home is not just about affordability as there are various factors when it comes to getting a home loan approval. Unless you have a few hundred thousand ringgits in cash, you may want to consider the above factors before making that jump to buy a home.


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51,000 apply for affordable housing

August 25th, 2014 2 comments

The first ‘Mission: Home Possible’ roadshow by the state government at the concourse on Komtar’s Level 3, on 23 Aug 2014

A total of 51,238 people have applied for the low-cost, low medium-cost (LMC) and affordable housing units in Penang to date, said state Town, Country and Housing Committee chairman Jagdeep Singh Deo.

Jagdeep said 24,399 people applied for low-cost units, 23,582 for LMC and 3,257 for affordable units.

“The deserving applicants will be selected by the election Process Enhancement Committee (SPEC),” he said at the first ‘Mission: Home Possible’ roadshow by the state government at the concourse on Komtar’s Level 3, on Saturday.

He added that the work on the first phase in Bandar Cassia, Batu Kawan, consisting of 149 LMC units and 371 affordable units already started last year.

“This is the first of 12 affordable housing unit projects in the state. The other projects in Teluk Kumbar, Jalan S.P. Chelliah, Ban- dar Cassia Phase Four and Kam-pung Jawa in Butterworth are expected to start by the end of this year.

“The projects in Jelutong, Pintasan Cecil, the Sandilands foreshore in Jalan C.Y. Choy, Bandar Cassia Phase Seven, Ampang Jajar, Mak Mandin and Bukit Mertajam are expected to start next year. The remaining two projects and other phases in Bandar Cassia will start in 2016,” he said.

Jagdeep said the roadshow would be held on Saturday every two weeks at 13 parliamentary constituencies in Penang.

The public can submit their forms and check their application status at the roadshows.

Chief Minister Lim Guan Eng, who launched the event, said the state was committed to increasing public awareness on the housing projects through the roadshows.


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The impact of GST on property

August 23rd, 2014 1 comment

Yee: Pricing is a function of demand and supply.

Of late, there has been concern on how the impending Goods and Services Tax (GST), effective April 1, 2015, will impact the property sector.

Broadly, property buyers can be divided into two groups – those who want to buy before April 1 and those who want to buy post-GST.

There is an explanation for both groups for their decision. The main concern is the GST effect on prices.

According to three tax consultants, GST will result in an overall price increase, less on the residential sub-segment, but more on the commercial sub-segment.

The margin of increase will be about 3% for residential properties, although developers cannot charge house buyers GST for properties build on residential land as they are exempt-rated. Two of them have also brought up an important point, that property prices are a function of market forces.

Poon Yew Hoe, tax partner at Crowe Horwath says the market is a bit soft. It is uncertain how the market will be the first half of next year.

Although a developer cannot impose GST on the residentials, he would have paid GST on building materials and services. A RM1mil house would have a tax element of about RM30,000. He may absorb it and make less profit, if the market is soft, says Poon.

Tax Advisory and Management Services Sdn Bhd (TAMS) executive director Yong Poh Chye says there are some thoughts to make residential properties zero-rated. The government will then return to the developer the input tax incurred on raw materials/services. But the government will lose a source of revenue.

To strike a balance, there is a proposal to have properties RM500,000 and below to be zero-rated. “This will be a policy decision and will be made known later,” says Yong.

Deloitte Malaysia country tax leader Yee Wing Peng relates the Australian situation when it imposed GST in 2000.

Anticipating property prices to go up, the people rushed to buy and developers rushed to complete their project pre-GST. They ended up paying a premium for materials and services, which resulted in higher prices. Six to nine months post-GST, less transactions led to a price drop.

“Pricing is a function of demand and supply,” says Yee.

While the Australian experience has been brought up by both tax and property consultants, it is not an apple to apple comparison as there are differences, says the tax men.

Rush to buy

Yee says five out of 10 are “in a rush to buy”. Developers are aware of that. Yee says some developers have already imputed their costs into the selling price today.

“The pricing of new launches today would have priced in GST,” he says. They also highlight the GST effect on financing structure, particularly for commercial properties. A buyer signs an agreement to buy a shop lot priced at RM1mil.

On April 1, he has paid only RM400,000 because it is 40% complete. The remaining 60% will be subject to GST because it is a commercial property. Yong of TAMS concludes there is “no point in rushing to buy now.”

The buyer will resist the extra payment. Who will bear the extra cost depends will on how the Sales and Purchase Agreement is structured.

All three tax men also highlighted the complexities of certain properties built on commercial titles. Commercial properties include offices, shops, retail, hotel, malls, factories, hospitals, SoHos (small offices, home offices) and the like.

While malls and offices are pretty clear cut in that they are subject to GST, residential units on commercial land and hybrid units such as SoHos are may complicated.

If a property is built on commercial title, the buyer will have to pay GST, theoretically speaking. The Government is currently looking at the usage rather than the land title the property is built on. There will be more clarity later on.

Says Yong: “If you have a property where levels 1 and 2 are shops but the level three is used as a residential, hopefully the government will not impose GST on level 3.”

Other GST-related issues include car parking lots and their taxability. The current trend of fitting out properties with additional features like kitchen will have a GST element.

While there is much dissecting and scrutiny on residential units on commercial land, there is a greater element forgotten by property buyers. The quit rent, assessment and utilities will be substantially higher. These charges must be a consideration.

View from valuer

VPC Alliance (KL) Sdn Bhd’s chartered surveyor James Wong says in most countries, the trend is a rally due to the expectation of future price increase with more buyers pre- than post-GST.

However, with the current cooling measures, there seems to be no rally. There are buyers but they do not qualify for loans under the current stringent lending measures.

Therefore, the GST will not have a great impact on prices as it has been over taken by the government’s cooling measures and tighter lending by the banks, Wong says.

As for tax men saying that prices will go up, Wong is of the opinion that residential prices will not go up post-GST but commercial properties may.

“Developers will include the GST element into pricing. Whether the inclusion will result in overpricing – leading to less sales – will depend on the supply and demand situation. If there is a demand for that particular type of property, the developer may try to include the GST cost into its pricing,” he says.

Wong says developers will have no choice but to absorb the GST for those which are in over supply. Cost does not equate value, he says.

“Most developers will say they have to increase prices. However, market value is not cost, so there is no guarantee that prices will definitely go up. We anticipate the property market in the first half of next year will still be quiet and slow with less transactions and may be a minor price correction,” he says.


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Another OPR hike: Too soon?

August 23rd, 2014 1 comment

Potential buyers visiting a booth at a property fair in Penang. Currently, half of the RM727bil total outstanding amount of household lending from banks is for residential property financing.

A number of risks emerged in the first half of 2014, sending jitters across financial markets. In some developed nations, the negative sentiments of geopolitical affairs and economic uncertainties fuelled concerns of economic slowdown.

Notwithstanding the uncertainties in the advanced economies, Malaysia’s gross domestic product (GDP) growth accelerated to 6.4% in the second quarter of the year, up from 6.2% in the first quarter.

While it is an indication of our economic strength stemming from well-thought-out policies by the Government and Bank Negara, the robust economic performance has fuelled speculation of another hike in overnight policy rates (OPR) come September.

This follows the earlier hike of 25 basis points in July that brought the OPR to 3.25%, which is still deemed as a “normalising” level to the economy at large.

However, given the current economic challenges and a closer look at on-ground sentiments following recent inflationary pressures, such a hawkish expectation on further OPR hike should warrant some reconsideration.

In the last OPR hike, it is clear the central bank is concerned about addressing financial imbalances.

Nonetheless, the development of demand-pull inflationary pressure should also be closely monitored when considering the next course of monetary policy action.

It should be noted that the average inflation rate of 3.4% in the first half of the year, which was above the long-run average of about 2.5%, was largely cost-push.

The rising global petroleum product prices and in particular, the subsidy cut adjustment to the local pump prices last September contributed to the elevated prices.

Addressing financial imbalances the primary target

As stated in the July Monetary Policy Committee (MPC) meeting, Bank Negara’s main focus right now is to address the financial imbalances within our economy.

Essentially, the high household-to-GDP debt ratio, which stood at 86.8% at end-2013, is uncomfortably close towards 90%.

Currently, half of the RM727bil total outstanding amount of household lending from banks is for residential property financing.

In this context, addressing financial imbalances is also to tackle the larger issue of real estate valuation.

If left unattended, the house price escalation at a peak of 12.2% house price index growth in the last quarter of 2012 may be a property asset bubble in the making.

The consequences of a financial bubble burst are serious – the United States and the United Kingdom are still grappling with the aftermath of such an event since 2007.

Lest we forget, the Government has put in place various macro-prudential policies to curb speculative activities in the property market, unduly-high house prices and the escalation in household indebtedness.

The notable policies include limiting the maximum tenure for property financing to 35 years, the removal of the Developer Interest Bearing Scheme and the hike in real property gains tax.

Although the actual impact of macro-prudential policies is more difficult to gauge than a blunt OPR hike, there was a notable slowdown in the housing price index in 2013.

The latest housing price index growth has eased to 8% in the first quarter of the year, down from the average growth of 11% in 2013.

However, in terms of bank loans for financing of residential properties, the growth rate has hovered at around 13% since 2011 – conspicuously unaffected by the macro-prudential tightening.

An insight from the International Monetary Fund research paper published in April 2014 on the Malaysian housing market suggested that there is no underlying evidence of a direct correlation between the rise in house prices and the residential loans growth.

This should not come as a surprise, given that progressive macro-prudential measures are not meant to choke the market off responsible homebuyers. Essentially, these macro-prudential policies are meant to strike a balance between curbing speculative profiteering of property assets and encouraging responsible household loan taking.

Other policy options at hand for the central bank to tighten irresponsible lending activities include adjustments to the statutory reserve requirement (SRR).

SRR is the legal requirement of money balances that banking institutions have to comply with.

An increase in the SRR ratio will effectively absorb liquidity within the banking system, thereby containing loans growth.

The last SRR revision was in July 2011, when Bank Negara raised it to 4% from 3%.

In this regard, if Bank Negara feels that the OPR adjustment will not be adequate to deter speculative buyers, they could still raise SRR by 1 to 2 percentage point come September or November.

More importantly, the authorities will likely gauge the effectiveness of earlier policies and will not rush into another OPR hike.

Meanwhile, the Government also has the flexibility to design policies to meet the objectives of pre-empting potential dangers from an asset price bubble. The annual Budget come this October will be an avenue to introduce such policies.

At this juncture, there is still ample room to manoeuvre without involving the OPR.

Further increase would trim private consumption further

If the remarkable 6.4% second quarter GDP growth is any solid assurance of a stronger economy moving forward, look again.

During the quarter, the export sector was the key driver of the GDP performance (8.8% growth versus first quarter 7.9%).

In the meantime, private domestic consumption growth moderated for the fifth consecutive quarter at 6.5%, down from the last peak of 8% in the third quarter of 2013. This onset of the moderation coincided with rising inflation on the back of the fuel subsidy rationalisation.

This downward trend will only likely persist in the coming quarters, given the anticipation of a new fuel subsidy rationalisation mechanism and the implementation of the goods and services tax (GST).

As private domestic consumption makes up half of Malaysia’s GDP, it will be a challenging time for consumers to brace for domestic headwinds.

In light of the softening domestic consumption and geopolitical uncertainties that would affect the global economic outlook, the second half of 2014 will be expected to fall short of the first half performance.

Although Bank Negara and consensus have raised the full-year GDP target upwards, it is nevertheless below the first half growth. An OPR hike now will only further weigh down domestic spending.

To complicate matters more, the impending GST next April will likely distort the macroeconomic trends as consumers bring forward consumption prior to implementation, as seen in recent Japan’s sales tax hike early this year.

The short-term economic data that we will be facing will be accompanied with noises. This will only add to the challenges for Bank Negara to disentangle the signals from the ground and evaluate the effectiveness of its monetary policy stance.

No hike for now

Rightly so, Bank Negara has to consider its next move carefully.

With other measures at its disposal and the consideration of domestic consumption resilience, an OPR hike so soon after the last one might be too premature.


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