70% loan for the third and subsequent houses?

PETALING JAYA: There is speculation that the loan-to-value ratio for the third and subsequent house purchases could be further reduced to as low as 70% from the assumed rate of 80%. According to sources, talk of a loan-to-value ratio of 70% has surfaced but nothing has been decided yet and discussions are still ongoing.

To recap, Prime Minister Datuk Seri Najib Tun Razak had said on Tuesday that Bank Negara might impose a limit on financing for subsequent purchases after the second property while first-time buyers can borrow up to 90%.

It is reported that there were plans to lower the loan-to-value ratio for the third and subsequent house purchases to 80% from 90%.

The move is aimed at curbing speculative property transactions in a bid to contain escalating property prices.

SK Brothers Realty Sdn Bhd general manager Chan Ai Cheng said a reduction in the margin of financing to 70% would affect property sales for investments initially.

“There will be an impact on the property market. The more aggressive and gung-ho property investors may think twice about investing in properties if they have to cough up more money.

“For example, a buyer who will have to pay RM50,000 deposit for a half a million ringgit property will now have to come up with RM150,000,” she said.

That said, Chan admits that most investors would have surplus cash and not overgear themselves by taking a maximum loan when buying a property.

“As with any new ruling, the market will have to adjust itself and find a new level,” she said.

She suggested that the central bank should look at a lower loan-to-value ratio for properties that were more prone to speculation and not impose the rule across the board.

An analyst with Affin Investment Bank said the loan-to-value ratio curb may not be imposed on the entire property industry, hence it should not affect the demand and sales of properties except perhaps in selective locations/projects with a higher rental market.

“However, the guidelines do not appear specific at the moment.

“There are also ways a purchaser can play around them.

“We may not see a sharp pullback in terms of property sales and banks’ mortgage growth to be impacted badly,” she said.

The analyst said more stringent measures, such as regulating the discount on base lending rates (which is currently at 1.8% to 2.2% in the market), barring interest-only payments or the absorption of interest cost by developers during the construction period would have a more drastic impact on property sales and loans.

Other measures include increasing stamp duties or real property gains tax rather than imposing a cap on the loan-to-value ratio or even lowering the cap to 70%.

According to AmResearch’s sensitivity analysis, bank earnings are not so sensitive to changes in loan growth.

“We estimate that every 1 percentage point downgrade to our loan growth assumptions will lead to less than 1% downgrade in net earnings,” it said in a note yesterday. Thus, potential moves to reduce the loan-to-value of property related loans would not lead to any major downgrades to net earnings, AmResearch said.

A bank official who declined to be named said most of the bank’s mortgage borrowers were buying residential property for their own stay and the proportion of borrowers who were buying such property for speculative purposes were small.

“Hence I don’t see the loan-to-value curb significantly hurting our business. We also check the credit profile of our borrowers before deciding on the loan amount so if a customer’s credit rating is not so good we will reduce the loan amount accordingly,” he said.

According to Bank Negara statistics, outstanding loans growth for the banking sector grew 11.9% to RM841.74bil in July year-on-year.

Mortgages make up the largest portion with some 26.8% of the total loans outstanding as at end July.

The National House Buyers Association honourary secretary general Chang Kim Loong said a lower loan-to-value ratio for the third and subsequent house purchases was welcomed.

He said property speculators have caused property prices to escalate throughout the years.

“I would like to suggest that the loan-to-value ratio should be even lower, at say maybe 50%, so that those without upfront cash will not speculate on properties and deprive the genuine buyers from buying a decent house,” he said.