Mixed reaction to possible increase in property downpayment

“Investors would pull back on purchases after the third unit because of the higher deposit requirement. The impact of this is probably 10%-20% of the upmarket segment. Overall, the effect of the cap is minimal as the presence of speculators is small,” he said. Prime Minister Datuk Seri Najib Tun Razak 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%.

The property market has come under speculative pressure the past 12 months with double-digit rise in prices in some locations. Despite concerns that a bubble may be forming, Yam said “the property market is still lukewarm.” The number of launches by developers has also increased compared with last year, with developers offering 10/90 schemes or variants of it.

Yam, who is also managing director of property consultancy Impetus Partnership, said investors may purchase that third property, but nothing additional due to the deposit. “Those who buy for the next generation would buy it sooner if they see a capital upside as well.” Yam said the 20/80 move would have little impact on the secondary market.

“There are usually lower margins for secondary housing,” he said. He said the move needed to be further studied and evaluated in order not to dampen the activities of serious investors.

“At the moment, the property market is still lukewarm due to lower rental yields and capital appreciation compared to neighbouring countries. Placing such a restriction may take Malaysian property off the radar of foreign investors. As it is, the Government has already re-implemented real property gains tax (RPGT) and raised interest rates. Further restrictions may not bode well for Malaysian property.”

He said loan capping and other measures introduced in Singapore had not really slowed the property transactions in Singapore. This proved that it was ultimately market forces that decided what was best, he added.

Managing director of The Metro Kajang Group, Datuk Eddy Chen, said the move would have little effect on landed units. “It is fine to have a pool of properties for rental income. I don’t think there are many people who are buying to flip (to resell when the project is completed). There is always the 5% RPGT as a deterrent,” he said.

He said the 20/80 move would not affect landed units. The company launched 260 double-storey terrace and semi-detached houses last week in Semenyih, Selangor.

Mah Sing’s group managing director cum group chief executive Tan Sri Leong Hoy Kum said the proposal should not affect market sentiment.

“Property has long been viewed as a preferred vehicle to hedge against long-term inflationary pressure,” Leong said.

“The banks have in place stringent processes as well as check and balance in their loan approval process. These should be good enough to ensure the quality of loans in the market and market forces should be allowed to prevail.”

A source from a housing developer has a different view.He said that nine out of 10 buyers opt for the 10/90 scheme whether they were buying to stay or investing.

“If there is a 20% downpayment requirement for non-first time buyers, at least 30% of sales will be affected,” he said.

Should this move be implemented, he said Malaysia would be joining the ranks of Hong Kong and Singapore to curb property speculation.

Hong Kong requires buyers to have a downpayment of between 50% to 60%.

Singapore requires 70% to 80%.

Property consultancy Rahim & Co said government intervention was only warranted if there was overwhelming evidence of excessive speculative activity.

“Otherwise these actions may backfire and hinder recovery in one of the most important economic components. Interest rates have already been increased – it may be too early to slap more deterrents to investment at this fragile stage of the economy’s recovery,” a Rahim & Co statement said.

“It should be best left to the banks to decide on their own desired level of exposure, although it might be prudent for Bank Negara to direct the banks to cut back on their margin of lending to parties that are clearly speculators, no matter how good their credit.”

The statement said 10/90 was a happy medium.

Research house HwangDBS said the 20/80 move was “less onerous than expected as there was initial concern that the loan-to-value ratio at 80% cap may be imposed across the board.”

“Impact to the property sector should be insignificant as we believe there are not many buyers with more than two houses. Banks have been generally stringent on mortgage applicants with multiple properties and high monthly commitment, the report said.

“We are positive on the Malaysian property sector and expect demand to continue to be supported by positive macro factors like young population, urbanisation, shrinking household size, rising income, inflation hedging and infrastructure improvements,” HwangDBS said.