House buyers cautious due to fears of income security

Potential house buyers are still wary about making property purchases despite lower mortgage rates as the economic outlook remains uncertain, analysts said.

Average mortgage rates have fallen to about 3.5%, but at the same time banks have been more stringent on the approval of loans. The average mortgage rate is obtained from base lending rate (BLR) of 5.55% minus 1.5% to 2.4% for housing loans (or effective annual rates between 3.15% and 4.05%), depending on the amount and tenure of loans, and the package customers sign up for.

OSK Research said the attraction of lower mortgage rates had been superseded by fears of income security amid a deteriorating economic outlook.

“For those who are still financially sound, most would rather wait a while longer to snatch up better bargains a few more months down the road. Some are hoping for developers to come up with more creative and attractive perks and some are also waiting for prices to drop further, if any, before they are convinced to buy,” the OSK analyst told StarBiz.

The research house said downside risk for landed properties appeared limited compared to luxury condominiums, with the demand for landed properties expected to return by year-end.

“Most of the homebuyers in this segment are cash-rich and not highly leveraged. Given the accommodative interest rates today, any forced-selling or foreclosures of properties like the one we saw during the 1997/98 Asian Financial Crisis will be limited in this downcycle,” it said.

OSK Research expects the demand for luxury condominiums to decline by 30% to 40% in 2010 from 2008, with luxury condo prices already currently down by 15% to 20%.

An analyst from Kenanga Research agrees that the bearish economic outlook is making potential buyers hesitant about buying properties now.

“What if this (sign of market recovery) is just one-off data? What we need is for the sentiment to improve,” she said, noting that only 60% of bookings had been translated to actual sales compared to almost 100% previously due to more stringent loan requirements.

Jupiter Securities Sdn Bhd head of research Pong Teng Siew said that with the mortgage rates of 3.5% and effective cost of funds of 1.5%, banks net interest margin should be about 2% now.

“But cost of funds for smaller banks such as EON Capital Bhd, RHB Capital Bhd, AMMB Holdings Bhd are higher (slightly over 2%) because of higher interest bearing liabilities,” he told StarBiz.

A house buyer contacted by StarBiz said his current mortgage loan interest rate was 3.15% for the first two years and 3.45% for the remaining tenure.

He recently signed up for a 20-year conventional home loan from Alliance Bank Malaysia Bhd for the purchase of a double-storey house.

He is paying about RM1,700 per month for his RM300,000 loan.

His loan package included a one-time payment of RM2,500 for mortgage reducing term assurance, legal fees and stamp duty.

Other banks are offering similar mortgage rates.

For example, RHB Bank is charging BLR minus 2.1% for housing loans that range from RM250,001 to RM500,000, while Hong Leong Bank Bhd is offering BLR minus 2.2% for a RM300,000 mortgage loan.

Malayan Banking Bhd uses a property’s location as one of the criteria to determine interest rate, but is still offering rates in the region of BLR minus 2%.

All these banks have BLR of 5.55%. - By K.C. Law (The Star)

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