New rule to cool property speculation

Bank Negara Malaysia has put in place a rule that allows banks to lend only up to 70 per cent of the house value.

The new mortgage lending rule, which applies only to borrowers taking up a third housing loan, is meant to curb excessive investment and speculative activity in urban areas.

"While Malaysia is not experiencing a general property price bubble, targeted pre-emptive measures are appropriate to moderate the increases in property prices that are evident in select locations, arising from purchases that are speculative in nature.

"This measure is expected to moderate excessive investment and speculative activity in the residential property market and to ensure affordability of homes for genuine house buyers," Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said in her keynote address at the Financial Industry Conference in Kuala Lumpur yesterday.

She gave the assurance that financing facilities for the purchase of first and second homes would not be affected and that borrowers would still be able to obtain financing for these at the current loan-to-value ratio (LVR) applied by individual banks, based on their internal credit policies.

The new rule takes effect immediately. Banks were previously not subjected to any curbs on mortgage lending.

The Association of Banks in Malaysia (ABM), whose members comprise the country's 23 commercial banks, supported Bank Negara's move, saying that it was "timely and pre-emptive".

"While the banking sector is wholly in support of house ownership, we agree that appropriate measures should be adopted to avert unhealthy speculative activities which could lead to a property bubble," its chairman Datuk Seri Abdul Wahid Omar said in a statement yesterday.

Abdul Wahid, who is also the chief executive officer of top lender Malayan Banking Bhd (Maybank), said the move was not expected to dampen or have an adverse impact on the growth of residential property development, nor on the banks' house financing business.

The ABM and its member banks had engaged with Bank Negara on the matter prior to the latter coming out with the ruling.

A banking analyst from a foreign brokerage noted that most banks, particularly the bigger ones, already adopt strict LVR on borrowers taking up a second, and especially third, housing loan, with location also being an important factor.

As such, the analyst agreed with Abdul Wahid that the new rule was not likely to have a big impact on the banks' mortgage business.

"On a third loan, it's already quite hard to get an 80 per cent LVR now," she remarked. For a first loan, banks usually lend up to 90 per cent of the house value, or even up to 100 per cent in some cases.

The country's biggest mortgage players by market share are Public Bank Bhd, CIMB Bank Bhd and Maybank.

Property developer Mah Sing Group Bhd also does not see the new rule hurting overall sentiment of the market significantly as it comprises mainly first-time buyers and upgraders.

Neither does its group managing director Tan Sri Leong Hoy Kum see a property bubble building up as the price increases have been largely those of properties with good concepts by well-known developers and in good locations.

Zeti, in her speech, noted that residential property prices in the country had increased steadily in tandem with economic development and rising household income.

"In the more recent period, however, certain specific locations, particularly in the urban centres, have experienced faster growth, both in house prices and the number of transactions. Supporting this trend has been the increase in financing for multiple-unit purchases by a single borrower. This suggests investment activity that is of a speculative nature," she said.

Property prices in Malaysia rose 5.6 per cent in the first quarter of this year and 4.2 per cent in the second quarter, according to Bank Negara. - By Adeline Paul Raj (Business Times)


November 4, 2010 at 10:38 AMJT

Still very quiet here, other blogs have already a few threadings on this topic. No doubt that first or second time buyer would be happy as potentially price "may" get stabilised, and competition could be less. However, what would happen to those owning >2 properties now? The 3rd house in this case does it applies to co-ownership or across the board as long as the name appearing under loan application? How about units with commercial titles such as shotlots and service suites?

November 4, 2010 at 11:49 AMtan

Not yet the last straw that breaks the camel's back?

November 4, 2010 at 11:55 AMDD

Potential loopholes on subsales properties where buyer and seller may agree to artificially put up a higher price in order to get higher loan amount. Or some developers can be creative to jack the price higher in SnP, then provide so call "rebates" to purchasers. I know some banks already providing a creative loan interest now for "investors". Instead of BLR - X%, now is FD + x% and the X is less than 1%. Of course for completed properties only. There maybe a slight jump in completed projects.

November 4, 2010 at 12:43 PMUnknown

To mark up the price, first condition the seller will have to agree and secondly the selling price will have to be lower than that of bank valuation. Not easy unless come across a motivated seller or the targeted property is less competitive. Anyway, there are few things still left un-clear and no point to discussed until being further clarified:
1) Property under Joint ownership. The number of ownerships being average-out or not.
2) Residential properties fall under commercial title, eg. Elite Height and upcoming Maritime Square.
3) Properties purchase through company, eg. if one of the owner happen to own >2 units. This is important as it is common tactics for investors/speculators to work in Team.

November 4, 2010 at 6:30 PMpenangites

there is something which i need to get some confirmation from all the experts. There are some purchasers who buy the property without having their name in the SPA. However, when it comes to loan, they will be putting their name in to actually get a higher loan. if the "add on borrower" has already bought the 3rd property, how will it be? It will be depending on the ownership of the property or it will depends on the borrowing names as bank is the party to decide how many percentage of loan margin.

November 5, 2010 at 10:35 AMAL

What a waste of time! BNM's governor is not serious about curbing speculation. 70% loan ruling should be applied for all housing loans!

November 5, 2010 at 11:15 PMAnonymous

Is this it ?? after taking donkey years and engaging with the industry players, is this all she can come up with ?

does she really expect this mosquito-bite measure will work ? it is also too vague, fill with loopholes and enforcement issues

what a disgrace !

it is time for her to go ....

November 8, 2010 at 3:13 PMKS Teo

I heard this applied for the 3 times purchase regrardless whether the guys have sold the 1st and 2nd properties.

November 8, 2010 at 4:11 PMUnknown

From what i understood, the rule is base on number of loans you are currently serving and not the number of units you own. If unit been sold and loan fully settled, it will not be counted anymore.

November 8, 2010 at 5:31 PMUnknown

Will those clowns at BNM clarify this definition of "3rd home buyer" ?

this new rule is already effective since the day she announced this half-baked measure ... real clowns

November 10, 2010 at 7:57 AMRafael

The Star paper has publish that 3rd housing loan only effect if you 1st and 2nd property is still serving bank loan. If the 1st and 2nd property is fully paid then your 3rd property is considered 1st housing loan provided you are taking a bank loan for it.

Hope this help.

November 10, 2010 at 10:39 AMDaamao

There are a lot of smart ppl around, unfortunately, very few of them works for the government, implementing sound policies to help the rakyat.

Association: Raise property gains tax to 30%
Compiled by P. ARUNA, LEE YUK PENG and A. RAMAN

RAISING the property gains tax from 5% to 30% will be more effective in curbing speculation on house prices, Nanyang Siang Pao reported.

The daily quoted Tan Chong Leng, head of the Chinese division of the National House Buyers Association, as saying the tax should range from 25% to 30%.

The current 5% tax imposed on buyers who sell homes in the short term and 70% loan limit on third home buyers would not curb speculation, he said in an interview with a Chinese radio station on Monday.

Tan said another reason for escalating house prices, especially in gated communities, was the worrying security situation.

He said families with a household income of RM3,000 would find it hard to pay the monthly instalments for property worth RM220,000 even though they were not required to pay the 10% down payment to buy one.

He also noted that properties priced below RM220,000 in the Klang Valley were located in light industrial areas and these were often turned into “mini united nations”, housing foreign workers from various countries.

November 10, 2010 at 11:07 AMDaamao

I will even go a step further to say, there are a lot of stupid ppl working for government, churning out garbage and living a damn fine life.

Case in point, the uncle minister that said he can still find a decent living with RM3000 in KL, or it is not difficult to find RM200k property in KL.. well i suppose he is right, if living in a ghetto can be considered decent!

Fortunately for them, Malaysia"n" are generally not very "developed", especially in the rural areas, so as a nation we continue to send these dumb fells to parliament to make our life even more difficult.

Imagine you are the ruling government, and ETP is suppose to make ppl wealthier, but also make them smarter that they turn againt you, what would you do?

Ask indonesia.

November 30, 2010 at 3:03 PMJT

Do feel that the market is cooling off slightly now. I got friends who work as property agents,and according to them although the number of units asking for sales still remain stable, the enquiries and transactions somehow becoming less. This is obvious in those new projects which OC soon, eg. platino, summerplace, the brezza, etc. The asking price is trending down also day by day, eg. a nice type-C9 high floor in summerplace only asking for 420k as compare to >=450k month ago. Prices for bayswater and the View also seem to be softening down a little bit, we can now find bayswater1313 <=670k as compare to >700k before, and the view 580k as compare to >=650k before. My agent friends also commented that alot of ther previous clients own >2 units, and with the new LVR, they would still be interested to buy but will tend to be more cautious and choosy. They would rather stick to new project to save on the S&P and furthermore on those 0% during construction project eg. maritime square. Well this could be the sign of market self-adjusting now, perhaps would be more obvious in months to come...lets see.

November 30, 2010 at 3:39 PMWisdom

Jeff,its depends location! You survey the locate start from Pulau tikus see the price got going to smooth or not?What can I tell you for those locate the price will still keep sky high!

November 30, 2010 at 4:42 PMJT

You are referring to Pulau tikus-->Tg Tokong-->Tg Bunga region? Put Super condi apart, along the coastline we have PG1, Belle Vista, Gurney park, maybe berjaya court, midland condo, marina bay, grandview, mutiara villa, gurney villa, tanjung park, desa tanjung, further in coastavilla,desa bella, leisure bay, grand ocean, waterfront, twin tower, marina tower, coastal tower, straits regency, future surin. Which one the price keep increase?