No woes from 5/95 home loans foreseen

As the timeframe for repayment of homes purchased under the 5/95 home loan scheme draws near, all eyes will be on the ability of buyers to repay their loans amid forecasts of a slowing economy next year.

A banking industry source estimated that 20% to 30% had started repayment and the bulk of repayment would come onstream next year. However, he said, most of these buyers were from the high-income segment and had traditionally been able to service multiple loans.

He said the scheme, currently for first and second homes, was for selected locations and was undertaken by a few top developers.

The scheme, he said, was extended during the recession two years ago and was likely to be stopped end of this month, as the contract between the banks and developers would be over and the property market picked up.

The 5/95 home loan scheme allows buyers to make only a 5% downpayment and sign the sale and purchase agreement.

Loans were secured by selected banks and the service of the loan only commence when the property is ready to be handed over to the purchaser.

The first property developer to introduce and implement the innovative 5/95 scheme was SP Setia in January 2009 in a cautious property market outlook.

The special home loan package was a great success and boosted the company's second quarter revenue ended April 30.

Soon after, other established property developers such as Glomac Bhd, Mah Sing Group Bhd, Malton Bhd and Sunrise Bhd followed suit with their 5/95 home loan scheme, with minor variances and with varying degrees of success.

Since the 5/95 home loan scheme was implemented, the economic environment has changed. So how are the homebuyers of this scheme faring?

Real Estate and Housing Developers Association (Rehda) president Datuk Michael Yam said the special loan scheme was only adopted by selected and established property developers.

The scheme was introduced mainly to affluent homebuyers, so Rehda does not foresee any repayment problems from these homebuyers presently or in the future, Yam told StarBiz.

Moreover, he said, sales made from this special loan scheme would likely represent only about 5% of the total sales made by these developers from various property projects in 2009.

While growth in the developed world was expected to slow down next year, the local property market's outlook was bullish, said Yam.

Local banks are flushed with funds and we don't foresee banks running into high levels of non-performing loans or default rate by homebuyers next year, he added.

On the 70% loan financing cap for those wanting to buy a third residential property, Yam said it was mainly Bank Negara's way of saying we are monitoring the situation.

A banking industry source said the special loan package in 2009 was structured in collaboration with several foreign and local banks as well as selected property developers.

Interestingly, we find that homebuyers who had purchased several residential properties then under the 5/95 home loan scheme were less likely to be the ones who defaulted on their payments, he said, adding that overall the late payments, or default rate, by these homebuyers were currently insignificant.

OSK Research head Chris Eng said that going forward, the local property market was seen to remain bullish despite an expected global economic contraction.

Eng concurred with Yam that local banks did not have liquidity problems.

We expect the local property market to remain resilient at least for 2011, Eng said.

On the default rates of homebuyers of the 5/95 home loan scheme, he said: It's a bit too early to tell as some of these homebuyers are likely to have either just started making repayments on their home loans or are about to.

A spokesperson from SP Setia said that while the 5/95 home loan scheme introduced by the property developer was a great success, it was only for three months (from Jan 19 to April 19, 2009).

We made good sales (from the promotion of the special home loan package) which helped to boost our company's second-quarter revenue in 2009, she said.

On the default rates of homebuyers under the special package, she said that so far it (default rate) was insignificant for homebuyers that had bought SP Setia homes completed in 2009.

For homebuyers under the special scheme introduced in 2009, who are going to get the keys to their homes next year, we do not expect a high default rate on their home loan repayments, she said. - By Danny Yap (The Star)


December 16, 2010 at 9:36 AMTim

Only 20-30% of the buyers/investors have started the repayment. They are the early bird who bought at lower price (They are smarter & more vigilent who grapped the early opportunities to enjoy the hike)

The balance 70-80% of followers might buy at higher price that need higher holding power. (Most of them may hold >1 unit)

It is still not the right time yet. We will know whether there are the woes in another 6-12 months.

December 16, 2010 at 10:38 AMChong

i not sure whether this 20-30% investors can make money?
as i know the launching price is around 600k-650k and now the market price increased 700k to 750k for about 3 years.
If they purchase through financing, how much is left after deduct the RPGT, Interest, Stamp duties, Legal gees and Loan early settlement penalty?
Unless for own stay or cash rich upfront, but still yet count in the rennovation expenses.

December 31, 2010 at 4:47 PMChong

anyone owned SP Setia phase 1 & 2 project can share your experiences?