Property financing guide

Property sources said Bank Negara’s new circular which bans interest capitalisation schemes (ICS) is not an attempt to fine-tune the measures proposed for the property sector under Budget 2014 but is merely “a guide for banks” when they finance house purchases.

The new circular, effective Nov 15, which strikes at the core of Developers Interest-Bearing Scheme (DIBS) also includes all other schemes in which interests are factored into the cost of the house.

Said a source who declined to be quoted: “Interest Capitalisation Schemes (ICS) is a generic term in which the interest is capitalised, or factored in as part of the cost of a property. When developers do this, it invariably and inevitably, rises the cost of the property price.”

ICS covers a range of interest payments which may be not necessarily fall under DIBS, the source said.

How this is done, or the mechanics of it, is not the issue, the source said.

What is of greater importance is the outcome, and in this case, the outcome is the increased price of the property, he said.

A check with developers reveal that most of them have already removed DIBS as a selling strategy. However, they will honour past agreements signed before the Budget 2014 measures were introduced.

A developer offering three property projects for sale in Petaling Jaya says they will continue to offer DIBS in one of their three projects “because that project is almost all sold and will be completed in June next year. So we will continue with the old scheme.

“As for the second project, we are offering Developers Interest Subsidisation Scheme (DISS). The buyer will pay the interest and we will reimburse him every quarter if he comes with the statements or receipts,” a staff of the developer said.

The third project has been given to marketing agents, she said.

A prominent developer developing a gated and guarded project north of Kuala Lumpur said they have removed DIBS from their sales including the giving of rebates. They have also outlined the cost of freebies provided and in the process, made the marketing process more transparent.

“The net price of the house is provided to our developers as a result of the measures proposed in Budget 2014,” he said.

A property consultant who declined to be quoted said the Bank Negara circular to banks and lending institutions may have resulted from a statement by by Urban Wellbeing, Housing and Local Government Ministry.

The statement, signed by National Housing Department director general, said following the announcement of Budget 2014, the ministry is implementing a new condition in approving housing development licence and advertisement and sales permit.

The new ruling will not allow the use of ICS, or any other permutations, including DIBS effective Nov 15 in advertisments.

The statement said the measure is being taken “to enhance the ability of the people to buy a house and to ensure stable home prices and also to curb speculation.

“In additon, speculative activities have an impact on house prices as well. This situation may adversely affect the property market in the long run,” the statement said.

The statement also called on the public to report to the department if they come across any dubious schemes related to ICS or any other forms of permutations. - By The Star

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