Debating DIBS for the property market

Wahid: ‘The Government is discussing whether to relax current buying and lending guidelines for first-time house buyers.

The Government is considering housing developers’ request to reintroduce DIBS (Developers Interest-Bearing Scheme) for first-time house buyers.

Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar says the Government is discussing whether to relax current buying and lending guidelines for first-time house buyers.

“It is still at the discussion stage,” he says after the opening of the 2015 Malaysia Property Exposition (Mapex) on Friday. Today is the last day of the expo, which is being held at the Mid Valley Exhibition Centre, Kuala Lumpur.

“As much as we want to promote home ownership, it is important that we make sure that home ownership comes with the ability to service the loans.

“The last thing we want is to force people to own homes and take up loans which they are not able to service later.”

But he says the Government recognises the request by the Real Estate and Housing Developers’ Association (Rehda) to see how they can help young families who are renting and, at the same time, are in the process of buying their first house.

“If they were to buy a house now, it takes three years to complete and they have to continue paying rental for the house they are staying in. But at the same time, once their loan is disbursed progressively for the house they bought, they have to service it, and some people can’t deal with both together (house rental and house loan instalment at the same time),” says Wahid, explaining why developers have requested for DIBS to be reintroduced for first-time buyers.

DIBS is a scheme in which the developer absorbs the interest of the housing loan during the construction period, which means that the house buyer does not need to service the loan until the house is completed, which usually takes about three years from the time the development is launched.

However, this has led to excessive ­property speculation, as people who could not really afford the loans were using DIBS to buy properties because they could do it without putting down any of their money, with the intention of selling – or flipping – the house upon its completion to make a quick profit.

The other widely acknowledged issue with DIBS is that when developers absorb the interest from loans for house buyers during the construction period, they ­inevitably pass that amount down to the house buyer in the form of higher prices for the completed house compared with prices for a house without DIBS.

In November 2013, Bank Negara tightened lending guidelines and curbed DIBS.

When the 2016 Budget was announced recently, the First House Deposit Scheme was introduced with RM200mil allocated to help first-time house buyers afford their down payment.

Wahid says the Government has not yet determined whether this will also apply to second-hand homes or be confined to newly-built property only.

“The main intention is to assist first-time home buyers. It is important to observe the spirit and intention. We appreciate that for many young families to come up with that 10% down payment can be challenging.”

As for complaints that people are finding it hard to secure housing loans because the regulations have been tightened, Wahid says that when the Govern­ment surveyed the banks, the banks told them that the rejection rate for loans is less than 20%.

“This is where we need to look at the detailed data because there might be some screening at the developers’ end.”

He says the cooling measures the Government introduced over the past few years, such as responsible lending guidelines, have had their desired impact in curbing excessive speculation and moderating rapid growth in household debt.

He makes it clear that these measures are not meant for first-time house buyers but rather for those who are buying their third property onwards.

For Wahid, it is crucial for developers and those in the property sector to innovate and embrace new technologies to keep costs low.

He points out that the construction industry is facing productivity-related issues that need to be addressed.

These issues, according to Wahid, include a low-skilled work force, inadequate or a mismatch in training and development, over-reliance on low-skilled foreign labour, limited adoption of modern practices, mechanisation and industrialised building systems (IBS), the lack of data and information-driven decision-making, and a limited adoption of information technology such as building information modelling.

However, Rehda president Datuk Seri F.D. Iskandar Mohamed Mansor claims that 50% of housing loans are being rejected and urges the Government to relook some of its cooling off measures.

“It has taken a toll on developers. We are facing challenging times,” he says.

He says it would help if developers are given GST relief for constructing low-cost and affordable homes.

Iskandar also says another issue affecting the industry is rising “compliance costs”.

When they build something, he says, there are Federal Government and State Government regulations to comply with, and doing so can be costly.

Citing new infrastructure costs, he says this is now being passed down to the developers when it was not the case five to six years ago.

He says land takes up 15% to 20% of the development cost, and compliance costs, which used to be about 5%, now has gone up to 20% in some states. - By The Star

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