There may be a price war to give out cheaper bank loans
By TEE LIN SAY
linsay@thestar.com.my
KUALA LUMPUR: There may be a new round of price war among banks for consumer loans, with the new mortgage rate going down to as low as base lending rate (BLR) -2.3%. The current BLR rate is 6.3%.Some analysts said this comes as a surprise to the market after a mutual understanding was reached earlier to set a minimum rate of BLR-1.9%.
The new mortgage rate is now down to BLR-2.2% since end-July and some banks have started offering BLR-2.3%.
A home loan officer from CIMB Bank Bhd told StarBiz that housing loans have been revised downwards.
Which one shall I take? So many choices! Can't believe it.The BLR is a minimum interest rate calculated by banking institutions based on a formula which takes into account the institutions’ cost of funds and other administrative costs. The BLR is measured against the overnight policy rate (OPR). This year, Bank Negara has raised the OPR by 75 basis points in three rounds of rate hikes points to 2.75%.
This means that the BLR also goes up by 75 basis points to 6.3% currently. The BLR is one of the major components used by banks to determine the pricing of home loans.
StarBiz called up the customer service departments of some of the major banks for verification. While rates change depending on the mortgage taken, some banks have become very aggressive in their rates.
It appears that CIMB’s rate is now BLR-2.1%, Hong Leong Bank Bhd is BLR-2.3%, OCBC Bank (M) Bhd is BLR-2.3% and UOB Bank is BLR-2.3%.
While the website of Malayan Banking Bhd shows that it is offering BLR-1.8%, one of its home loans officers contacted said it could offer up to BLR-2.2% depending on the loan taken.
“The price war has also spilled over to credit cards, with offers to absorb the government annual service tax. This was previously borne by card holders,” said an analyst from UOB KayHian.
The analyst added that the start of government infrastructure projects and robust property launches would drive business loan demand in the second half, in time to mitigate the impact from slower external trade.
Business loan is now 44.7% of total loans as at end of July 2010.
Property brokers agree that the outlook for the property sector has been improving.
Zerin Properties CEO Previndran Singh has a “neutral to positive” outlook on the property sector in Malaysia.
“Prices are not moving up as fast, but interest is returning. Yes, there are issues of products being mismatched, but they are not big issues,” he said.
A real estate agent from Reapfield Properties Sdn Bhd said interest in Malaysian property was moderate. People were adopting the “wait and see” attitude because of the rising interest-rate environment.
However, she said there was “lots of interest in our properties below RM2mil”. There was less movement among the higher end homes.
She added that her client list included foreigners from Singapore who were keen to invest in Malaysia due to its affordability.
The UOB analyst said banks’ net interest margin was expected to trend up again after Bank Negara made another 25 basis points hike to the overnight policy rate on July 8. Average lending rate inched up to 5.19% in July from 5.05% in June.
This impact might be offset by the new round of price war among banks for consumer loans.
Loan growth fell from 12.5% in June to 11.9% in July due to higher repayment by the real estate and finance sectors. Consumer loans remained the driver on resilient demand for big-ticket items.
The banking system’s capitalisation remained strong with risk-weighted capital ratio and core capital ratio sustained at 15.1% and 13.2% respectively.
The level of non-performing loans including impaired loans remained stable, accounting for 2.1% of net loans. Loan loss coverage was stable at above 90%.
Banks to try and prevent speculation on property prices
By ANGIE NG and SHARIDAN M. ALI
starbiz@thestar.com.my
PETALING JAYA: Bank Negara is engaging with banks on possible measures to curb excessive speculation on property prices while developers caution that it should not be imposed across the board to avoid dampening the property market.
Responding to queries on whether the central bank will be imposing a 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble, the central bank said: “Bank Negara regularly engages with industry players as part of its surveillance and supervisory activity. The engagements cover a broad range of issues and areas that relate to developments on the ground, safety and soundness of the institutions and the overall system.”
Datuk Michael Yam ... It added that to ensure prudent management of credit risk in the banks’ balance sheets, the central bank regularly engages with the industry on developments in the underwriting and selling practices of financial institutions.
The share of housing loans to total loans is about 26%, according to the central bank.
When contacted, banking industry players said it was likely that any measures to be introduced would be pre-emptive measures to target certain quarters of purchasers and would not be across the board.
The measures are believed to be targeted at the high-end and non-owner occupied house purchasers.
Currently Bank Negara does not impose any standard policy on mortgage loans but leave it to the banks to manage.
But following a rise of between 10% and 30% in the prices of landed houses in some parts of the Klang Valley (including Kuala Lumpur) and Penang in the past one year, banking sources said Bank Negara might be looking at discontinuing the 5:95 and 10:90 housing loan packages, and preferred banks to impose higher downpayment for property purchasers.
Tan Sri Leong Hoy Kum ... ‘We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.'
The bank sources concurred that over the longer term, there must be the flexibility to allow more relaxed loan quantum if the market needs it, especially if there is a recession.
OCBC Bank (Malaysia) Bhd head of secured lending Thoo Mee Ling said part of the rationale for the 80% LVR for mortgages could be to curb speculative property prices in the market currently.
“If it is implemented, home buyers will have to self-finance a higher amount than they do now. In the short term, coupled with entry costs such as legal, stamp and valuation fees, the property market will take a dive and it will subsequently dampen the mortgage business.
“In the long term, the measure would curb speculative property buying and promote a healthier property market. Therefore, both the banks and property market will become more resilient to any potential crisis,” she said.
Datuk Michael Yam, the president of Real Estate and Housing Developers’ Association Malaysia (Rehda), said Bank Negara should not impose a mandatory LVR cap on mortgage loans at this juncture as it would dampen buying sentiment with spillover effects on other related industries such as construction and building materials suppliers.
“The local banking industry is well regulated and banks are very prudent and stringent in their credit assessment of borrowers. Banks have, on their own initiative, cut down loan margins to borrowers and only those who are credible and can afford to repay their loans will be offered a higher loan margin.
“Banks also are very selective of what projects they extend loans to.”
Caution and prudence should be exercised when considering any measure for mortgage loans, said Yam, adding that it should not be across the board.
“It is better to leave it to market forces to decide as the banks’ stringent lending criteria is enough to ensure the quality of loans in the market,” he added.
Yam said that up to 90% of the country’s population are living in affordable houses priced below RM250,000, and the current low downpayment for property purchases has promoted home ownership among the lower to middle income group.
Mah Sing Group Bhd group managing director cum chief executive Tan Sri Leong Hoy Kum said a conducive financing environment was important to support the property industry, which was a significant engine of growth for the economy.
“We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.”
Leong said there was no property bubble at this juncture “as property price increases have not been across the board.”
“The properties which have been enjoying price appreciation are those with good concepts by branded developers, and sited in good locations.
“One must also take into account the construction cost, and also increasing price of good land in considering the prices of properties, which have gone up by 10% to 25% in the past 1½ years,” Leong added.
Responding to queries on whether the central bank will be imposing a 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble, the central bank said: “Bank Negara regularly engages with industry players as part of its surveillance and supervisory activity. The engagements cover a broad range of issues and areas that relate to developments on the ground, safety and soundness of the institutions and the overall system.”
Datuk Michael Yam ... ‘Bank Negara should not impose a mandatory LVR cap on loans.’
The share of housing loans to total loans is about 26%, according to the central bank.
When contacted, banking industry players said it was likely that any measures to be introduced would be pre-emptive measures to target certain quarters of purchasers and would not be across the board.
The measures are believed to be targeted at the high-end and non-owner occupied house purchasers.
Currently Bank Negara does not impose any standard policy on mortgage loans but leave it to the banks to manage.
But following a rise of between 10% and 30% in the prices of landed houses in some parts of the Klang Valley (including Kuala Lumpur) and Penang in the past one year, banking sources said Bank Negara might be looking at discontinuing the 5:95 and 10:90 housing loan packages, and preferred banks to impose higher downpayment for property purchasers.
Tan Sri Leong Hoy Kum ... ‘We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.' The bank sources concurred that over the longer term, there must be the flexibility to allow more relaxed loan quantum if the market needs it, especially if there is a recession.
OCBC Bank (Malaysia) Bhd head of secured lending Thoo Mee Ling said part of the rationale for the 80% LVR for mortgages could be to curb speculative property prices in the market currently.
“If it is implemented, home buyers will have to self-finance a higher amount than they do now. In the short term, coupled with entry costs such as legal, stamp and valuation fees, the property market will take a dive and it will subsequently dampen the mortgage business.
“In the long term, the measure would curb speculative property buying and promote a healthier property market. Therefore, both the banks and property market will become more resilient to any potential crisis,” she said.
Datuk Michael Yam, the president of Real Estate and Housing Developers’ Association Malaysia (Rehda), said Bank Negara should not impose a mandatory LVR cap on mortgage loans at this juncture as it would dampen buying sentiment with spillover effects on other related industries such as construction and building materials suppliers.
“The local banking industry is well regulated and banks are very prudent and stringent in their credit assessment of borrowers. Banks have, on their own initiative, cut down loan margins to borrowers and only those who are credible and can afford to repay their loans will be offered a higher loan margin.
“Banks also are very selective of what projects they extend loans to.”
Caution and prudence should be exercised when considering any measure for mortgage loans, said Yam, adding that it should not be across the board.
“It is better to leave it to market forces to decide as the banks’ stringent lending criteria is enough to ensure the quality of loans in the market,” he added.
Yam said that up to 90% of the country’s population are living in affordable houses priced below RM250,000, and the current low downpayment for property purchases has promoted home ownership among the lower to middle income group.
Mah Sing Group Bhd group managing director cum chief executive Tan Sri Leong Hoy Kum said a conducive financing environment was important to support the property industry, which was a significant engine of growth for the economy.
“We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.”
Leong said there was no property bubble at this juncture “as property price increases have not been across the board.”
“The properties which have been enjoying price appreciation are those with good concepts by branded developers, and sited in good locations.
“One must also take into account the construction cost, and also increasing price of good land in considering the prices of properties, which have gone up by 10% to 25% in the past 1½ years,” Leong added.
Possible mortgage cap on property not a concern
By TEE LIN SAY
linsay@thestar.com.my
Buoyant consumer sentiment, demand for good locations seen supporting property purchases, say analystsKUALA LUMPUR: Preemptive measures to curb purchases in certain property segments may yield temporary results as buoyant consumer sentiment and demand for good locations are expected to sustain.
Property analysts said there could be a short-term knee-jerk reaction to Bank Negara’s possible imposition of an 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble.
CIMB research head Terence Wong is not overly concerned over such moves, pointing out that the previous imposition of a 5% real property gains tax last October had only resulted in a short-term cooling of demand.
“This will be effective in cooling down the market for a few months. People will step back and pay more attention to the launches and product offerings instead of simply jumping onto the bandwagon,” he said.
Wong, however, feels that the measure should not be imposed across the board. It should be applied to landed homes rather than condominiums, as it is mainly the prices of landed properties that have gone up extremely fast.
On the other hand, price increases for high-rise condominiums and apartments have been relatively subdued due to an oversupply situation.
“We know there is a finite supply of land in the Klang Valley. Everybody wants his own plot of garden. So logically, that is why prices of landed properties are going up. In that sense, this potential move (to curb certain property loans) is not a serious concern,” said Wong.
Analysts are not surprised by the possibility of a cap on the LVR as the prices of selected properties in prime locations in the Klang Valley have shot up in recent months due to a combination of factors including pent-up demand and speculation.
Bank Negara is currently exploring this measure to reduce excessive speculation and prevent the housing market from overheating as the economy recovers amidst a low interest rate environment.
Developers have enjoyed record sales this year and in some instances, sales have been so strong that some developers have the luxury of slowing down their launches.
NewAsia Capital associate director Sherilyn Foong agreed that the possible measures would, to an extent, cool down speculation in the property sector.
In Foong’s view, these potential measures could affect the take-up rates, especially among the higher value primary transactions which have benefited from innovative financing schemes.
“Pending more details, if the cap is only imposed on higher value transactions of say, RM1mil and above, the lower-middle range should, technically, not be affected.
“This is unless the entire sector turns bearish against the sentiment induced by sector-specific measures such as impositions of capital gains tax,” she said.
Credit Suisse research head Tan Ting Min, in her report on Tuesday, said capping the LVR at 80% would put a dent on the Malaysia property sector and dampen sentiment in the near term.
“The cap on LVR will indirectly reduce affordability and may cool demand in the mass market and mid- to high-end segments.
“We may also see some downtrading as affordability will be determined by the higher 20% equity upfront requirement.”
In the longer term, Tan views the preemptive role taken by Bank Negara as positive.
“It is critical in ensuring the sustainability of the Malaysia property market and reducing the risk of a major ‘shock’ to the sector should the economy slow or interest rates rise,” she said.
In the region, similar moves have been made to cool the property market over the past 12 months.
Singapore announced another round of cooling measures on Monday, including lowering the LVR to 70% for buyers with one or more outstanding loans, from 80% previously.
Price war is good for consumers for cheaper interest cost to borrow, etc. It would be easy to borrow and invest but would also be difficult to get out of debts when property price gone up then bubble.
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