Property market adapting to tightening BNM policies
Posted on June 20, 2012, Wednesday
KUCHING: Despite the pressure from the automobile and housing sectors, Bank Negara Malaysia (BNM) is still unlikely to ease the current credit tightening policies this year.
“The money supply and liquidity flow are still strong,” said RHB Research Institute Sdn Bhd (RHB Research) in a report yesterday. “The continued growth in household loans signal the suppressed demand for properties as well as other big-ticket items moving forward.”
According to the April’s banking data released by BNM, non-residential property loans grew 23.4 per cent year-on-year, while residential property loans increased at a slower rate of 13.7 per cent.
This showed that the influx of liquidity due to low interest rate continued to fill up the space gaps. Similarly, for the first four months of 2012, non-residential property loans increased by 22.3 per cent versus residential property loan growth of 13.5 per cent.
“In our view, the credit financing based on net salary scheme is an effective measure to control the rising household debt over gross domestic product (GDP), as the measure is broad-based and the impact is immediate,” the research house noted.
However, the measure of the 70 per cent loan-to-value (LTV) cap for third mortgage financing onwards might yield some grey areas in particular for SOVO/SOFO (Small Office Versatile Office/Small Office Flexible Office), which were categorised as commercial products.
“As they are not under residential title, buyers are not subject to the 70 per cent LTV cap imposed by BNM. In other words, this means that buyers will still be able to secure their margin financing of up to 85 per cent of the property value, even if the borrowing is the borrower’s third mortgage,” said RHB Research.
As a result, there was an increasing trend of many developers launching their SOVO/SOFOs to keep their sales going under tighter regulations and amidst challenging economic conditions.
Moving forward, the property sector is very much tied to the global and domestic economic outlook. “The economic risk in the Eurozone countries as well as the upcoming 13th General Election in Malaysia and hence the risk premium has already caused an overhang especially in the property sector,” the research house pointed out.
“Share prices of many property stocks were range bound since early 2012. While some values have emerged, supported by the liquidity in the market, the uncertainties in both the global and local front still do not warrant a convincing sector re-rating yet,” it concluded.