Wednesday, March 20

Neutral impact from loan-to-value cap


Property sector sees minimal impact by BNM announcement

KUCHING: The announcement of the highly-anticipated loan-to-value (LTV) ratio cap for mortgages by Bank Negara Malaysia on Wednesday should leave a neutral impact on the property sector according to analysts.

LEAST DETRIMENTAL: The research team at Kenanga Research affirms that caps on third home purchases onwards were the least detrimental intervention policy in the sector. — Photo from

“With immediate effect, a maximum LTV ratio of 70 per cent will be imposed which will be applicable to the third house financing facilities taken out by a borrower,” affirmed ECM Libra Capital Sdn Bhd (ECM Libra) head analyst Bernard Ching.

“We (ECM Libra) maintain our neutral stance on the property sector as we view the risk-reward ratio of property stocks has turned less favourable going forward,” he added.

“While sales momentum will remain strong in the near term, it has been two years since the introduction of an easy financing scheme by developers and we expect an increasing supply of newly completed properties from 2011 and 2012.”

HwangDBS Vickers Research Sdn Bhd’s (HwangDBS Research) pro-perty analyst, Yee Mei Hui underscored that impact on property sales from this move should be minimal and temporary.

“This is especially so, given that current prudent internal valuations by banks would already put a natural ‘LTV-cap’ especially for secondary market transactions,” Yee said.

“Also, there is ample liquidity in the banking system with limited alternative avenues as business loans are still seeing a budding recovery while mortgages offer better collaterals.

“In fact, buyers owning more than two properties are not rampant,” the analyst stressed.

Meanwhile, the research team at Kenanga Investment Bank Bhd (Kenanga Research) affirmed that caps on third home purchases onwards were the least detrimental intervention policy in the sector.

“We are more fearful of sharp interest rate hikes, higher Real Property Gains Tax (RPGT) and removal of Interest Absorption Schemes (IAS). As it is, many banks claim they already practise giving out a lower margin of finance for third home purchases onwards,” they said.

Kenanga Research analysts also believed that transactions would not be largely affected as banks were extremely innovative when it came to lending schemes in addition to the fact that property investors could still purchase more than two properties through extended families.

According to an analyst from OSK Research Sdn Bhd (OSK Research), this announcement did not necessarily signify a prelude to the RPGT.

“The cap on LTV, for example, is the sole prerogative of the central bank and the role of imposing further tightening such as the full re-introduction of RPGT lied with the federal government,” he said.

“As we noted before, in addition to political pressure, it is not easy for politicians to decide when to take away the punchbowl (just as the party starts getting good).”

The OSK Research analyst further explained, “If they rein in too early, they may be blamed for the slowdown that may ensue. Doing it much later in the game raises the risk of pricking the bubble and then being blamed for the implosion.

“The third alternative, which we argue would more likely be adopted, is to progressively tighten their grip on speculation while being mindful of not stirring panic. As such, we believe that the government will not attempt to do anything too drastic at this juncture, such as re-introducing the RPGT,” he concurred.