KUCHING: RAM Ratings does not expect the property sector to be significantly lifted by the move to allow eligible developers to apply for a moneylender’s licence to provide loan facilities to house buyers.
“Only developers with strong balance sheets will, in our view, contemplate this option to spur sales,” it clarified in a statement yesterday.
“Based on an analytical publication by RAM on 10 key Malaysian property developers in June 2016, most of these players had geared up in the past two years to fund land acquisition and working-capital needs.
“This had resulted in 60 per cent of the sample chalking up hefty debts, with gearing ratios of more than 0.7 times and/or debt-to-revenue ratios of above one time. Accordingly, not many developers have the capacity to provide mortgage financing on a large scale.”
To note, on Sept 8 2016, the government announced that eligible property developers would be allowed to apply for moneylending licences to provide property buyers with up to 100 per cent of their home loans.
The licence would be issued by the Urban Wellbeing, Housing and Local Government Ministry under the Moneylenders Act 1951 and Pawnbrokers Act 1972. Loans under the scheme will be subject to an interest rate of up to 12 per cent (with collateral) or up to 18 per cent (without collateral).
In the event that they do embark on this route, RAM believes the credit risk level of players will most certainly rise.
This would be especially evident given that the pool of buyers who opt for full or partial loans from developers will consist of those who are unable to obtain the required loan amount through the traditional channel of mortgage financing from banks, it said.
“This group of buyers will naturally carry a higher credit risk. Further, the cost of establishing a moneylending business, such as manpower and evaluation/risk management systems, will add to operating costs,” it explained.
“Developers have, since the beginning of the year, already extended various incentives in the form of deferred-payment arrangements, minimal downpayment and build-then-sell home ownership schemes to drive property sales.
“These incentives are likely to crimp profit margins and increase the working-capital requirements of players, while potentially elevating their debt levels should they have insufficient internal funds to finance these initiatives.
“Offering loans to house buyers who cannot meet the eligibility requirements of banks will, consequently, present further risks to developers in the event of non-payment by the buyer, especially in the absence of collateral.”