Home loans declined for 4th straight month in February

KUALA LUMPUR, April 1 – The value of residential property loan applications have declined for four months in a row beginning October last year, recent Bank Negara statistics show.

In contrast, for the period October 2008-October 2010, the value of home loan applications have not declined for more than 2 consecutive months.

Residential property loan applications totalled RM10.3 billion in February this year, down from RM12.6 billion in January, RM13 billion in December, RM14.1 billion in November and RM15.5 billion in October according to the latest Monthly Statistical Bulletin issued by Bank Negara.

The February figure however was still 24 per cent higher than the RM8.3 billion recorded in February last year.

Foo Gee Jen, managing director of property consultancy CH Williams Talhar & Wong, said that the October –February period tends to be slower as developers prefer to launch projects in the middle of the year rather than at the end or the start.

He noted however that the roughly 30 per cent drop from October to February was unusual as compared with about 10 per cent normally.

Foo said that the government imposed new loan-to-value ratio cap of 70 per cent introduced in November last year could be part of the reason.

“That is going to have some impact on the residential market,” he said. “Probably speculators stayed away.”

RAM Holdings chief economist Dr Yeah Kim Leng said that the declining trend was a welcome development given the government’s moves to deter speculative borrowing.

“We see a more stable trend going forward,” he said.

He noted however that the prices in the major urban areas was still on the upward trend given the expansion of the population falling in the house buying age group and the historically low interest rates.

The 70 per cent cap in loan-to-value ratio was introduced last year followed public outcry over rapid price increases which made it harder for genuine home owners to buy residential property.

The high prices of property in KL have also prompted the Najib administration to introduce a first-home ownership scheme last month in addition to the loan-to-value ratio cap in a bid to stave off discontent.

The measures pale in comparison, however, to efforts seen elsewhere in the region, such as China and Singapore.

The Chinese government last year introduced curbs on foreigners buying property and raised the minimum downpayment for first-time buyers to 30 per cent from 20 per cent and banks were ordered to suspend mortgages on third homes and above in addition to hiking interest rates three times since October.

Singapore, meanwhile, raised stamp duty on new properties to as much as 16 per cent of the sale price to be paid by the seller if the house is offloaded within a year of purchase.

The amount that banks can lend for a second property has also been lowered to 60 per cent of the home's value.

There was also some concern that the new first home ownership scheme, which provides 100 per cent home financing to those earning less than RM3,000, would flood the market with cheap credit and affect the loan quality of the banking system.

Bank Negara governor Tan Sri Zeti Akhtar Aziz denied the possibility however saying that banks would be conducting affordability and credit worthiness assessments on applicants of the scheme.

Note: This is a good news to all.