Support for Bank Negara’s housing LVR cap move


  • Business
  • Thursday, 04 Nov 2010

PETALING JAYA: Bank Negara’s imposition of a maximum loan-to-value ratio (LVR) of 70% for a third and subsequent housing financing facility taken by a borrower is seen as a timely pre-emptive measure to avert unhealthy speculative activities and a potential property bubble, industry players concurred.

With the latest measure that takes immediate effect, people buying their third and subsequent house would be required to pay a higher down-payment than the current standard minimum of 10% of the value of a house.

In a statement yesterday, the central bank said financing facilities for purchase of first and second homes would not be affected and borrowers would continue to be able to obtain financing for these purchases at the present prevailing LVR level applied by individual banks based on their internal credit policies.

Real Estate and Housing Developers Association president Datuk Michael Yam said the association supported the measure as it would ensure a healthier and orderly housing market.

“There are some hot spots in the housing market where prices have appreciated higher than the average price increases in other locations. As financing for the first and second housing properties will not be affected by the ruling, the move is not expected to dampen the performance and growth of the housing property sector.

“Meanwhile. the LVR cap on those buying their third and subsequent house should stem speculative buying and ensure a more sustainable housing market,” Yam added.

Mah Sing Group Bhd group managing director cum group chief executive Tan Sri Leong Hoy Kum said the move was not surprising as Bank Negara had given earlier indications of such a move.

“The move should not significantly affect the overall sentiments of the market which comprises mainly first-time buyers and upgraders.”

Leong said there was no property bubble as price increases were only for properties with good concepts in good locations.

“As long as developers offer quality properties with good concepts in prime locations, there should still be takers due to our strong employment market, low interest environment and good liquidity in our financial system,” he added.

National House Buyers Association honorary secretary-general Chang Kim Loong said the measure would help curb speculative buying in the local housing market.

“Prices of landed residential properties have increased substantially over the last five years.

“We are glad that the Government has heeded HBA’s call with regards to the LVR. We will next seek to make housing more affordable for middle-income households and have pricing control for this group of buyers.

“HBA has urged the Government to set up a Special Task Force with such an objective and aspiration,” he said.

RAM Ratings head of financial institution ratings Promod Dass said: “Given this LTV measure only applies to the third home loan onwards, there should still be ample opportunities for banks to focus on first-time home buyers and perhaps to finance the purchase of a second home for lifestyle upgrading purposes.”

“All said, the level of prevailing interest rates would be an important factor too for the health of home loans, given that the bulk of outstanding home loans are based on floating interest rates,” he said in an e-mail interview.

The Association of Banks in Malaysia (ABM) chairman Datuk Seri Abdul Wahid Omar said while the banking sector supported house ownership, ABM agreed that appropriate measures should be adopted to avert unhealthy speculative activities which could lead to a property bubble.

Abdul Wahid, who is also Malayan Banking Bhd president and CEO, said: “In my view, the application of the measure is clear and specific and the LTV ratio itself, optimal.

Given that financing for first and second housing properties will not be affected by the ruling, the move is not expected to dampen or have an adverse impact on the growth of residential property development sector as well as the banks’ house financing business.

“Affordability of homes for genuine buyers will be preserved as banks continue to lend prudently under their respective risk management framework.”

On the Financial Capability Programme, he said it underscored the view shared by ABM that education was paramount in the promotion of sound financial and debt management.

Details of the implementation of the programme would be announced next month.

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