By DALJIT DHESI
PETALING JAYA: Banks, especially those with regional operations, are fighting for a larger share in the financing of foreign properties fuelled by the strength of the local currency and weaker property markets overseas.
The stronger ringgit, according to industry observers, has led investors to scout for cheaper properties in Britain, Australia, Singapore and in the United States to diversify their investment portfolio.
Judging from the rising number of advertisements for the sale of foreign properties in local dailies, industry observers foresee a good prospect for banks' foreign property portfolio and improvement in margins.
RAM Holdings group chief economist Dr Yeah Kim Leng said: “We do see growing interest among selected Malaysian banks to extend loans for foreign property purchases in line with overseas investment opportunities presented to local investors, especially in countries where the property markets have hit the bottom or poised for an upturn.
“Overseas lending opportunities are likely to be selective depending on demand by Malaysian firms and high net worth individuals as well as the strategies, risk appetite and credit assessment capabilities of individual banks.
“We anticipate only selective banks notably, the large ones with regional presence making forays into this area given their size, market and networking advantage.”
As banks apply risk-based pricing, Yeah said they may be able to enhance margins to commensurate with a higher risk level when assessing for overseas properties.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said the appreciation of the ringgit dramatically against the greenback and other currencies such as the sterling pound over the past one year has induced investors to diversify their investments to include purchasing properties overseas.
Although it has somewhat retraced from its highest level of RM2.95 against the US dollar, he said the prospect of the ringgit was still favourable judging by the US Federal Reserves' pledge to maintain its accommodative monetary stance at its last meeting and the positive growth momentum of the Malaysian economy.
As such, Zahidi added investing in properties overseas would likely enhance investors' returns through foreign exchange gains. Another critical factor that had spurred investors to invest in other countries was the significant decline in property prices, he noted.
In the US, for instance, home prices in 20 major cities have fallen 30% from their peak.
According to Case-Shiller/S&P, the producer of the gauge, real housing prices in the US had plunged to levels not seen since the 1890s (when adjusted for inflation) in 11 of the 20 markets surveyed.
The fact that the index has been in negative territory in the past five months since November last year signalled that investors have the opportunity to purchase properties at low prices, he said.
Similarly in Britain, he said although home prices were just 13% off their peak in 2007, they were more affordable compared with three years ago, adding that this was a great opportunity for long-term investments.
Zahidi said stiff competition would also keep driving banks to look for creative ways to improve their bottom lines, as long as they did not breach Bank Negara's guidelines and regulations.
As such, he added it was not surprising that Malaysian banks are seeking alternative avenues to increase their loan gr owth.
The Government at the same time does not discourage its residents from investing abroad as this could help to stabilise the liquidity condition in the financial system given there was no let up in the capital inflows.
This is seen from the rise in the Malaysia's international reserve assets which currently stood at RM402.6bil as of June 15, closer to its previous high of RM410.9bil achieved in June 2008.
In response to a query, Malayan Banking Bhd (Maybank) via the Association of Banks in Malaysia (ABM) in a statement said it currently only offered financing for properties in certain areas of London but has plans to look at Australia.
An international bank operating in Malaysia said it offerred financing for properties in Singapore, Hong Kong, China, Australia and Britain.
For banks that provide financing for overseas properties, the lending could be in local and foreign currency. Whereas, financing in pound is extended to Malaysians for buy-to-let purposes only and entails monthly repayments in that currency, Maybank said.
OCBC Bank (M ) Bhd is now offering a mortgage loan facility to finance the purchase of residential properties in prime sections of central London.
OCBC Bank head of consumer financial services Charles Sik said the introduction of the OCBC Overseas Property Financing facility was timely as customers would be able to take advantage of the ringgit-based loan, hence mitigating the effects of fluctuating foreign exchange risks.
Meanwhile, the bank's head of secured lending Thoo Mee Ling said the interest rate offered was comparable to the domestic home loans even though the collateral was in foreign market.
She said OCBC Bank was currently looking at a few more viable markets for foreign property financing.
Did you find this article insightful?