Analysts at Alliance Research Sdn Bhd (Alliance Research) viewed negatively the new circular by Bank Negara Malaysia (BNM) to consolidate certain earlier guidelines on lending restrictions to the property sector as well as the latest prohibition on the Developer Interest Bearing Scheme (DIBS).
Head of research Bernard Ching noted that post-Budget 2014, developers have largely brushed aside the impact of DIBS prohibition, citing that other form of incentives will be offered to property buyers to replace DIBS.
However, the new BNM circular now requires banks to use ‘net selling price’ (sales and purchase agreement price, minus all incentives provided) to determine the loan-to-value (LTV) ratio for all types of property financing.
The circular, entitled “Measures to Promote Sustainability of the Property Market”, was to ensure the long term sustainability of the property market.
Note that this rule is not only restricted to property loans for those who already have two or more property loans, Ching said.
“This will effectively lead to higher cash outlay by all property buyers, thereby affecting affordability,” he forewarned in his note on the matter.
“We now believe the adverse impact on the property market to be more pronounced than initially anticipated.
“We believe transaction volume will fall going into 2014.
While we believe property prices will hold in most cases, those schemes which thrive on DIBS and other incentive schemes now need to mark down their prices to the ‘true value’.”
The head of research also anticipated a ‘mad rush’ by property buyers or developers to lock in DIBS for certain projects prior to January 1, 2014.
Note that projects which have procured approvals from authorities prior to November 15 may continue to offer DIBS up to December 31, 2013.
For those projects which have not procured the necessary approvals, DIBS prohibition is effective immediately.
“While headwinds for the property sector may dampen investors’ interest in property counters, the KL Property Index has already corrected 15.6 per cent since hitting a high of 1,531.71 on May 29,” Ching observed.
“Although valuation is not compelling yet, it is not excessive at current level.
As such, we believe there is no hurry to bottom fish property stocks yet.”
Meanwhile, analyst Cheah King Yoong from Alliance Research said this new circular has further reinforced restriction on granting of interest capitalisation scheme (ICS).
“While it is difficult to gauge the impact on banks going forward, the fact that this new rule applies to all property financing, including first time home buyers, means that property buyers’ affordability will be affected and this will lead to lower property loans growth,” he opined.
Cheah noted that the said circular also represented the third attempt by the authorities to contain the growth in household debt within the second half of this year.
“We currently project next year loan growth target of nine per cent, supported by stronger growth of business loans stemming from the ongoing implementation of Entry Point Projects under the government Economic Transformation Programme, which is expected to fill up the vacuum left by the moderation in household loans,” he said.
“We believe that the latest policies implemented by BNM illustrated the sheer determination of the authorities to contain the growth of household debt,” he added.
“These measures, together with potential rate hikes by BNM in 2014, fiscal tightening by the federal government and subsidy rationalisation programme next year, could further drag loan growth momentum in the retail segments; temporarily lead to rising credit cost; and dampen investor sentiments on the banking sector.”
