Malaysia’s developer lending scheme: market saviour or crisis bringer?
Malaysia’s developer lending scheme: market saviour or crisis bringer?
Analysts and lawmakers are split over a proposal to licence developers as money lenders
As more and more units linger on the market, the Malaysian government is in the midst of passing a potentially seminal policy that could either unburden the property sector or break the economy.
The Malaysian cabinet is pushing for the review of a financing scheme that would licence developers to extend credit to prospective buyers, Reuters reported. Minister for Urban Wellbeing, Housing and Local Government Tan Sri Noh Omar, who proposed the policy, described it as a “win-win situation for both developers and house buyers.”
Developers sold only 39 percent of new units launched in the first half of this year, compared with 52 percent in the second half of 2015, according to data released last week by the Real Estate and Housing Developers Association (REHDA). The cumulative supply in Kuala Lumpur’s high-end condominium market stands at 43,782 units in the first half of 2016, Knight Frank reported.
Meanwhile, the rejection rate for mortgage applications hit 61.7 percent in January, a record. Buyers “don’t have the capacity to find the margin of financing,” REHDA president Fateh Iskandar Mohamed Mansor told Reuters.
More: Malaysian authorities worry about 70% drop in real estate investments
Property analysts are split over the notion of licencing developers as lenders. In a statement, Fitch warned that the financing scheme will be the impetus to a subprime mortgage crisis, which “could undermine the strength of the financial system.”
Nazir Razak, chairman of CIMB Group, also dismissed the scheme as a “dangerous idea” on Instagram.
Times have soured lately for Malaysia overall, ailing from weak crude oil prices and sagging economic growth. Approved real estate investments in the country in the first quarter amounted to MYR12.1 billion, compared with MYR26.9 billion in the same period last year, according to the Malaysian Investment Development Authority.
Some 1,138 high-end units are in the pipeline for Kuala Lumpur by the second half, according to Knight Frank, with projects such as KL Trillion, Le Nouvel, Seti Sky Residences, Three28 Tun Razak and One Kiara.
Read next: 10 things to know about Transit Oriented Developments in Malaysia
Source: Property Report