New Rule to Cool Property Speculation

Technorati Tags: Property,Rumah Lelong

Bank Negara Malaysia has put in place a rule that allows banks to lend only up to 70 per cent of the house value from today (4 Sept 2010). The new mortgage lending rule, which applies only to borrowers taking up a third housing loan, is meant to curb excessive investment and speculative activity in urban areas. While Malaysia is not experiencing a general property price bubble, targeted pre-emptive measures are appropriate to moderate the increases in property prices that are evident in select locations, arising from purchases that are speculative in nature.

This measure is expected to moderate excessive investment and speculative activity in the residential property market and to ensure affordability of homes for genuine house buyers.
The financing facilities for the purchase of first and second homes would not be affected and that borrowers would still be able to obtain financing for these at the current loan-to-value ratio (LVR) applied by individual banks, based on their internal credit policies. The new rule takes effect immediately. Banks were previously not subjected to any curbs on mortgage lending. We (BLR Website) believe the move was not expected to dampen or have an adverse impact on the growth of residential property development, nor on the banks' house financing business.

The ABM and its member banks had engaged with Bank Negara on the matter prior to the latter coming out with the ruling. A banking analyst from a foreign brokerage noted that most banks, particularly the bigger ones, already adopt strict LVR on borrowers taking up a second, and especially third, housing loan, with location also being an important factor.
On a third loan, it's already quite hard to get an 80 per cent LVR now. For a first loan, banks usually lend up to 90 per cent of the house value, or even up to 100 per cent in some cases. The country's biggest mortgage players by market share are Public Bank Bhd, CIMB Bank Bhd and Maybank.
The residential property prices in the country had increased steadily in tandem with economic development and rising household income. In the more recent period, however, certain specific locations, particularly in the urban centres, have experienced faster growth, both in house prices and the number of transactions. Supporting this trend has been the increase in financing for multiple-unit purchases by a single borrower. This suggests investment activity that is of a speculative nature.
Property prices in Malaysia rose 5.6 per cent in the first quarter of this year and 4.2 per cent in the second quarter, according to Bank Negara.


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