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Saturday, May 2, 2009

Buyers stay on sideline to remain debt-free

ASIANS’ lower risk appetite has been a blessing as it has spared the region a more severe impact from the global financial meltdown. The people’s prudence and higher propensity to save have provided a much needed cushion to help them sail through the current tumultuous times.

We should be thankful for still upholding these virtues like what our great grandparents used to do in the good old days.

These virtues will hopefully be passed on to our children and grandchildren to appreciate the goodness of living within one’s means and saving for rainy days.

It is heartening to note that Malaysians have yet again shown that they are a prudent lot and have pulled the brakes on unnecessary spending.

This is seen in the high subscription for the various tranches of government bond issues to raise funds to finance projects and various allocations made under the two stimulus packages.

The global economy is still not out of the woods yet and there will still be many difficult months ahead before things start to stabilise again.

While the property “chase” in the United States has contributed to much of the over-lending activities and the sub-prime loans debacle that triggered the global financial meltdown last June, Malaysians have not succumbed to over-speculating in property and are not over-geared.

By and large, Malaysians are relatively unscathed by the subprime mortgage and credit crunch crisis that emanated from the United States.

Developers have served many cash buyers for properties priced above RM1mil, which goes to show that many rich Malaysians prefer to be debt-free than pay exorbitantly for their property, as they believe that by the time their bank loans are settled, the full amount they have forked out would add up to almost double the property’s price.

That was before Bank Negara slashed the overnight policy rate to an all-time low of 2% per annum in February and the subsequent drop in housing mortgage rates to as low as base lending rate minus 2.3% now.

With rates having came down to the current lows, does it mean that the market is ready to see a huge influx in property take-up and more people will be rushing to invest in property?

There are various schools of thought on the subject. Some, including developers, say this is the best chance for buyers to shop for their dream house as lending rates and property prices will not continue to stay at the current low but will start rising by the middle of next year.

By leveraging on the low mortgage rates and lock in at this level for their whole loan tenure, borrowers will be able to enjoy the prevailing low rates and save substantially on interests.

After all, property is a tangible asset and one of the best instruments to hedge against inflation when things start to get expensive again with an economic recovery.

However, there are others who believe that however low the cost of transaction may go down, it all boils down to the people’s confidence in the economy and their job security. They will not commit to a new property just yet until there are more convincing economic data to show a bottoming out of the global economic downturn.

Nevertheless, the latest March loan approval figures unveiled by Bank Negara of a 49.1% and 31.1% month-on-month increase in residential and non-residential property loan approvals show property buying activities are making a comeback.

The latest statistics also show that for the very first time in six months, residential property loan approvals have risen by 10.7% on year-on-year basis.

The higher figures show that the aggressive sales promotions by developers since late January are having a positive impact on property sales and loan approvals. Besides better sales numbers in the first quarter of this year, the higher loan approvals may also be driven by re-financing of existing mortgages.

Ultimately, the decision to buy or not depends on one’s financial capability and risk-propensity.

· Deputy news editor Angie Ng hopes that Malaysia and most parts of Asia will be spared the threat of a swine flu pandemic that is currently ravaging other parts of the world.

By The Star (by Angie Ng)

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