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Wednesday, March 30, 2011

LTV imposition not likely to have big impact on home loans growth

PETALING JAYA: Bank Negara's move last November to introduce a loan-to-value (LTV) ratio for third and subsequent house financing facilities will not hamper residential mortgage loans growth this year or even reduce residential property prices significantly.

A local bank-backed analyst said residential home loans growth might see a slight slowdown as the measure by the regulator would curb speculative investment activities.

She said the slowdown would not be drastic, as 70% to 90% of banks' mortgage loans were held by homeowners, who were not speculative investors but had purchased residential properties to live in.

“Our population has a high number of people below 30 years, who are purchasing properties to live in,” she said.

Bank Negara said in its “Financial Stability and Payment Systems Report 2010” that house prices in selected locations within and surrounding urban areas had shot up to four times higher than the national house price index.

It also added that there had been incidents of applications for financing of multiple residential units within a single development project from a single borrower.

To address this, the LTV ratio was placed into effect, aimed at promoting a stable and sustainable property market by deterring speculative activity through higher equity requirements for transactions of these nature.

Maybank Investment Bank Research said in a report earlier this month that housing loan applications had declined for the last three months on a month-on-month basis, partly due to recent measures to curb property lending, namely the LTV imposition.

Loans applications for residential purchases fell 3.8% month-on-month from December 2010 to January 2011, 7.1% from November 2010 to December 2010 and 9.6% from October 2010 to November 2010.

However, another local bank-backed analyst said the decline in housing loans applications could be seasonal and could pick up as the year progressed.

“I still think it is early days to attribute the decline to the LTV imposition only. Generally, I do not see this new measure having much of an impact on residential housing loans growth this year,” he added.

Zerin Properties group chief executive officer Previndran Singhe said the regulator's cooling-off measure would have minimal impact on the property market, as individuals looking at third properties were usually cashed up and took a long-term view on real estate.

“Moreover, speculative activities in Malaysia are limited so the impact (on property prices) will be very minimal as prices are driven by domestic demand,” he added.

MIDF Research chief economist Anthony Dass said a curb on speculative investment of properties and slower loans growth could see a correction in property prices and the downside risk, more so for high-rise properties, would be contained.

By The Star

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