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Monday, September 17, 2012

Slowdown of property sector set to extend into next year

PETALING JAYA: Exorbitantly high selling prices, stringent banking rules and a generally cautious sentiment that has been having an impact on the Malaysian property market this year could continue into 2013.

Malaysian Institute of Estate Agents (MIEA) deputy president Siva Shanker said property transactions in the first half of 2012 had slowed down, adding that this trend showed no signs of abating any time soon.

Siva: ‘Asking prices are too high. The buying frenzy is over.’

“Asking prices are too high. The buying frenzy is over. In 2010 and 2011, some residential sectors saw an increase of about 30%, which is way too high and moving towards a bubble. This trend has somewhat plateaued.

“What's happening now is there is no meeting of minds between the asking and the accepting price. The gap is just too wide and there are fewer transactions taking place,” he told StarBiz.

Siva also said transactions had been affected because there was a disparity between the asking price of the property and the actual price listed on the valuation report.

“For example, the asking price of a property is RM1mil but the valuation amount might only be RM800,000. There's a shortfall of RM200,000 and banks lend you money based on either the selling price or the valuation price whichever is the lower.

“So if the valuation price is RM800,000 and you're eligible for a 70% loan based on that amount, you get a sum of around RM560,000. This means the buyer is going to have to top up RM460,000 on his own!

“Funding becomes a problem and the sale gets aborted!”

Siva said a number of sales this year had been aborted because of this issue.

“We don't think 2013 is going to be much different, but we don't see the Malaysian property market crashing and burning like during the US subprime crisis.

“What we see is things slowing down, prices will stagnate a bit and not move up so much. In some cases, it won't move up at all.”

Siva said Bank Negara's responsible lending guidelines that were implemented this year also had an impact on the Malaysian property market.

Effective Jan 1, banks have been using net income instead of gross income to calculate the debt service ratio for loans. This is said to be a pre-emptive move by the central bank to contain the rise in consumer debt.

“Prudent lending guidelines are important in maintaining a stable economy, but I think some flexibility must be allowed for individual purchasers that have the capacity to repay their loan, but for whatever reasons, are unable to show that they can,” said Siva.

He also noted that there were many individuals having side incomes which were not declared.

“You could be a teacher earning a RM3,000 salary. However, you could be providing tuition classes on the side to earn extra income but can only show to the bank the salary that you earn.

“Prudent lending should involve assessing the customer, to some extent, on an individual basis. If he's an old customer with a good track record, you should have the discretion to offer him a little bit more. That discretion is now not available because of the lending guidelines.”

Siva also said the Malaysian public was cautious in light of the global economic uncertainties.

“The general slowdown has affected everyone. The US is not recovering as well as it should and Europe is in turmoil. However, in a sense we're not so exposed as Singapore, because we are more inward looking. Singapore is a bit more international, so their exposure is higher.”

“It's also sentiment. People are adopting a wait and see approach, and this creates a slowdown. If enough people do this, it creates a market!”

By The Star

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