There were differing views from the public on Tan Sri Noh’s proposal for property developers to offer housing loans at interest rates of between 12-18% per annum:
I have gathered some feedback from the public, and most share the following sentiments:
1) The interest rate between 12% – 18% is too high
2) Many will end up higher debt
3) Malaysia will face a subprime crisis
4) Overall – It is a bad move
Nevertheless, let us dissect the issue further from an objective viewpoint:
• Developers offering financing is not really new – Some developers with money lending licence have started offering this service years ago.
• The interest rate being charged is not within 12-18%. The interest rates allowed under a money lending license is capped at 12% for asset backed facilities and 18% for no collateral. A recent discussion with a developer revealed that said developer is providing financing to its purchasers at an interest rate of 3-5% per annum.
POINTS TO CONSIDER BEFORE SIGNING UP
Borrowers must be aware of the following conditions before signing up for a developer’s loan:
• The interest rate is based on fixed rates
As the financer is not a bank, developers cannot give you an interest rate calculation based on the Base Lending Rate or Base Rate. It will have to be a fixed rate similar to a car loan calculation. Hence, the effective interest rate will be higher.
• Borrowing is not reflected in CCRIS
One plus point on this is that your facility will not be reflected in Central Credit Information System by Bank Negara. Thus, it will not affect your future borrowing.
• A shorter tenure (15-20 years)
A shorter tenure will result in higher monthly repayments.
• The instalment payments starts immediately
Even though the projects are under progressive release, borrowers will have to start the full payment immediately.
• The margin of finance could go up to 90%
The margin of finance for residential and commercial is higher – it can be as high as 90% regardless of Bank Negara Malaysia’s ruling.
• Not all developers will be awarded a Money Lending Licence
Not all developers will be awarded the license. I would think that, only a handful of big developers can afford this scheme as the cost involved is very high.
IS IT A GOOD IDEA?
Most developers in fact prefer purchasers to submit their home loan applications to the banks first. Many will see financing their buyers only as a last resort. This is because financing will require deep-pockets and only big developers will be able to afford such a facility.
Developers who do give out financing however, will carry out the necessary check and balances on borrowers to ensure that they will be able to afford the monthly instalments. This scheme by developers does help out prospective purchasers as it eases their cashflow burden.
In turn, buyers can figure out their finances and conduct proper financial planning in the few years until the property is completed and have the option to refinance the property to a bank down the road, if they want too. The completed property would have increased in value by then as well.
Besides that, the developers’ loans will help lower the banks’ margin of finance and reduce bank’s exposure.
This article does not aim to point fingers to who is right or wrong. I believe making a financing decision boils down to the purchaser itself. The key word here is PROPER FINANCIAL PLANNING. The best way is still to manage your finances well to save up enough to afford one.
This article was first published in the iProperty.com Malaysia November 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine. Better yet, order a discounted subscription by putting in your details in the form below!