Financial Institutions Exposure To Property Market Increased By 8% In 2016

Financial Institutions Exposure To Property Market Increased By 8% In 2016

KUALA LUMPUR, March 23— The total exposure of the financial institutions to the domestic property market expanded eight per cent in 2016 to RM793.9 billion.

This amounted to 26.7 per cent of total financial system assets as at the end of 2016 compared with 25.5 per cent in 2015, Bank Negara Malaysia (BNM) said in its Financial Stability and Payment Report 2016 released today.

“Banks continue to account for a bulk of the exposure, with about 90 per cent in the form of end-financing for the purchase of residential and non-residential properties.

“Growth in bank financing for the purchase of residential properties moderated slightly to 9.2 per cent (2010-2015 average: +12.9 per cent) in line with the softer housing market,” it said.

Despite moderating house prices, the report said that houses remained unaffordable for many households.

Based on estimates by the central bank, a household with a median income of RM4,585 (without any other debt obligations or savings) could only afford to buy a house priced about RM260,000, after taking into account living expenses.

“This compares with the national average house price of RM334,736 as at end-September 2016, and average transacted house prices of between RM435,000 and RM1.1 million in urban centres,” it said.

Meanwhile, 456,197 (2015: 474,225) housing loan applications were received by banks last year compared with 474,225 in 2015, with 61 per cent of applications were for the purchase of houses priced below RM500,000, of which half were for houses priced below RM250,000.

The rejection rate for housing loan applications also fell further to 23.6 per cent from the average of 26.1 per cent during the 2012-2015 period, reflecting greater alignment between bank lending standards and borrowing behaviour.

However, the report said that risks remained heightened in the office space and shopping complex segments, with new supply outstripping recent historical trends despite signs of softer tenant demand, notably in the oil and gas and financial services sectors amid announced downsizing and cost-control measures.

In the office space segment, the report revealed that total stock expanded further by 1.2 per cent to 220.4 million square feet from the average of four per cent during the 2010-2015 period.

As a result, it said the already high average vacancy rate worsened further to 17.1 per cent.

“Planned incoming supply of office space will continue to exert downward pressure on rental rates.

“The average rental rate of office space in the Klang Valley remained depressed at RM5.90 (2015: RM5.94) per square foot per month, with owners of some older buildings resorting to offering rent holidays to attract or retain tenants,” it added.

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