The Malaysian property market has been experiencing a rough ride.
Malaysia’s property market is facing tough times. The three-month extension of the loan repayment moratorium will provide temporary relief to borrowers, but will constrain the ability of banks to take proactive restructuring and recovery action.
“The extension of the loan moratorium would provide further time and space for borrowers to re-strategise their income and expenses, including property mortgages.
It is also a welcome relief for individuals and small and medium-sized enterprises [SMEs], who are in various sorts of financial difficulties, to meet their borrowing commitments,” Landserve Sdn Bhd executive director Wee Soon Chit told Property Advisor.
“The extension will not completely discharge borrowers from bank instalments, but it offers a way to spread the burden of payment until their cash flow is available in the near future.”
However, on the flip side, Wee said financial institutions grow on the interest paid by borrowers, including homebuyers and developers.
On July 29, the government announced a three-month extension of the loan repayment moratorium to assist targeted groups.
According to Bank Negara Malaysia, as at June 19, the cost of the moratorium to financial institutions had accumulated to RM47.5 billion, a loss of about RM16 billion per month.
“Loss of income such as this, coupled with the likely deterioration in gross impaired loans, could cause financial institutions to tighten their lending policies. This is not good news for house buyers, investors and developers.
“From the point of view of individual buyers and investors, banks would require stronger guarantees of loan payment and in return would offer a lower loan-to-value ratio,” he said.
He noted that the same conditions might dictate loan approvals to developers, contractors and allied industries.
“Hence, the take-up rate of properties, in particular on the secondary market, amid low interest rates as well as the supply of new products could well be affected throughout the pandemic and beyond.”
In deciding whether or not to buy now, financing options must be carefully considered, as well as price and location. (Rawpixel pic)
Wee said the situation also might put pressure on developers to clear their stock of unsold properties and opt for innovative marketing techniques.
“In essence, the derived demand nature of the property market would be sensitive to NPL [non-performing loan] figures as well as the state of debt restructuring and rescheduling by SMEs post-moratorium period,” said Wee.
To deal with this situation, he said it was too soon to tell the real impact on the banking industry. “I believe financial institutions are well equipped to face lower net income margin scenarios compared with pre-Covid 19 figures.
“Moreover, previous NPL experience is expected to guide their actions well under the watchful eye of Bank Negara. As I mentioned before, financial institutions will be more than ready to implement flexible but prudent risk management policies.”
Royal Institution of Surveyors Malaysia Johor Branch immediate past chairman Dr Kamalahasan Achu agrees with the extension as it will help alleviate the financial problems faced by those who lost their jobs, experienced pay cuts or suffered business losses due to the pandemic.
“We expect it will help to prevent NPLs from getting out of control. After all, it is also not in the interests of either party to put properties up for auction in the present weak market condition,” he said.
He believes banks have always been taking steps to prevent loans from turning into NPLs. “Such a moratorium, despite being limited to a focused group on a case-by-case basis will go a long way for the banks to manage their NPL levels.”
Is now a good time to buy?
For those planning on buying a property, Kamalahasan cautioned that the tenure of the loan does depend on one’s age, loan amount, payment ability and the interest rate.
“Personally, I would advocate taking a minimal loan and settling it as soon as possible because the longer the loan and its tenure, the more interest one must pay.”
Landserve’s Wee said most borrowers would opt for more choices to renegotiate loan terms as it presents a good option under the current circumstances.
“First and foremost, distressed borrowers need to re-examine their financial position vis-à-vis monthly repayments. The wise way to start off this ‘new normal’ process is to reduce monthly instalments by extending the loan or mortgage period to a more sustainable period provided their age and income profile allow them to do so.”
He said it is clear the decision to extend the loan duration will be a joint decision between the mortgagee and mortgagor, and that means the onus is more on the mortgagor to justify the argument for and against.
“However, lenders, understandably, would like to see the light at the end of the tunnel. The same advice goes to new buyers as they have to carefully choose from the financing options (including rent-to-own and Employees Provident Fund) prior to signing on the dotted line, not to mention the right price and the right location of the asset itself.
“You cannot go wrong if you know your maths and consult the right property surveyors, can you?” Wee says.
