Property Hunter Magazine August Issue 2014 | Page 13
Home Prices Under Pressure
It pointed out that while elements
and pockets of speculative activities
were present, the upward pressure
on house prices was largely
explained by structural factors.
“Demand continues to outpace new
supply of houses by a large margin,
particularly in the low to mediumpriced segments and in major
employment centres,” it said.
Malaysia is seeing signs of a possible
moderation in overall house prices,
data from the central bank show.
The growth in the Malaysian House
Price Index (MHPI) declined to
9.6% in the fourth quarter of 2013,
compared with 12.2% a year earlier,
according to Bank Negara.
This was the first time since the third
quarter of 2011 that the MHPI was
below 10%, and the improvements
were recorded across most states
and most types of dwelling.
It said sales and new launches
slowed in the last quarter of 2013,
possibly due to the various measures
imposed to cool down the housing
sector since 2010.
“It’s possibly due to the wait-and-see
attitude of some developers and
buyers following the prohibition
on developer interest-bearing
schemes in November last year,
further increases in real property
gains tax in January this year, higher
minimum purchase price for houses
by foreigners, and uncertainties
regarding the potential impact of the
goods and services tax,” Bank Negara
said.
The central bank pointed out that
there was no conclusive evidence of
a housing bubble in the country. It
added that analysts, rating agencies
and international organisations, such
as the International Monetary Fund,
had lauded the pre-emptive and
concerted measures taken by the
Government and Bank Negara since
November 2010 to curb excessive
speculative activities in the domestic
property market and promote a
sustainable housing market.
It also said that the bulk of home
purchases continued to be for own
occupation or medium to long-term
investment.
“This was corroborated by data
that showed 84% of home loan
borrowers only had one outstanding
housing loan account,” it said in an
email response to StarBiz.
The central bank said borrowers
were less inclined to dispose of
their properties in response to a
downward movement in property
prices as their loan repayment
capacities were not depend on the
home equity value or expected
capital gains. This was considering
the medium to long-term nature
of their ownership and investment
horizon.
This scenario could limit the potential
for a sharp increase in default
incidences and credit losses to banks
in the event of a price correction in
the property market.
Based on a single factor sensitivity
analysis on the housing loan portfolio
of banks with a stressed probability
of default (PD) of up to 10% (about
four times the current PD) and
adverse correction in house prices
of 40%, banks’ excess capital buffers
stood at more than five times the
estimated expected losses.
Bank Negara said although the MHPI
had expanded annually by between
10% and 12% since 2011, outpacing
income and rental growth, the rate
of growth in house prices remained
significantly below those observed in
some neighbouring economies.
Demographic factors, given
Malaysia’s relatively young population
and labour force, increasing
urbanisation, and general inclination
to own a house, are expected to
sustain strong demand for affordable
residential properties in major urban
centres, likely outstripping supply
over the near and medium-term.
“Part of the mismatch in the market
was due to rising land prices and
construction costs that increased
the incentive for developers to build
high-end properties where the
margins are higher,” the central bank
said.
On the part of the Government,
a number of schemes have been
introduced to increase the supply
of and access to financing for the
purchase of affordable housing via
PR1MA, MyHome and My First Home
schemes.
In addition, the National Housing
Council was set up in 2014 to
develop strategies and action plans
in a holistic manner, coordinate
legal aspects and property price
mechanism, and ensure provision
of homes in a more efficient and
expeditious manner.
Bank Negara said the earlier
Government measures had also
resulted in reduced credit-fuelled
speculative purchases of residential
properties where the annual growth
in the number of borrowers with
three or more outstanding housing
loans has declined substantially to
about 4%, from a peak of 15.8%
prior to the implementation of the
measures, to account for only 3% of
housing loan borrowers.
There are also improvements in
banks’ housing loan portfolio quality
and underwriting standards with
impaired housing loans remaining
low and stable at 1.4% of total bank
loans to households (2013: 1.5%;
2012: 1.9%; 2011: 2.3%).
A similar trend was observed in the
gross amount of impaired housing
loans, which declined further to
RM4.7 billion from RM5 billion at
end-2013 (2012: RM5.4 billion; 2011:
RM6 billion).
It said the proportion of outstanding
housing loans with loan-to-value
(LTV) ratio above 70% tapered to
46.6% (2012: 50.1%), providing
a comfortable buffer for banks
against a decline in the value of the
underlying collateral relative to the
outstanding amount of a housing
loan in the event of defaults.
Banks