The National House Buyers Association ( HBA ) is glad to hear the report that “ two commercial banks said that they are aware of discounting practices by Developers and have taken the necessary mitigating measures to ensure that the end-financing is reflective of the value of the property purchased ”.
Its ‘ open secret ’ in marketing ploy
For many years , HBA has spoken against the “ open secret ” that housing developers artificially inflate property prices and then offer a rebate to offset against the 10 % down payment , thus indirectly giving their buyers up to 100 % end-financing .
As far back as in 2013 , Bank Negara Malaysia ( BNM ) had officially instructed all banks in Malaysia to offer maximum 90 % end-financing based on the net selling price of the property after deducting all discounts and rebates offered by housing developers . However , housing developers continue to openly advertise the existence of such rebates . It was only lately that the Real Estate and Housing Developers ’ Association Malaysia ( REHDA ) was complaining that house buyers are not given full financing , which means that most banks just close both eyes when it comes to the rebate issue .
Effects of ‘ marked-up ’ price
Although the act of increasing property prices and then offering rebates , say up to 10 %, appears to help the rakyat to buy their dream homes , such acts do more harm than good in the long run .
Using an example of a property that is only valued at RM450,000 , if the housing developer wants to offer a 10 % rebate , the selling price will then be inflated to RM500,000 and the developer offers a 10 % rebate equal to RM50,000 . Hence , the house buyer would get a full loan of RM450,000 . Some of the negative consequences of this rebate nonsense are :
a ) Higher costs to the house buyer such as stamp duty for the transfer of properties and loan agreements are based on a regulated percentage of the value of the property or loan . The higher the property price or loan , the higher the stamp duty .
The artificial increase of RM50,000 will result in a higher stamp duty on the transfer of property of RM1,000 and loan agreement of RM250 .
Property360Digest e-magazine Issue # 9 - 2021
b ) Higher interest amount as the house buyer is taking a higher loan . In our current example , the total loan repayment for a loan of RM450,000 verses a loan of RM405,000 ( RM450,000 x 90 %) for a typical 30-year loan is higher by RM83,000 .
c ) Increases prices of existing completed properties and future launches . Prices of completed properties , or also known as secondary properties , are inter-linked with prices of new launches , also known as primary properties . When even the prices of primary properties increase , the owners of the secondary properties will also increase their selling price . This in turn will also increase the prices of future launches and the vicious cycle continues . This will ultimately result in property prices increasing out of the reach of the average rakyat .
d ) Encourages speculation as the house buyer only needs to pay the ancillary cost to purchase the property and service some interest during construction . Upon completion , the house buyer will then try to flip the property for a quick gain . This method has encouraged a lot of “ flippers ” in the market , ie investors club and those in for a quick profit .
The “ prices ” declared to the government , especially Jabatan Pernilaian dan Perkhidmatan Harta ( JPPH ), are the “ transacted prices ” stated in the sale and purchase agreement and not their true prices . Hence , when valuations are made , the false information exacerbates price discovery and can lead to valuations that are ever spiraling . These actions make true price discovery difficult . Sometimes , we wonder how those developers reconcile in their books – the sale and purchase price verses the “ true price ”, since they have declared to the banks the sale and purchase agreement prices are the true prices . Similarly , we wonder – how will the auditors and Lembaga Hasil Dalam Negeri ( LHDN ) look at them ?
HBA acknowledges that one of the most challenging issues in buying a property is to come up with the 10 % down payment . To this , HBA has called for first-time house buyers to be allowed to be given 100 % end-financing to buy affordable properties costing RM300,000 and below . In fact , there are various schemes by the government to assist first-time house buyers especially in the B40 and M40 groups to get 100 % end-financing , subject to fulfilment of terms and conditions .
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