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Stringent housing loan approval processes may discourage house buying

18 August 2016

It can be argued that weak consumer sentiment & stringent lending practices by the banks have had an adverse effect on property sales for some time. Although Bank Negara Malaysia has taken some positive steps to rectify this downward trend, it probably won’t be an overnight improvement.

According to the figures from BNM, the housing loan approval rate this January has dropped to 38% totalling RM15.27bil worth of residential loan applications. Another RM9.42bil (62%) worth of loan applications were rejected. Last year, the approval rate was around 50%.

Financial expert Gary Chua, founder of Smart Financing Co foresees a further fall of the loan approval rate following the decision of The National Higher Education Fund Corp (PTPTN) to list borrowers who failed to repay their loans in the Central Credit Reference Information System (CCRIS).

As of April 2016, a total of 1.25 million PTPTN borrowers have failed to repay their loans, according to the figures in the CCRIS database.

Former chairman of REHDA, the Real Estate & Housing Developers Association, Datuk Jeffrey Ng said that the refusal of some banks to offer up to 90% loans off the property price was a huge factor in explaining why consumers face difficulty in purchasing property – the exorbitant downpayment.

In the past banks usually offer up to 90% of the property’s price as margin of financing, but today this margin has dropped to about 70% in some cases.

In light of these developments, investment guru Datuk Gavin Tee suggested youths to rent rather than buy properties, and use their savings for other investment.

However, there seems to be light at the end of the tunnel as BNM recently announced an OPR cut which could lead to the loosening of such stringent lending practices. Although its effects won’t be overnight, an understanding of how loan applications work can lead to a greater success rate, as every bank has their own policies when it comes to evaluating loan applications.

Citing income from commissions as an example, Chua said some banks might only recognise 50% of this type of income, while others have a different benchmark. Moreover, self-employment, debt service ratio and other factors were also evaluated differently.