FOCUS: End of the road for DIBS?
By Khairul Khalid
RUMOURS?: As rumours fly that Bank Negara is planning to clamp down on DIBS, opinions are split between industry players
DIBS (Developer Interest Bearing Scheme) is an easy financing scheme usually offered by developers in joint-promotions with banks. It has become increasingly popular in recent years, with minimal downpayment – as little as five to 10 per cent upon signing of SPA (Sale and Purchase Agreement) – and no further payments until vacant possession of the houses.
This week, it was reported that Bank Negara is considering curbing DIBS as another cooling measure to stem the rise in home prices. Proponents of DIBS say it is a legitimate way of encouraging home ownership and easing the burden of purchasers. Critics of DIBS claim that it is little more than a wolf in sheep’s clothing, often cleverly packaged and misleadingly “disguised” as a BTS (Build-Then-Sell) scheme which attracts flippers and speculators, not genuine home buyers.
Datuk Seri Michael Yam, President of REHDA (Real Estate and Housing Developers’ Association) says that Bank Negara should engage in discussions with the stakeholders (i.e. developers and bankers) before making any drastic decisions on DIBS. “I have not heard anything official from Bank Negara, but if it is true, they need to have a better understanding of how DIBS came about and how it works. I was one of the pioneers of DIBS and it originated with good intent. For example, it actually relieves homebuyers from paying an additional mortgage when they want to upgrade their homes. Instead of servicing two mortgages concurrently before their new homes are completed, the interest rate during the construction phase is put back into the selling price of the new homes and it is usually not a large sum,” explains Yam.
Yam questions some of the theories that DIBS is somehow responsible for escalating home prices. “Some are saying DIBS can push the price of a house up to 30 per cent! If that is the case, someone is just not doing his homework. Does that mean a RM500,000 house can actually be sold for RM650,000? Does that mean without DIBS, the house can be 30 per cent cheaper? The logic behind that is quite ridiculous. Furthermore, there are buyers who are paying cash and do not want DIBS. In these cases, developers work back a discount equivalent to the interest being served,” Yam rationalises.
Yam further elaborates that DIBS is not that widespread. “It isn’t prevalent in rural areas. DIBS is more useful in urban areas, especially where properties are a bit more expensive. The reason property prices are going up everywhere is due to other factors such as scarcity of prime land, high demand, increasing costs of building materials and compliance costs. It is certainly not due to DIBS. We need to increase supply of homes to bring prices down. Also, DIBS cannot be done without partnership with the banks and who controls the banks? Bank Negara. There might be some isolated cases of DIBS abuse. If that is the case, let’s try and arrest these abuses and find a solution in consultation with the industry’s stakeholders. Let’s not simply shut it down and throw the baby out with the bath water,” opined Yam.
Yam’s views are echoed by Gavin Tee, Founder and President of SwhengTee International Real Estate Investors Club who adds: “I don’t see any problem with DIBS. It is fair to the buyers as it has the effect of pressuring developers to build and deliver the houses faster because developers bear first the burden of construction. In the past, some developers may delay indefinitely and buyers would have to keep on paying interest. With DIBS, if developers delay delivery, buyers would not have to worry about paying interest during that time. It’s a healthy development and is just another option in a free market.”
Controls and guidelines
Sr Foo Gee Jen, Managing Director of C H Williams Talhar & Wong strongly feels that the public needs to be better informed and educated about the finer details and implications of DIBS. “Ultimately, we are in a free market and consumers are free to choose whether they want to buy units with or without DIBS. Nevertheless, consumers must be very well-informed about what they are entering into and developers should not conceal any information or mislead buyers into thinking it’s a BTS concept. The finer details or any disclaimers in the agreement have to be clearly explained to the buyers. Whether they make money or not with their purchases, they are bound to service their housing loans. Bank Negara or maybe even the Ministry of Wellbeing, Housing and Local Government needs to impose certain controls or guidelines with regards to the information or fine print contained in DIBS,” Foo stresses.
Meanwhile, mortgage consultant Michael Yeoh says that he is not surprised as he had already expected Bank Negara would impose more restrictions after GE13 to cool down the market. Putting restrictions on DIBS is one way of cooling down the market.
“My personal view is that if Bank Negara were to curb DIBS, it would have a moderate impact on the property sector in the short-term but eventually the market will adjust to this. However, first time buyers could find it even more difficult to purchase their homes, especially with soaring prices. On the other hand, property investors (especially flippers) will have to bear with the higher costs and this in turn will affect their profits,” says Yeoh, who is also CEO and Founder of GM Training Academy PLT.
A spokesman from Mah Sing Group is optimistic that DIBS still has a relevant role to play in the market. “Currently, banks are selectively offering DIBS to developers with good track record, as there is still market demand for it in certain segments. We hope that any implementation will take into proper consideration the industry feedback and current market conditions. We cannot comment too much as there has been no announcement, but generally the lending environment is still conducive – financing liquidity is still attractive, interest rates are still low due to competitive mortgage space where banks are now offering BLR minus 2.4%, from BLR minus 2.1% to 2.2% a year ago,” says the spokesman.
Datuk NK Tong, Bukit Kiara Properties Group Managing Director claims that any curbs imposed would merely be a temporary and ineffective solution.
“It is only short-term in nature and doesn’t address the long-term issues. Look at what has happened in Singapore, Hong Kong and across China. Every time cooling measures have been applied, the effects are temporary because the underlying demand from the people is still there, so prices climb again over time. We need to look at ways to improve the delivery system so that more supply can meet the existing demand. Only when there is an ample supply of units will we see an equilibrium develop and prices come down naturally,” concludes Tong who is also REHDA’s National Treasurer.
See Kok Loong, Director of Metro Homes Sdn Bhd proposes more drastic measures to cool down prices. “We need to look into “real demand” for homes, not pure speculation or flipping. Buyers should not be buying just because of schemes such as low or no down payments, or no interest during construction. Besides that, a person should also fork out 30 per cent for down payment if we need to continue the Sell-Then-Build (STB) system in Malaysia. That would create a more stable market with fewer speculators or flippers and encourage long-term property investors. Overall, it would be better for the whole industry, from the buyers to the stakeholders like developers and the entire financial system,” says See who goes on to suggest that the DIBS scheme should be made available only for certain segments of the market, such as housing with selling price at or below RM300k and not for the high-end market.