by ukulele » Wed Nov 20, 2013 4:16 pm
Pressure on property, new ruling likely to impact housing loan growth
by john loh
PETALING JAYA: A new circular from the central bank that took effect last Friday will pile more pressure on an already hard-hit property sector, even if its merits are likely to be felt in the long-term, analysts and industry executives said.
In a bid to make the property market sustainable, the new rules have put the brakes on interest capitalisation schemes (ICS) and the developer interest-bearing scheme (DIBS).
It also calls for the use of the net selling price of a property as the benchmark for obtaining bank loans, which raises the amount to be paid upfront.
Alliance Research’s banking analyst Cheah King Yoong said the measures were “more onerous” than anticipated and posed downside risks to his 9% loan growth estimate for the banking sector next year.
“Although the guidelines on the prohibition of the DIBS was not a surprise, the new rule on using the net selling price to determine the loan-to-value (LTV) ratio is a negative surprise to us.
“While it is difficult to gauge the impact on banks, the fact that this new rule applies to all property financing, including first-time home buyers, means that property buyers’ affordability will be affected, and this will lead to lower property loan growth,” Cheah said in a report yesterday.
“We believe the latest policies illustrate the sheer determination of the authorities to contain the growth of household debt.
“These measures, together with potential rate hikes in 2014, fiscal tightening by the federal government and subsidy rationalisation next year, could further drag on loan growth in the retail segment, temporarily leading to a rise in credit costs, and dampen investor sentiment on the banking sector,” he added.
The circular prohibits financial institutions from granting end-financing facilities to individuals or non-individuals for the purchase of property offered under an ICS, including the DIBS.
Financial institutions are also barred from granting a bridging facility to finance a property development that offers ICS.
According to Alliance Research’s Cheah, this effectively removes any alternative incentives that developers might concoct to replace the DIBS.
“Nonetheless, our channel checks show that for the banking groups under our coverage, property loans with the DIBS only made up 1% to 3% of their outstanding mortgages,” he said.
Affin Bank is the exception, with some 7% of its mortgage loanbook comprising loans tied to the DIBS.
“Given that property loans with the DIBS are immaterial to overall outstanding mortgage loans as well as new mortgage loans approved, we do not expect the restrictions to have a significant impact on the banking sector,” Cheah said.
Public Bank has the highest exposure to housing loans at 56% of its gross loans, followed by Alliance Bank with 55% and Hong Leong Bank, 46%, company data showed.
Another key item on the circular requires banks to calculate the LTV ratio based on the net price of a property instead of its gross price.