Category Archives: 3.All About Loan

Additional condition to housing policy, says deputy minister



(From left) Real Estate & Housing Development Association president Datuk Seri Michael Yam, Ministry of Urban Wellbeing, Housing and Local Government deputy minister Datuk halimah Mohamed Sadique and Star Publications Berhad group chief executive officer Datuk Seri Wong Chun Wai visiting one of the 30 exhibition booths in the StarProperty Fair 2014 launch at Setia City Convention Centre

SHAH ALAM: The Ministry of Urban Wellbeing, Housing and Local Government of Malaysia today announced the “registration on bulk purchases of residential units” as an additional condition in the advertisement and sales permit for housing development at the launch of the StarProperty Fair at the Setia City Convention Centre in Selangor.

“Any developer who sells more than four units of houses to one buyer must register the buyer with the ministry,” said the ministry’s deputy minister Datuk Halimah Mohamed Sadique.

“It is hoped that with these measures, the Government will be able to curb speculative activities, which is one of the main causes of the rapid increase in house prices,” she added commenting on the additional condition that has taken effect immediately.

Since its debut in 2009, the StarProperty Fair has been a platform for developers to showcase an array of medium to high-end property developments ranging from bungalows to condominiums and commercial units.

The launch saw the participation of approximately 30 exhibitors who will showcase their latest property developments to visitors.

Among the participating exhibitors are some of the nation’s top developers such as Mah Sing Group Bhd, Eco World Development Sdn Bhd, Tropicana Corporation Bhd, Sime Darby Property Bhd, OSK Property Holdings Bhd and Gamuda Land Sdn Bhd.

Visitors can also benefit from property investment tips by industry experts and attend talks related to current market and property trends, among others.

The speakers lined-up for the three-day fair are MCT Group of Companies executive director Datuk Danny Goh Meng Keong, Loanstreet managing director Jared Lim, Jiao Tong University lecturer Professor David Koh, Ho Chin Soon Research’s Ishmael Ho, REI Group of Companies chief executive officer Dr Daniele Gambero, Indian feng-shui expert Dr T. Selva, Axis REIT Managers Bhd chief executive officer Datuk George Stewart LaBrooy and Malaysia and Singapore Tax Cases Digest author S. Saravana Kumar.

The fair’s opening launch was also graced by Real Estate and Housing Developers’ Association (Rehda) president Datuk Seri Michael Yam.

StarProperty Fair, which opened today will end on June 1, 2014 and is open to the public from 11am to 7pm.


A guide to property valuations


WHETHER you’re a potential homebuyer or a greenhorn property investor, your impending venture into the property market will very much revolve around valuations. You might have heard the term being thrown about by experienced property market players, but how much do you know about valuations and how the process would influence your purchase? Here’s what you need to know.

What is valuation?

Officially, “market value” is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties have each acted knowledgeably, prudently and without compulsion. Valuation calculations take into account recent transacted prices from the Government’s Valuations and Property Services Department (JPPH). Additionally, launch prices of new and upcoming projects in the area play a factor. Once a valuation is done, a bank would usually extend a loan of 90% based on the figure.

How valuation affects you

Say you’ve got your eye on an apartment unit, and after negotiating with the seller, the two of you agree on a price of RM500,000. A 90% loan means that you would need to fork out a down payment of RM50,000, aside from other entry costs. Now, here’s where the valuation comes into play – for a housing loan, a report by a real estate valuation firm recognised by the bank you’re dealing with is needed. If a valuation firm only prices the said property at RM450,000, you would only be eligible for a loan of 90% from RM450,000. Basically, this means that if you were to go ahead and purchase it, you would need to bear the price difference and come up with RM95,000; and not the RM50,000 you were initially expecting.

Why the disparity?

If you observed the Malaysian property market, you would know that prices in certain areas have surged upwards quite quickly. Herein
lies the issue – as it takes up to six months for JPPH to collect and analyse transaction data, which valuation firms rely on for their calculations. Basically, this means that valuations would be centred on outdated prices from up to six months earlier, and are likely to be lower than current prices.

Although many firms take the trouble to ensure an accurate and fair valuation by taking into account as many relevant factors as possible, many others only do as much as they need to, resulting in common cases of disparities between valuations and negotiated prices.

What can you do?

Here’s the bit where you have control over. It’s a well-known fact among veteran property players that different banks can provide different valuations on a single piece of property. Some bank sales agents may aggressively push up their valuations of your property, just so they can obtain more transactions. You could take advantage of this and go “shopping” for valuation rates. Remember to mention what the other branches are offering as you might just end up with the valuation that you want.

OPR Hike By 25bps: How Will It Affect You?

OPR Hike By 25bps: How Will It Affect You?

interest rates

Bank Negara Malaysia (BNM) has raised the overnight policy rate (OPR) by 25 basis points to 3.25% on July 10, 2014 – its first hike since May 2011.

This was decided at the Monetary Policy Committee (MPC) meeting today.

“The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 3.00 percent and 3.50 percent respectively,” BNM stated in its release.

What is OPR?

The OPR is interest rate at which a bank lends to another bank, which is set by BNM. This rate has an effect on the country’s employment, economic growth and inflation. It is an indicator of the health of a country’s overall economy and banking system.

Why is there a hike?

Economists opined that the central bank increased the rate to tackle inflation based on the scenario that growth is too strong and on fears that there could be asset imbalances in the system.

Latest economic indicators suggested continued strength in exports and private sector activity in Malaysia. It also expected Malaysia’s overall economic growth momentum to be sustained.

The increased OPR is aimed to normalise the current monetary conditions and to mitigate the risk of broader economic and financial imbalances that could jeopardise the country’s economic growth.

Manokaran Mottain, chief economist of Alliance Bank Malaysia, said to The Star that the hike in the OPR was a “pre-emptive measure to prevent further disproportionate risk taking as well as reducing asset price misalignments”.

The increment by 25 bps is well within expectation, opined Mottain.

According to AllianceDBS, the 25 bps hike should be manageable and not affect borrowers’ ability to service higher interest costs, but a larger hike could create risks of a higher non-performing loan (NPL) and provisions.

How will it affect you?

So, will you be paying more interest for your loans?

Any changes will impact floating rate loans which are common for mortgages. While the effect of the new lending rate framework is still unknown, an increase in OPR will likely have a knock-on effect on the rates charged by banks for home loans for the simple reason that banks adjust their lending rates by a similar quantum when OPR changes.

Historically, banks will raise about 20bps to 30 bps for a 25 bps hike in OPR.

For example, if the banks decide to pass on this hike to the consumers, the Base Lending Rate (BLR) will most likely increase by 25bps (0.25%) from 6.6% to 6.85%.

Here’s an example of how it would affect you:


Based on the example above, the 25 bps hike will result in RM15,896 over a 30-year loan tenure. Borrowers won’t be impacted severely by this immediately as can be seen in this example it would raise their monthly repayments by only about RM44. However, over the loan period, it comes up to a substantial amount.

How will it affect the country?

In anticipation of the OPR hike on July 9, 2014, Malaysia Ringgit was reported to have jumped to its highest in 36 weeks, since November 2013, hovering at 3.17 to the US dollar. At the close on Thursday, the ringgit was trading at RM3.182.

Raising the OPR has given foreign investors more confidence to pump in their money in the form of investments in Malaysia.

This move will benefit banks on short-term basis, especially those banks with current account/savings account (CASA) ratio. With the exception of AmBank and Affin (with a larger share of fixed rate loans), most banks should benefit from the raise.

According to the latest issue of MIDF Equity Beat, the 25 bps hike will be mildly positive for banks as the quantum of expected rate hike is smaller than that in the previous OPR hikes (the last one was 75 bps) and earnings growth for banks for this year at about 6% is much muted as compared to the past.

Furthermore, the hike will encourage further competition for deposits and this will exert pressure of banks cost of funds and net interest margin (NIM).

“In the meantime, the rise in OPR will likely improve Malaysia’s attractiveness amongst foreign investors, leading to stronger capital inflows, lower bond yields and an appreciating ringgit,” said Mottain from Alliance.

Though most experts do not see the recently announced OPR hike to be the start of a monetary tightening process, the new rate will inevitably pinch consumers’ pockets even further. However, the OPR will most likely remain unchanged for the rest of 2014.


Ringgit at 36-week high due to OPR hike expectation

Malaysia-Ringgit-300x194KUALA LUMPUR: The ringgit, which is currently hovering at 3.17 to the US dollar, its highest in 36 weeks since November 2013, is expected to take a cue from the outcome of the Bank Negara Malaysia’s Monetary Policy Committee (MPC) meeting tomorrow.

“The ringgit could potentially strengthen to 3.15 per US dollar in the near term, if the central bank raises interest rates in July’s policy meeting,” said RHB Research House in a note.

Expectations of strong export growth domestically and a possible increase in the Overnight Policy Rate (OPR) were the supportive factors for the ringgit in more than a week.

Demand for the ringgit improved as a result of increased risk appetite, especially after the unit broke the 3.20 level.

Coupled with foreign exchange reserves which picked up by US$1 billion in June to US$131.9 billion (after dropping by US$0.3 billion in May), the ringgit rose to its best level in nine months, appreciating 3.36% year-to-date.

The ringgit went on a rally against the US dollar from the 3.22 level beginning June 26, as expectations mount that the OPR will be increased.

Many analysts anticipate Bank Negara to raise the OPR by 25 basis points (bps) to 3.25%.

AllianceDBS Research House said the 25 bps hike should be manageable and not affect borrowers’ ability to service higher interest costs.

“The strong ringgit’s performance this week mirrors increased bets on an OPR hike as early as the upcoming BNM MPC,” said Hong Leong Bank Research.

“Bets on BNM to raise the OPR tomorrow were driving recent bids in ringgit.

Tomorrow’s MPC meeting would be crucial as the market is split on the OPR outcome,” a local currency trader told Bernama.

The ringgit was firm amid prevailing OPR hike expectations in the run-up to the announcement, but was observed less aggressive this week given that the US dollar overseas has also turned firmer.

Another currency trader warned that the ringgit could see a turnaround should there be no increase tomorrow. “Chart-wise, some technical tools started pointing to an imminent bullish reversal,” he said.

The ringgit could weaken back and hover at around the 3.20-3.25 level in the near term, and could weaken back to 3.25-3.30 when expectations of a rate hike in the US build-up, said an analyst at RHB Research. – Bernama

How OPR hike will affect borrowers

How OPR hike will affect borrowers

PETALING JAYA: Bank Negara Malaysia (BNM) may have maintained the overnight policy rate (OPR) at 3% in the last Monetary Policy Committee (MPC) meeting on March 6, 2014 but a potential hike is estimated to happen late this year or early next year, which may translate to an increase in the pricing of loans for consumers.

Most analysts are expecting a high probability of a rate hike of 25 basis points (bps) in 2014, while less than a handful opined that it could go up to 50bps by the end of 2014. These views are flanked by a contrarian view that the OPR will not be increased at all and remain at 3% this year.

The OPR is an overnight interest rate set by BNM. It is the interest rate at which a bank lends to another bank.
The OPR, in turn, has an effect on employment, economic growth and inflation. It is an indicator of the health of a country’s overall economy and banking system.

An analyst with a stock broking house told SunBiz that generally, if the OPR is increased, banks will pass on the cost in the form of a higher base lending rate (BLR) to consumers.

“In the past, banks have also passed on the basis points (increase) or in a similar quantum. If it’s a hike of 25bps, banks will raise about 20bps to 30bps,” said the analyst.

For example, if there is a 25bps increase in OPR, and assuming that banks follow suit and change their BLR by a similar quantum, consumers will see the BLR increase by 25bps (0.25%) from 6.6% to 6.85%. If there is a 50bps hike, one can generally expect that BLR will increase from 6.6% to 7.1%.

According to financial comparison portal, a mere 0.5% increase in BLR will result in a 14% increase in total interest paid over the loan tenure if one currently has a floating rate home loan. This is based on the example of a RM500,000 home loan of 30 years. (see table)

The BLR is at 6.6% currently but the prevailing interest rate charged by most banks is 4.2% to 4.9%. In view of this, BNM is proposing a new reference rate framework, which will be determined by the respective bank’s funding costs that reflect its specific funding structure and strategy and the statutory reserve requirement.

Ultimately, consumers benefit from knowing the OPR, irrespective of whether they are a borrower or depositor. “If you’re a borrower, when the interest rate goes up, you need to pay more in terms of installment. Alternatively, your term of loan (loan tenure) increases if you don’t want to change your installment payment. But if you’re a depositor, you will get better interest rates,” said the analyst.

Another analyst told SunBiz the estimated 25bps hike is considered mild and will just be an upward normalisation.

“When there is a mild increase in OPR and if competition in the market is still intense, loans will still be priced below what it is supposed to be priced. It may not necessarily increase the (finance) cost although there’ll be some temporary (adjustment),” said the analyst, adding that this depends on the market dynamics and competition in the market.

“If OPR is increased by 25bps due to stiff competition, banks may only be able to raise interest cost by 10bps, which is mild. You need to increase interest rates much more than 25bps to see an impact on banks. However, if you increase it too much, it’s counter-productive because then the banks will see more non-performing loans (NPLs) and hence provisions will increase,” he said.

The analyst said a hike in OPR will increase finance costs generally hence BNM needs to be mindful of not increasing interest rate too much due to the weak domestic consumption. If there is a sharp increase in OPR, growth will slow down more, causing NPL issues to creep up.

He said central banks increase interest rates to tackle inflation based on the scenario that growth is too strong and on fears that there could be asset imbalances in the system.

“When the interest rate is too low for too long, there’s cheap cost of funding and people tend to over borrow or over-gear and there’s a systemic slowdown and it puts the economy in a bad shape.”

The last hike in the OPR was in May 2011, which saw an increase of 25bps to 3%, and remains unchanged until today. The next MPC meeting is on May 8, 2014.

“If the economy is relatively weak and there is an increase in interest rates, it will cause the economy to decline even more, and this was what happened to Japan.”

He said one cannot compare Malaysia’s OPR with other markets, because different markets have different stages of growth and different inflationary pressure, hence there is a need to look at it from a country’s perspective.

“Neither is Malaysia’s current OPR of 3% historically low nor historically high, and there could be some room for the interest rate to go up, possibly in the second half of the year or in the next six to nine months.”


OPR Decision and Statement

OPR Decision and Statement 
Date Change in OPR (%) New OPR Level (%) Monetary Policy Statement
10 Jul 2014 +0.25 3.25 View Statement
08 May 2014 0 3.00 View Statement
06 Mar 2014 0 3.00 View Statement
29 Jan 2014 0 3.00 View Statement
07 Nov 2013 0 3.00 View Statement
05 Sep 2013 0 3.00 View Statement
11 Jul 2013 0 3.00 View Statement
09 May 2013 0 3.00 View Statement
07 Mar 2013 0 3.00 View Statement
31 Jan 2013 0 3.00 View Statement
08 Nov 2012 0 3.00 View Statement
06 Sep 2012 0 3.00 View Statement
05 Jul 2012 0 3.00 View Statement
11 May 2012 0 3.00 View Statement
09 Mar 2012 0 3.00 View Statement
31 Jan 2012 0 3.00 View Statement
11 Nov 2011 0 3.00 View Statement
08 Sep 2011 0 3.00 View Statement
07 Jul 2011 0 3.00 View Statement
05 May 2011 +0.25 3.00 View Statement
11 Mar 2011 0 2.75 View Statement
27 Jan 2011 0 2.75 View Statement
12 Nov 2010 0 2.75 View Statement
02 Sep 2010 0 2.75 View Statement
08 Jul 2010 +0.25 2.75 View Statement
13 May 2010 +0.25 2.50 View Statement
04 Mar 2010 +0.25 2.25 View Statement
26 Jan 2010 0 2.00 View Statement
24 Nov 2009 0 2.00 View Statement
28 Oct 2009 0 2.00 View Statement
25 Aug 2009 0 2.00 View Statement
29 Jul 2009 0 2.00 View Statement
26 May 2009 0 2.00 View Statement
29 Apr 2009 0 2.00 View Statement
24 Feb 2009 -0.50 2.00 View Statement
21 Jan 2009 -0.75 2.50 View Statement
24 Nov 2008 -0.25 3.25 View Statement
24 Oct 2008 0 3.50 View Statement
25 Aug 2008 0 3.50 View Statement
25 Jul 2008 0 3.50 View Statement
26 May 2008 0 3.50 View Statement
29 Apr 2008 0 3.50 View Statement
25 Feb 2008 0 3.50 View Statement
29 Jan 2008 0 3.50 View Statement
26 Nov 2007 0 3.50 View Statement
30 Oct 2007 0 3.50 View Statement
24 Aug 2007 0 3.50 View Statement
24 Jul 2007 0 3.50 View Statement
28 May 2007 0 3.50 View Statement
27 Apr 2007 0 3.50 View Statement
26 Feb 2007 0 3.50 View Statement
26 Jan 2007 0 3.50 View Statement
24 Nov 2006 0 3.50 View Statement
26 Sep 2006 0 3.50 View Statement
25 Aug 2006 0 3.50 View Statement
28 Jul 2006 0 3.50 View Statement
22 May 2006 0 3.50 View Statement
26 Apr 2006 +0.25 3.50 View Statement
22 Feb 2006 +0.25 3.25 View Statement
20 Jan 2006 0 3.00 View Statement
15 Dec 2005 0 3.00 View Statement
30 Nov 2005 +0.30 3.00 View Statement
24 Aug 2005 0 2.70 View Statement
25 May 2005 0 2.70 View Statement
28 Feb 2005 0 2.70 View Statement
30 Nov 2004 0 2.70 View Statement
25 Aug 2004 0 2.70 View Statement
26 May 2004 0 2.70 View Statement
Note:A Monetary Policy Statement (MPS) is released at 6:00 p.m. on the same day as the MPC Meeting

GST and OPR will affect house prices

PETALING JAYA: The anticipated goods and services tax (GST) and the hike in the overnight policy rate (OPR) will impact housing affordability and sales, according to Maybank IB Research.

It said the benchmark OPR of 3% was expected to rise 50 bps (basis points) to 3.5% following the central bank’s monetary policy committee meeting in early July.

The report said a 50bps increase in the mortgage rate could lead to a 6.8% jump in monthly instalments based on a base lending rate (BLR) minus 2.4% for a 35-year loan.

“This would impact affordability and investment decisions for new purchases,” it said.

The report also said the housing affordability index has been trending down since 2009 due to hikes in the BLR to 6.6%. The BLR was set at 5.6% between 2009 and 2011. Other reasons for the index to trend downwards include the spike in property prices without a significant rise in income.

The report said that with most developers already doing GST-related repricing and re-costing exercises ahead of the April 2015 timeline and the anticipated higher interest rates, the housing affordability index could decline further. This would lead to a decline in property sales.

“While developers will be able to pass on the upcoming GST to buyers of non-residential properties, they may have to absorb some of the GST impact for residential properties that were sold during/before 2013 and which remain uncompleted on April 2015.

“We believe a majority of the sales secured in the last one year have not taken into account the implementation of GST,” the analyst said.

Margins are also likely to compress in the coming period due to the offering of more non-cash incentives to attract property buyers.

On top of that, the report said higher labour costs and higher transportation costs after last September’s fuel price hike were expected to eat into margins.

Malaysia’s high household debt amounted to RM854bil last year, accounting for 86.8% of nominal gross domestic product (GDP).

Maybank IB said investors felt Eco World Development might be the new leader for the property sector given the support by former S P Setia staff and its expansive land bank worth RM43bil in gross developmental value.

Meanwhile, Batu Kawan in Penang was introduced as a new property hotspot in Malaysia. It stands to benefit from the new second Penang bridge and better control on land supply from the state government.

“It is unlike Iskandar Malaysia, which relies on the bilateral relations between Malaysia and Singapore,” the research house said.

Maybank IB observed that the share price of land owners Tambun Indah, Malton and Global Oriental rose 14%, 19% and 24%, respectively, benefiting from interest in Batu Kawan.

Overall, the research house maintained a “neutral” call on the property sector, citing that foreigners were more focused on the property sector in other emerging markets.