Cover Story: Property speculation has eased significantly, says Rehda

This article first appeared in The Edge Malaysia Weekly, on April 3, 2017 - April 09, 2017.
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IT is time to ease some of the restrictions imposed on the property sector as speculative activity has lessened significantly in the past few years, says Datuk Soam Heng Choon, deputy president of the Real Estate and Housing Developers’ Association (Rehda).

“Since the implementation of the banking restrictions, the property market has undergone a consolidation process. Therefore, it is the right time to ease the restrictions, given that it is a now a buyer's market and there is hardly any speculative activity at present,” he says.

As to what should be done, he says the government “should give first-time homebuyers and genuine upgraders some flexibility, such as step-up instalments as announced in the recent budget, to be made available to all developers, as well as interest capitalisation during the construction period so that buyers do not need to service the interest during construction while simultaneously paying rent.”

Some developers that City & Country spoke to say many people who are interested in buying their properties are unable to get sufficient financing.

Perfect Eagle Development Sdn Bhd director Lim Siong Gay says 50% of the group’s potential buyers fail to secure financing because of the strict lending conditions, while for Skyworld  Development Sdn Bhd, it is around 30%, according to its chief operating officer Lee Chee Seng.

Apart from the end-financing problem faced by homebuyers, some developers also have issues getting bridging loans for their projects.

“Banks will only agree to offer bridging loans if the business or project is viable,” Soam says. “However, some developers may face more challenges than others depending on their background, size, track record and so on.” Some of the things a bank will look at before approving an application for bridging financing are a company’s financial strength, performance, past projects, project feasibility study and project development cost, he explains. Other matters include gross development value and cash flow projection.

“Banks are also quite strict in allowing withdrawals where the loan drawdown is tied to the percentage of sales,” Soam says.

Fairview Development Sdn Bhd executive director Dzulkeflee Khairuddin says the situation is a little complicated.

“It is a catch-22. Banks are not willing to finance a project directly via bridging financing unless it meets a [certain] sales take-up rate [30% to 50%]. But most buyers will wait for construction progress [up to 50% to 70%] before purchasing. Hence, there is a mismatch in timing between loan availability and sales,” he says.

However, the secretary-general  of the National House Buyers Association (HBA) Chang Kim Loong surprisingly has a different view.

He wants prices to fall significantly before the restrictions are relaxed, arguing that they are still too high and beyond the means of many Malaysians.

But what if prices do not fall ?