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Let’s keep the borrowers at the prime level, yeah.

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A prominent property speaker, Agnes Wong spoke after me in Ipoh last week. I was the first speaker and she was the last. (Usually the junior speakers start first and the organiser will save the best for last) She shared many important points of which I want to highlight one very important point to all stakeholders.

This is important whether we are from the government which determines the policy, or NGOs which influences the policy and all the participants in the property market including first-timer, parents buying for their children or investors.

We must look closely at the quality of the borrowers which we intend to ‘help.’ Let’s understand that everyone must be helped to own a property.

Else, they will always be facing with the prospect of poverty. Earlier article here.

However it is not wise to push anyone without much savings to begin with into a home loan because they are just not ready…

keep prime - risk management

Have we ever imagined what could have happened to a property market which has actually been having lower transactions for the past 5 years?

I am talking about us, Malaysia. Yes, actually it could have crashed.

Remember the subprime mortgage crisis in the US back in 2008?

It was caused by the quality of borrowers and the crazy rise in property prices.

Imagine most buyers in the market are earning RM2,500 and after all their expenses, they are left with RM400 as savings.

We push them to buy a property with a monthly mortgage of RM700 (RM200,000 property).

What will happen is that they will struggle to pay their mortgages and when they ‘break’ we have a crisis.

Look back – think twice.

When we look back at the Malaysian property market, allow me to share this story to everyone again.

When only those who qualified get to borrow to buy a property, they will continue to pay their monthly mortgages on time.

Assuming some of them lost their jobs in some point, their savings will be enough and they will soon find a job within the next 30-60 days.

This is the reason why we do not suddenly see a super huge increase in the number of auction properties.

This is also the reason why we do not see a big reduction in prices from the owners; they are not desperate easily…

Keep prime…

In other words, most borrowers are ‘prime’ people. If the whole market is full of speculators, then we are looking at that sub-prime storyline again… Happy understanding.

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written on 23 Jan 2019

Next suggested article: When borrowers need not even qualify for it, better be fearful

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