Banks, don’t lend if prices still too high! (Buyers, don’t overstretch please.)

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These days, I notice that sometimes, the banks are no longer lending based on what the developers are selling in terms of the price. Yeah, many of these cases happen in the bigger cities like Kuala Lumpur / Selangor for example. When they (the banks) disagree with the selling price (they think it’s too high), they will simply choose not to provide 90% financing but may give 70 or 80 percent instead. In other words, buyers need to fork out 20 – 30 percent as down payment even if that’s their very first property.

The reason is simple, the property may just have been overpriced or it may be because the banks are just trying to be more prudent. After all most of these listed financial institutions must also protect their investors. Any big mistake and the ones paying a high price includes their shareholders too, not just the top management team. The Non-Performing Loan ratio is at 1.5% as per latest CEIC data. That’s considered on the low side if we compare it all the way back to 2006. Please refer image below.

https://www.ceicdata.com/en/indicator/malaysia/non-performing-loans-ratio

Article in themalaysianreserve.com here. This is what Khazanah Research Institute (KRI) research director Dr Suraya Ismail said, “We can offer many (types of) innovative financing, but before that, houses must be affordable in the first place. “

“(The) market has shown that these are not the desired prices, which is why we have overhang properties, and some have become gluts.”

“And yet, we do not bring the prices down (enough). Instead, we ask the bank to give innovative financing so people (can) purchase houses at comparatively high prices. This is not right.”

“House prices have increased four-fold, and this is just not sustainable.”

With regards to the current unsold units, she said, “Let the market decide. If the market does not want to buy, reduce the price.”

Suraya shared that based on KRI’s report, KRI’s report, “The State of Households 2018, Different Realities”, it has been revealed that for households earning below RM2,000, their remaining income after accounting for inflation was only RM76 in 2016, reduced from RM124 in 2014.” Last but not least she said, “So, you cannot (simply) give innovative financing options and assume that would solve (all) the problems.” Please do read the full Article in themalaysianreserve.com here.

Let’s just say I do not agree with everything Dr. Suraya said. However the part about getting the banks to give innovative financing so that people could purchase houses at comparatively high prices is spot on. Let’s remind all stakeholders that home is a BASIC need. This meant that people should just OWN a home for stay first and not look at property as a road to riches. Banks are supposed to only lend to people who qualify and the people are supposed to also buy only what they could afford. It’s a chicken and egg situation yeah. Home prices rise faster because people kept demanding something and are willing to overstretch for it. Imagine if everyone expands their choices instead of just those few usual choices…Here’s an earlier article: Buying based on WHY is better. Happy following.

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<Featured Image is courtesy of Stock Photos from Photon photo>

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