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Property prices. Rising too fast is bad for banks. (and owners too…unless)

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If the property we bought for RM500,000 a few years ago is sold today and that new buyer is willing to pay RM600,000 for it, would the bank be willing to provide a 90% loan for this property based on a RM600,000 value? Or do you think the bank will prefer to use a lower value instead and thus may approve just a 80% loan instead, if not lower taking into account the possibility that even RM500,000 price many years ago may not be sustainable today? This is especially if the developer may still have units and thus the price has remained almost the same or lower? By the way, when property prices rises too fast, it’s very risky for the banks. Is the situation in Malaysia moving towards this threat to the banks?

Article in themalaysianreserve.com Moody’s Investors Service Inc. 2020 outlook report for Asia-Pacific banks stated that risks from property loans will persist in Asia Pacific, but pose a greater risk for banks in Malaysia, Australia and New Zealand. Main risk came from elevated property prices and this is mainly because prices have appreciated rapidly in recent years.

It added, “Despite the cooling of price growth in some markets in recent years, lower interest rates in Asia Pacific can lead to a renewed surge in property prices, which would be credit negative for banks.” However, Moody’s also said Asia-Pacific banks have generally maintained good capital and liquidity buffers, and the probability of government support for these banks will stay high. Please refer to the full Article in themalaysianreserve.com

Do read in full yeah. So there are now elevated risks due to the rapid increase in property price. However, the banks in Asia Pacific have generally maintained good capital and liquidity buffers and there is also the government support which meant that risks are there but support is also around too.

As for most of us, the property buyers, be reminded that it’s not something to be really happen if the home prices have appreciated way too fast. When this happens, we either quickly sell with the opportunity or risk losing it due to some bubble bursting and having to hold for many years to wait for the prices to make a comeback. Happy understanding.

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