A close friend and I was talking about this issue just yesterday. My earlier article here: No loan? No worry. I (developer) lend you. She is someone senior with an economics PHD from the banking fraternity. We agreed that the suggestion to allow developers to become money lenders is not a good one. Her point of view is simple. When one developer is approved, then other developers should also get approval. This will then be followed by ever more developers and the loans being ‘approved’ by these developers would be huge within a few years. Assuming we suffer another external economic shock and these developers have a hard time selling their properties and worse still, their buyers defaulted. May I know who will handle the mess? Really macro-economic view, yeah?
For me, my main worry would always be for the buyers. Assuming the bank would only approve 80 percent today, the buyers would need to either get the remaining amount somewhere or they would have to abort the purchase. However, if they can still get approval from the developers would they believe they can afford something more expensive? Would this then create more people with loans they couldn’t afford in the first place? Remember as a country we have this issue? Households Malaysia and Debts. It’s easy to get into debts but it’s very hard to get out. Let’s always be savvy about this. Bankruptcy and Properties
Of course there are also others who said that this may create a property bubble. I think this would be a remote idea because the loans that the developers can give out would be extremely small in comparison to the whole industry. There are comments that property prices will be higher due to this, I also think this is developer specific. Without understanding objectively and buying rationally, those few hotspots would remain to be hotspots and prices would rise faster than the secondary ones. I think this would remain the major cause for property prices to keep increasing; demand vs limited supply. In conclusion, my friend and I are not supportive of the idea developers becoming money lenders. This is the same opinion, regardless of whether the rate is 6 percent or 18 percent.
written on 22 Sept 2016
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The proper roles of businesses must be accorded it’s proprietary responsibility. Banks for lending and deposits are under Central Banks. Development of buildings or properties is under Housing. Don’t mix and confuse ourselves.
Thanks Fred. Very true. Staying true to the purposes for which it was established.