Despite the move by Bank Negara last November to introduce a maximum loan-to-value (LTV) ratio of 70% for the third and subsequent house financing facilities to curb speculation on property prices, property consultants and analysts are convinced that there will only be a temporary setback for the property and banking industry.

Hwang DBS Vickers Research, in its recent report, says the property market this year could still see 10%-15% growth, driven by scarcity of land and higher input costs.

“While we believe the 70% LTV cap managed to control speculative activities to a certain extent, the strong underlying demand from first-second home owners and upgraders continued to support property sales, even at new benchmark prices,” it says.

It adds that this can be seen with the recent launches that saw strong takeups such as Capers @ Sentul East condos where more than 90% of the units been booked at RM600 per sq ft and Sime’s USJ Heights Indigo zero-lot bungalows with 75% sold at RM2mil to RM3.3mil per unit.

“The others are Gamuda’s Ambang Botanic, Klang where semi-D and bungalows are sold more than 90% at RM1.5mil to RM1.8mil per unit and Glomac Damansara serviced apartments (70% sold at RM600 per sq ft),” it says, adding that this supports its view that property demand should remain resilient, supported by positive macro factors (young population, robust economy, inflation hedging, urbanisation, shrinking household size, accommodative bank lending).

The research house says another factor helping to boost property sales this year is the mass rapid transit (MRT) project.

“While MRT completion may still be a while away, in 2016-2020, property prices (especially land) tend to move ahead as developers scramble for projects near potential stations (given the typical 5-year lead time to negotiate, plan, obtain approvals, sell and construct). Developers such as SP Setia have started pricing in potential of MRT interchanges in their launches (KL Eco-City commands ~30% premium),” it says.

“While track record is important, we see owners of large land bank near potential MRT interchanges (or strong deal-makers) having an upper hand given scarcity of prime land in KL, and there should be no shortage of suitors to minimise execution risk. Strong overseas track record may give an added advantage in attracting foreign demand (e.g. YTL’s Sentosa Cove, Guocoland group’s following in Singapore and China). MRT and plot ratio expansion will strengthen the case to speed up development of raw landbank,” it says.

A property consultant tells StarBizWeek that generally, there will be some impact on the mid-level to high-end property market due to the LTV.


“Property developers may feel a slight impact on sales of mid-level to high-end property products as a result of the LTV. The impact can be expected as these markets (mid-level to high end property) are normally the playgrounds for investors and speculators. As LTV imposes those who are buying the third property, the Government is taking steps to curb the property price increase based on speculation. So, there will be less speculation in the property market,” he said.

Bank Negara in its Financial Stability and Payment Systems Report 2010 says house prices in selected locations within and surrounding urban areas have shot up to four times that of the national house price index.

It also says there have been incidents of applications for financing of multiple residential units within a single development project from a single borrower.

“To address this, the LTV ratio is aimed at promoting a stable and sustainable property market by deterring speculative activity through higher equity requirements for transactions of this nature,” the report says.

Maybank Investment Bank Research said in its recent report that housing loan applications had declined for the last three months on a month-on-month basis, partly due to recent measures to curb property lending.

“Loans applications for residential purchases fell 3.8% month-on-month from December 2010 to January 2011, 7.1% from November 2010 to December 2010 and 9.6% from October 2010 to November 2010,” it said.

However, analysts say they are optimistic the LTV will not hamper residential mortgage loans growth this year or even reduce residential property prices significantly.

“Residential home loans growth might see a slight slowdown as the measure by the regulator would curb speculative investment activities but it will

not be drastic, as up to 90% of banks’ mortgage loans are held by homeowners, who are not speculative investors but have purchased residential properties to live in,” an analyst says.

Another analyst says the decline in housing loan applications can be seasonal and can pick up as the year progresses.

“I still think it is early days to attribute the decline to the LTV imposition only. Generally, I do not see this new measure having much of an impact on residential housing loans growth this year,” he says

Should there be any softening of the broad property market, one of the first segments that may soften will be the high-end segment of the condominium market. The landed housing segment is still seeing strong demand, particularly in the Klang Valley and Penang, says OCBC Bank (Malaysia) Bhd country chief risk officer Choo Yee Kwan.

“For the residential segment, no clear signs of any softening have been observed. As the ‘broad property market’ would cover commercial properties, we have observed that the applications for the financing of commercial properties have held up in March 2011,” Choo says in an e-mail.

He says the indication is that there will be an increase in housing loan applications in March this year, higher than the comparative volumes they saw during the preceding first two months of the year.

It was reported earlier that housing loan application totalled RM12.56bil in January and RM10.26bil in February, which prompted questions whether the drop in application will lead to a slowdown in the property sector.

Choo says the drop in housing applications from November to Febuary is not conclusive as the period was also subject to seasonal trends relating to the year-end holiday period and festive season during the beginning of the year. Typically, volumes tend to be lower during this period.


“It is useful to note that there has, indeed, been no reduction in housing launches since the beginning of this year, and that the take-up rate has been good, particularly of landed properties in the more affordable price ranges. New launches for both landed property and condominiums (particularly those in the affordable price ranges) are still being well received.

“However, for the high-end segment of the condominium market, there have been comparatively fewer launches which can also suggest that the demand for luxury high-rise units has somewhat waned.

“The bottom-line is that we still need to observe developments over a longer period before making any conclusive assertions in respect of this matter,” he says.

Choo says generally, the bank has observed that the loan quantum has been steadily increasing in line with upward price movements of residential properties, notably in the key areas of urban concentration such as the Klang Valley and Penang.

One of the factors that can affect the selling prices of houses is the underlying cost of the core building materials like cement, steel and timber.