KUALA LUMPUR, Sept 5 — A change in the way mortgages are calculated might slash the amounts that the public can borrow for property purchases by as much as 37 per cent, said RHB Research Institute in a report today.

RHB said that the proposal to change the computation of property mortgages — to be based on net income rather than gross income — is currently on Bank Negara Malaysia’s table for consideration.

The change comes as the central bank attempts to reign in household debt that, as a percentage of gross domestic product, surged to a record high level in 2010 due to low interest rates and easy financing schemes.

As a percentage of GDP, Malaysia’s household debt increased from 66.7 per cent in 2004 to 76 per cent in 2009, which is uncomfortably close to the levels seen in the US prior to the 2008 financial crisis.

Household income is one of the key guidelines in credit evaluation for banks and mortgage instalments are now typically calculated at one-third of gross income.

A move to calculate mortgages based on net income could reduce the threshold for mortgage instalments and thus impact residential property prices.

RHB estimated that the proposed measure could lower affordability by 14-37 per cent and the impact would be most severe in the high-end segment.

“For example, assuming an individual’s gross monthly salary of RM5,000 and if mortgage is to be calculated on net pay basis, the house value that one can afford will be reduced to RM231,000 from RM300,000 (or RM277,000 from RM360,000), using the rule of thumb of 5x (or 6x) of gross salary per annum,” said RHB.

“If supply is to match with demand, it implies that prices will have to correct by a similar (or smaller) percentage for the supply to be absorbed, or developers will start to slow down their launches to limit the supply in the market.”

RHB added that apart from the calculation of household debt on net income basis, RPGT (real property gains tax) has also been speculated as one of the possible measures that the government may impose in the 2012 budget.

“We believe RPGT is a more meaningful measure to curb speculative purchases in the property market,” said RHB. “We expect, if it is to be imposed, the tax rate to revert to pre-April 1 2007 level or slightly lower.”

RPGT has been set at a five per cent flat rate for any properties disposed of within five years of purchase while prior to April 1 2007, it was 30 per cent for disposal within the first two years of purchase and progressively lower for disposal of properties in subsequent years.

RHB added that the recent sell down in equity markets is expected to increase economic fears and could also hit property buying sentiment.

It noted that in the 2008/2009 global economic slowdown, property sales stalled and fell 30-40 per cent year-on-year and prices dropped 10.6 per cent in Kuala Lumpur.

“As we only expect a slower economic growth, property sales and prices may experience some minor corrections of 5-10 per cent,” said RHB.

Putrajaya introduced a 70 per cent loan-to-value mortgage cap on third properties last year in response to complaints that property prices had spiralled out of control due to rampant speculation.

A housing affordability chart carried in the The Edge Financial Daily on August 15 showed that property prices had risen from 5.9 times income in 1989 to 10.9 times income in 2010.

The share of household loans to total bank loans in Malaysia, meanwhile, rose from 35.2 per cent in 2000 to 55.5 per cent in August 2010.