“It’s ridiculous,” said HBA Secretary-General Chang Kim Loong in reaction to news reports quoting Urban Wellbeing, Housing and Local Government Minister Noh Omar as saying that the ministry was considering such a proposal.
“It’s obvious that the minister was ill advised by parties with vested interests. House buyers will be dragged deeper into debt unwittingly. Such a scheme will only bring more harm than good.”
Chang told FMT that the ministry should instead be considering ways of helping house buyers get soft loans.
He noted that Noh was quoted to have said the “interest rates for loans taken under the scheme would vary from 12 per cent for loans with collateral to 18 per cent for those without collateral.”
“This is more than double what is typically offered by banks and will greatly burden the borrowers,” Chang said. “As it is, many borrowers are already struggling with housing loans with an interest rate of 5 per cent. Taking a housing loan with an interest of 12 per cent is just plainly asking for trouble.”
He pointed out that banks had invested large amounts of resources to develop the necessary tools to carry out credit assessment, collection monitoring and recovery of debts.
Developers, on the other hand, would not have the resources to invest in required hardware, systems and training, he said.
“This means the chances of borrowers defaulting on loans is very high. Developers will not be able to face the financial implications if too many borrowers start to default on their loans. These developers could go belly up and the national economy will suffer because the property market is a catalyst for growth.
“It’s possible that housing developers will eventually approach the government for bailout money, claiming that this loan scheme was a form of national service.”
Chang said he wondered whether Noh had consulted Bank Negara Malaysia (BNM) before announcing the proposal.
“We would like to ask the honourable minister if BNM has given its blessing as the failure of such a scheme can have wide ramifications for the economy and the country at large,” he said.
He urged Prime Minister and Finance Minister Najib Razak to intervene, saying the government had not addressed the root cause of high property prices.
He said the proposed scheme could encourage developers to raise property prices and tempt them to give loans to undeserving borrowers.
“This scheme, if implemented, will result in higher property prices and further exacerbate the housing crisis that Malaysia is currently facing,” he said.
“The best solution in this current climate is for developers to build and prospective buyers to rent before buying at a later date.”