The real deal of the new rules and regulation for the Property Market that came with the tabling of Budget 2014; maybe our attention has been too concentrated on the jump up of RPGT or on the raising of the minimum value purchasable by foreigner to RM1,000,000 or by the termination of the much liked DIBS (Developer Interest Bearing Scheme) to miss what I look at as the most critical of the new rules imposed by the Government with Budget 2014: a higher transparency of the selling price.
Directly from page 45, item 189 third paragraph we read:
The big deal behind this “imposed” higher transparency is that developers are requested to declare what is the real “brick” value and what is added in. In other words it might become very easy to estimate the cost for all the so said free adds in and find the real value for the house. See the table below for a clearer picture:
This higher transparency might be resulting in a standardization of lower MOF (Margin of financing) imposed by all banks to the purchasers and possibly nullifying the “Zero cash out” offer that most of the development project are nowadays throwing to the purchasers.
This may be only a speculation and everything will have to be re-looked at once the Government will release clear information and time frames for the applicability of these new rules. Till then still can buy with “Zero cash out” and 90% MOF so happily proceed for that.
Another interesting read from The Edge on 4th of November 2013.
More transparent price may dent demand
KUALA LUMPUR: The ruling for property developers to display the discounted selling price may soften demand as the entitlement for a mortgage may be lower as banks approve loans based on the net selling price and not the pre- discounted one.
“The ruling can have a significant negative impact on the property sector if it is implemented well. It will not be easy for developers to attract buyers with discounts and rebates going forward, which could lead to an imminent slowdown in property demand, especially for luxury products and speculative areas, which tend to see higher incentives,” said Maybank Investment Bank (IB) Research property analyst Wong Wei Sum said.
In Budget 2014, the government announced the ruling to increase transparency in property prices. Property developers will have to display a detailed sales price including benefits and incentives offered to buyers, such as exemption of legal fees, stamp duty, sales agreements, cash rebates and free gifts.
Wong noted that early bird discounts are usually in the range of 3% to 5%, but it can reach as high as 10% in Iskandar Malaysia, for example.
Wong cited an example of the purchase of a RM1 million property. “Some buyers today can obtain a RM900,000 loan for a property priced at RM1 million that comes with a 5% discount.” She said the down payment would reduce to RM50,000 from RM100,000 as a result of the 5% discount, which is not usually disclosed by the developers.
“With the ruling, assuming that it is enforced well by the authorities, buyers would only be able to obtain a maximum loan of RM855,000 for a property priced at RM1 million [assuming a minimum down payment of 10%]. Down payment would thus be RM95,000. Hence, there would be a significant decline in affordability,” Wong said.
She added that the reduction in up-front costs due to such attractive marketing gimmicks, for instance discounts on selling price, had been a sweetener to buyers, especially for high-end or less than prime developments.
“A healthy and prudent banking system should base the [housing] loans on the discounted price rather than the incentive-inflated price of a house, which does not reflect the true costs borne by buyers. Basing loans on the pre-discounted price effectively increases their loan-to-value (LTV) ratio,” Wong said.
Hwang DBS Vickers Research analyst Yee Mei Hui agrees that the new ruling might dent homebuyers’ margin of financing.
Yee, however, pointed out that while some banks had started approving mortgages based on net selling price, it is still a common practice
in other banks to lend based on the pre-discounted one.
Moreover, most banks do not take into consideration other incentives such as the recently banned developer interest bearing scheme, free sales and purchase legal fees, and free furnishings, among others, according to Yee.
Yee said that incentives such as early bird discounts are quite prevalent and tend to be higher for less attractive properties.
“It depends on the property type as well,” she said. “Developers tend to give higher discounts on condominiums than landed houses, for example.”
However, a spokesman for Mah Sing Group Bhd said the impact is unlikely to be significant.
“Details on the ruling are still unclear, but many developers do not give a lot of discounts, especially for good projects. These discounts also tend to be marginal and available to very few buyers,” she said.
“Furthermore, genuine buyers will not be deterred. They would still buy the property if it is good.”
Since November 2010, Bank Negara Malaysia’s implementation of a maximum LTV ratio of 70% on third house financing facilities has had a negligible impact on the amount of loans approved for purchasing properties.
However, the ruling then only applied to the third property purchased. It may be a different scenario for the latest ruling as it applies to all properties.
Source : The Edge