RAM: Permit to lend money won’t lift property sector much
KUALA LUMPUR: RAM Rating Services Bhd expects the property sector to be insignificantly lifted by the move to allow eligible developers to apply for a moneylender’s licence to provide loans to house buyers, Bernama reported yesterday.
The rating agency said based on its analytical publication on 10 key Malaysian property developers in June 2016, entitled “Slowdown and Increasing Leverage Pressure Credit Health of Leading Developers”, most of these players had geared up in the past two years to fund land acquisition and working-capital needs.
“This had resulted in 60% of the sample chalking up hefty debts, with gearing ratios of more than 0.7 times and/or debt-to-revenue ratios of above one time. Accordingly, not many developers have the capacity to provide mortgage financing on a large scale,” RAM said in a statement yesterday.
It said in the event that these developers do embark on moneylending, the credit risk level of players will most certainly rise as the pool of buyers who opt for full or partial loans from developers will consist of those who are unable to obtain the required loan amount from banks.
“This group of buyers will naturally carry a higher credit risk. Further, the cost of establishing a moneylending business will add to operating costs,” it added.
RAM said since the beginning of the year, developers have already extended various incentives in the form of deferred-payment arrangements, minimal downpayment and build-then-sell home ownership schemes to drive property sales.
The rating agency said these incentives are likely to crimp profit margins and increase the working-capital requirements of players, while potentially elevating their debt levels should they have insufficient internal funds to finance these initiatives.
“Offering loans to house buyers who cannot meet the eligibility requirements of banks will, consequently, present further risks to developers in the event of non- payment by the buyer, especially in the absence of collateral,” it added.
On Sept 8, the urban wellbeing, housing and local government minister said eligible property developers would be allowed to apply for moneylending licences to provide property buyers with up to 100% of their home loans. The licence would be issued by his ministry under the Moneylenders Act 1951 and Pawnbrokers Act 1972, with loans under the scheme subject to an interest rate of up to 12% with collateral or up to 18% without collateral.
Later, however, the minister clarified that it was only a proposal and that a comprehensive study would be carried out first.