RAM: Per­mit to lend money won’t lift prop­erty sec­tor much

The Sun (Malaysia) - - SUNBIZ -

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.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.