Property lending scheme a danger to household debts

MEANWHILE, the recent move to allow property developers to offer financial aid for potential buyers is seen as possibly worsening the household debt situation in Malaysia.

On September 8, Minister of Urban Wellbeing, Housing, and Local Government Tan Sri Noh Omar announced that property developers are able to seek moneylending licences issued by his ministry under the Moneylenders Act 1951 and Pawnbrokers Act 1972.

This move, he said, was to help spur the languid property sector and assist buyers who could not afford down payment.

International ratings agency Fitch Ratings warned that the move adds risks linked to rising household debt.

“If it’s allowed, lending to households will be unregulated with weak financial profiles and could undermine financial system strength if not implemented prudently,” it said in a statement on Thursday.

To note, the lending property developers will not be subject to Bank Negara Malaysia (BNM) monitoring in terms of risk management and underwriting standards imposed on banks.

The Urban Wellbeing, Housing and Local Government Ministry said that eligible housing developers could apply for moneylender licence to provide loans to property buyers.

In 2014, BNM banned the developer interest bearing scheme (DIBS) which allowed homebuyers to put down a small amount upfront and pay the rest upon completion.