Putrajaya housing plan is to prop property boom, says Pakatan

Nurul Izzah said the government’s move to prop the market with loans might cause a subprime crisis. — File pic

KUALA LUMPUR, March 10 — The Najib administration’s move to provide young, low-income earners with 100 per cent housing loans is the latest move to keep the property boom alive, opposition lawmakers said today.

PKR vice president Nurul Izzah Anwar noted the Treasury’s Housing Loans Division also said it would disburse RM6.8 billion this year to government servants, up from RM5.9 billion last year.

“Has the government taken into account issues such as price control, speculative avoidance and the consequential burden to our financial system?” the Lembah Pantai MP asked.

The government’s My First Home Scheme launched this week will enable young adults aged up to 35 and earning less than RM3,000 to get 100 per cent financing to buy houses worth between RM100,000 and RM220,000 with a repayment period of up to 30 years.

The government, through Cagamas Berhad will bear the initial 10 per cent deposit fees to purchase a house.

Government employees will also be able to borrow up to RM450,000 for housing, up from RM360,000 previously.

Her fellow vice-president Chua Tian Chang said the government was trying to boost demand in the market to keep the bubble afloat.

“They are pushing a populist scheme with cheap loans,” the Batu MP claimed.

The property market was reported to have shown signs of cooling towards the end of last year due to oversupply and tightening measures on investment with prices for both commercial and residential property, especially in the high-end segment, experiencing a dip.

Figures in a report by property consultancy DTZ Research released in January also showed that office occupancy rates also fell from 87.9 per cent in the second quarter to 86.4 per cent in the fourth quarter.

ECM Libra also reported that residential and non-residential property loans, which accounted for 44 per cent of loans growth in 2010, are showing signs of growth moderation.

Residential loan approval contracted 3.8 per cent year-on-year in December last year while non-residential loan approval slowed to 30.2 per cent from 47.3 per cent in November.

Nurul Izzah said the government’s move to prop the market with loans might cause a subprime crisis.

Chua also said that the My First Home Scheme would expose financial institutions to higher risks of default.

The United States subprime crisis, which helped usher in the ongoing global financial crisis, was caused by the widespread availability of easy loans that were hit by high default rates once the US property bubble burst around 2007.

Low interest rates coupled with loose terms and conditions, such as no downpayment, had encouraged borrowers to assume mortgages that were larger than what they were able to service once the property bubble burst.

Prime Minister Datuk Seri Najib Razak denied yesterday any risk of a US-style subprime crisis here as Bank Negara would provide strict supervision and ensure that banks would not over-lend.

However, PAS vice president Datuk Mahfuz Omar said that despite the eligibility requirements, the system could be abused by proxies to speculate in the market.

He suggested that young workers be able to use their Employees Provident Fund (EPF) contributions to fund home purchases instead of saddling them with debt from 100 per cent loans.

Umno’s Johor Baru MP Datuk Seri Shahrir Samad disagreed, saying that first home owners in the RM100,000 to RM220,000 range were buying to live in, not to speculate.

They would plan their finances properly and would not be affected even if property prices fell as they were not looking to sell for a profit, the former domestic trade and consumer affairs minister said.

Datuk Ibrahim Ali, president of right-wing Malay lobby group Perkasa, said the move to provide 100 per cent financing for home ownership was no more risky than similar loans for cars.

“At least houses can appreciate in value whereas cars can only depreciate,” the Pasir Mas MP said, adding that the government should increase the loan ceiling to RM350,000 for homes in the Klang Valley which are priced higher than elsewhere in the country.

DAP publicity chief Tony Pua also said that while there was a higher risk of default, the age and earning limit meant that the limited number of loans given out would not leave lenders overexposed.

Malaysia’s household debt rose 8.4 per cent from RM516.6 billion at the end of 2009 to RM560.1 billion in August 2010, according to CIMB Research.

As a percentage of GDP, household debt increased from 66.7 per cent in 2004 to 76 per cent in 2009.

The share of household loans to total bank loans, meanwhile, rose from 35.2 per cent in 2000 to 55.5 per cent in August 2010. - Malaysian Insider