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Monday, August 24, 2020

End of loan moratorium and property market’s fate

Experts expect a rise in non-performing loans as many Malaysians face pay cuts and retrenchments.
The Ministry of Finance introduced a six-month loan moratorium starting April 1, under which bank loan repayments were deferred until September.
This was a relief for Malaysians grappling with pay cuts, retrenchment or loss of business due to the Covid-19 pandemic and the subsequent Movement Control Orders.
Property buyers are guessing that prices will decline tremendously after the moratorium ends after next month. (A targeted moratorium extension for a further three months will kick in for those who have had their pay cut or have lost their jobs.)
Some developers have already begun to offer incentives such as cashback, discounts or rebates (some up to 30%), payment plans and free furniture and electronics.
Currently, property prices remain high, apart from a few auction units. How will this year compare with 2019?
Last year, the government’s Home Ownership Campaign (HOC) ran for the entire year and recorded RM13 billion worth of property, or 28,000 units, sold.
What happens after the moratorium?
Expect a rise in non-performing loans (NPLs) because households may not be able to repay their loans due to a loss of income or no steady source of income.
Bank Negara Malaysia deputy governor Jessica Chew has also said some businesses will continue to face difficulties.
More houses will be auctioned off as banks see more housing loans turn into NPLs. Property Auction House executive director Danny Loh anticipates a rise in home auctions, especially after the moratorium ends.
“Also, there may be pay cuts or retrenchments owing to the current crisis and many borrowers may be unable to service their loan commitments, thus leading to more NPL stock,” said Loh.
One of the approaches banks have taken during the downturn is to cut interest rates to spur the economy.
However, the number of buyers who qualify for property loans has dropped because unemployment has spiked to 778,800 people, according to the Department of Statistics Malaysia.
More people will opt to sell their houses if they experience long-term unemployment and believe that liquidating their assets will help them more in the long run.
This issue is compounded for property investors who purchased multiple units and are facing a more challenging environment to rent them out.
Conclusion
Overall, housing prices in Malaysia may fall 10% to 15%. In comparison, during the Asian financial crisis in 1998, the Housing Price Index dropped by 9.4%.
The prices of sub-sale properties are expected to fall faster with more motivated sellers.
Property developers still have cash flow coming in from unbilled sold properties and new project launches.
The future may seem bleak for the property market, but if measures taken by property developers and the government, such as the HOC, are effective, the blow caused by the Covid-19 pandemic will be softened. - FMT

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