Local Counsel - Developers should not play bankers

THERE is a clear process to buying a house. After choosing a house, the buyer pays a downpayment and obtains a bank loan to pay for the house.

Out of the blue, housing developers may soon be allowed to play the role of bankers. They can apply for money-lending licences to give loans to house buyers. This proposal was made by Urban Wellbeing, Housing and Local Government Minister Tan Sri Noh Omar on Thursday during a keynote address at the 19th National Housing and Property Summit 2016, organised by the Asian Strategy and Leadership Institute.

The minister said the move was intended to assist Malaysians who are unable to get a full housing loan from banks.

There is no doubt that this new scheme will have a negative impact on the housing industry. Property development and financial lending have different risks.

It is useful to recall the days when some developers introduced the Developer Interest Bearing Scheme (DIBS). It was a scheme where a developer absorbed the home loan interest of the buyers during the construction period of the property. Since then, housing prices began to skyrocket. It was abolished in 2014 as it promoted speculative buying.

It does not make sense for developers to provide financing to buyers who cannot get sufficient bank loans because of lending regulations and standards. These people will have trouble settling their loans. Moreover, developers themselves need to borrow from banks for their projects.

Is the housing ministry confident that the scheme will not lead to speculative buying?

From the little that is known, buyers who obtain loans from property developers are not getting typical housing loan interest rates given by banks, which are about 5-6%. The interest rates from developers are around 12% for buyers with collateral funds, or 18% for buyers without collateral funds. This seems like a recipe for disaster as the interest rates are so high. Making things worse, those who are likely to borrow from the developers will largely be poor.

If society wants to help the poor, the government has to work out a procedure to do so. The proposed system is not helpful.

There is a minister in charge of housing and he is supported by a deputy minister and hundreds of officers. It is their responsibility to ensure that all Malaysians are well sheltered, including the poor and those who are denied loans from banks.

The state governments also have the power to do something to help house buyers. Every state government has a state executive councillor in charge of housing. He or she can play a big role in ensuring that there are affordable housing projects for the poor.

Furthermore, besides private developers, there are statutory bodies in every state that can build houses. Good and clever state leaders not only help housing developers to build affordable houses, but also ensure that the state governments and statutory bodies also do so.

More specifically, responsible government leaders should ensure that the cost of borrowing money to pay for houses should not be too high.

The present system is not cast in stone. There are good suggestions. For example, Datuk Seri Nazir Razak, a well-known banker is reported to have said that the focus should be on making sure that the middle class have access to bank loans at fair prices while the most needy get borrowing subsidies.

In addition, Finance Minister II Datuk Johari Abdul Ghani is also against the proposal to allow developers to give loans. He said that more unregulated lenders and sub prime borrowers will compound the risk of a debt crisis.

The Cabinet ministers, together with Prime Minister Datuk Seri Najib Abdul Razak, with the help of key ministry officials should sit down and come up with a better system to help the poorer house buyers to borrow money at low interest rates.

Datuk Dr Goh Ban Lee is interested in urban governance, housing and urban planning. Comments: letters@thesundaily.com