Mind the Curb!... (Curbing the Property Sector)

It has been reported lately that some in the market are expecting another round of property lending curb in the works this year in the bid to cool down the property market.

Last year the government installed a two-pronged approach in trying to curb the demand for properties, or more specifically, the speculative demand for properties.The two main methods that I remember were the removal of DIBS and the application of higher RPGT.

I have argued in my previous post that while the removal of DIBS may have some impact, I don't believe the higher RPGT rate would have a significant effect the property prices (and the so called bubble much). Read "Lagi  lagi RPGT...".

Now they are saying that lending in the property sectors is still strong. That means the demand for properties are still going strong. And not just strong, but may be deemed excessive enough to warrant a new round of curbing exercise.

It begs the questions, why is the property sector lending continue to increase 'strongly' despite the earlier curbs? So long as the lending is strong, the demand for properties will continue to be strong and almost all property purchases in Malaysia are financed through borrowings.

Well, as I see it, banks need to make profits and they can only make profit by lending and profiting on the interest (or profits in the case of Islamic Banks). No lending, no profit. No profit, job out of the window.

Let us look at the lending avenues. If they don't lend to the property sectors where else or whom else could they lend to?

Well, first would be the businesses. Lending to businesses is the major part of economy. SME and big businesses alike. Well, the growth of this sectors is not that significant from year to year, at least not significant enough to absorb all 'curbed-out' property lending amount. On top of that, the SME and businesses have other venues from which they could raise financing, either from the capital market or from quasi government banks like SMB Bank,Bank Pembangunan and the likes.  So if the banks were to replace the property lending to business or corporate lending (non property related), there are limited options there.

Next would be the personal financing, a lending sector that almost single-handedly rebuilt Bank Rakyat. Well, that lending sector has been 'almost cut down by half' with the more restrictive requirements.I guess no chance of channeling the curbed-out property lending to this segment then. To make matters worse, the traditional institutions that thrived on personal financing are now having to look at alternative lending venues and property is the next best alternative for them.

For the time being, Malaysians (regardless of race) generally believe that property is the best long term, must have, investment and everyone will grab the opportunity to own a property every chance he/she gets. So long as we have that, there will be demand for properties.

It is good that the government is trying to avoid property market crash, but i think simply increasing the lending rate is not going to do much except increasing the inflation rate of the country.