Property prices increase at slower pace

PETALING JAYA (June 11): Property prices in Malaysia increased, albeit at a slower pace in 4Q11 from previous quarters, according to data on Bank Negara Malaysia's (BNM) website.

In 4Q11, the Malaysian House Price Index grew 6.6% compared with a 9.9% increase in 3Q11, and in contrast to gains of 10.6% in 2Q and 9% in 1Q.

Five out of six states under the House Price Index — Selangor, Johor, Penang, Negri Sembilan and Perak — recorded slower growth in house prices in 4Q11 compared with 3Q.

In contrast, Kuala Lumpur registered higher growth with a 13% increase in 4Q11 versus 11.3% in 3Q11.

Selangor saw a growth of 7.2% in 4Q11 compared with 11.6% in 3Q11. For 2Q11, Selangor's growth was 13.9% and 12.1% in 1Q.

In Johor, the quantum of increase in house prices was 5.4% in 4Q11 against 7.4% in 3Q11, while in Penang, it was 9.9% in 4Q11 versus 10.2% in 3Q11.

House prices climbed 3.2% in the final quarter of 2011 in Perak, which was much lower than 11% in 3Q, and 12% in 2Q. In Negri Sembilan, house prices grew 2.6% in 4Q11 compared with 10.2% in 3Q and 10.5% in 2Q.

According to BNM's Financial Stability and Payment Systems Report 2011, house prices have continued to increase at an annual average of 5.9% on a quarterly basis in the recent three years, compared to the long-run average of 3.9% for 3Q11.

The bulk of the loans extended for the purchase of residential properties was for those priced above RM250,000.

In 2010, the central bank started implementing measures to mitigate excessive investment and speculative activity in the property market as well as to ensure rising household debts did not pose financial stability concerns.

Household debts in Malaysia became a concern as they started to balloon hitting 77.6% last year. The bulk of household debts came from home financing.

As such, BNM was quick to implement measures for the property sector. A 70% loan-to-value (LTV) ratio was applied to individual borrowers with more than two housing loans in 2010, while capital charges on banks were raised for residential property loans with LTVs exceeding 90%.

Last December, residential property loans taken by non-individual borrowers were also subjected to a LTV ratio of 60%.

There were also guidelines for credit cards, which included higher income eligibility. In addition, effective this year, banks are using net income instead of gross income to calculate the debt service ratio for loans.

This story appeared in The Edge Financial Daily on June 11, 2012.