Is curbing DIBS a solution?

Much focus has been placed on curbing the rising prices of properties but will it be a
cause for concern when it comes to the country’s economic growth? Given the slower-than-expected growth in the country’s economy in the first quarter of 2013, some concerns were raised should the measures become a drag to economic performance, especially when the global economy is shaky and the country’s economy is driven by domestic demand.

Malaysia’s gross domestic product (GDP) growth in the first quarter was lower at 4.1% compared with 5.1% in the corresponding period last year. The pace of growth was the lowest since the third quarter of 2009.

AmBank Group chief economist Anthony Dass tellsStarBizWeek that measures to curb property prices from accelerating significantly may have some impact on domestic demand and economic growth, but they will not be significant to impact the overall economic growth.

He says stronger property prices in the short term could strengthen investment and consumption
spending, giving a positive impact on domestic demand.

“However, in the long term the impact of property prices becomes neutral on domestic demand and
economic growth.

“Our view is that focusing on the property market as a policy tool should be more for short-term macro-economic management.

“Over-stimulating the property market may not effectively contribute to economic growth,” he
explains.

RAM Holdings Bhd group chief economist Dr Yeah Kim Lengsays that the potential curbs on the
Developer Interest-Bearing Scheme (DIBS) will only moderate property sales.

“Sales include a large proportion of purchases for investment purposes, they will not dampen
private consumption significantly,” he notes.

Housing and utilities, on average account for only 22% of household spending according to the
2009/2010 Household Expenditure Survey by the Statistics Department.

Some industry observers say that some sort of measures by the central bank to cool property prices and contain the rise in the household debt that currently stands at 80.2% of GDP are most welcome.

Yeah says: “Although the overall statistics show that household assets are still a multiple of household debt, we should still remain vigilant and not allow excessive growth especially if it is fuelled by imprudent lending or driven by sub-prime loans to vulnerable segments of the population.”

He opines that the house price increases over the past several years continue to exceed the average income growth particularly for the lower and middle-income groups.

“Such prudential measures to curtail speculative buying are welcome to prevent unsustainable and unjustifiable increases in property prices as well as to ensure that the overvalued property market does not wreak havoc on the economy should there be a sharp correction,” he adds.

Industry observers suggest that the hike in the property prices have been mainly driven by the market fundamental of supply and demand as well as other related costs such as building materials and land prices.


A win-win solution?

Dass says the country’s economy growth is mainly driven by investment, hence some measures to
curb property prices will not cause some downside risks to the economy.

He says the potential move to curb DIBS could help to reduce speculative activities in the property market so that prices are reflective of market forces.

“There would be some correction in property prices, however the impact could be temporary.

“This is good, at least it helps to re-balance the focus in the economy rather than being over-dependent on a sector and it helps to curb an asset bubble,” he says.

According to Kenanga Research, the DIBS does not affect banking liquidity, hence the impact would only be a knee-jerk reaction.

It says the impact of a loan-to-value (LTV) ratio of 70% on individuals with more than two housing loans and the change in mortgage assessments from gross to net pay have resulted in cooling property demand.

It says that measures such as the incremental real property gains tax (RPGT) hikes seen over the past two years had resulted in temporary correction before rebounding.

It was recently reported that the central bank had highlighted in its 2012 Financial Stability and Payment Systems Reportthat ever since the imposition of the LTV, the annual growth in lending to such individuals had declined sharply to 14.5% y-o-y in November 2010 to 1.9%
y-o-y in December 2012.

On the proposed property tax on foreign buyers in Johor,Kenanga Research points out that higher property taxes on foreigners would not dampen demand, as Johor properties are much cheaper than those in Singapore.

“We believe the measure is good for the long-term sustainability in demand as the influx of foreign buyers could cause sharp spikes in asset inflation, especially when foreign buyers from Singapore have an advantage on foreign exchange, which could lead to a property bubble,”
it says.

Kenanga Research, in a report, says that there is a concern that more fiscal tightening measures on the property sector such as higher RPGT could surface in Budget 2014.

Real Estate and Housing Developers Association (Rehda)president Datuk Seri Michael Yam
tells StarBizWeek that property prices have always been driven by market forces.

He says that there is inadequate supply of residential properties especially in the Klang Valley and Penang. He adds that there are five factors influencing property prices namely building materials, land prices, labour, compliance and interest costs.

CIMB Research, in a report, says supply growth in residential properties in Malaysia in 2012 was only 1.6% – the lowest in 10 years.

“We believe the cause of strong price increases in recent years is mainly due to supply constraints as opposed to excessive demand.

“In fact, any move by the authorities to curb speculation may have the unintended effect of slowing down supply growth, which would in turn exacerbate price increases over the longer term,” the research house says.

Alliance Research analyst Cheah King Yoong expects the move to impose curbs on the DIBS to only
impact the industry loan growth in 2014.

“We believe that the ongoing speculation of the DIBS removal could accelerate property transactions in the near term, which could temporarily drive the demand for mortgage loans,” he says in a report. - The Star