Rate hike spectre has developers worried
Business  Times 31/5/2006

JUST the thought of Bank Negara Malaysia raising benchmark interest rates further from the current 3.5 per cent is enough to send shivers down the Malaysian property market.

Property developers are already bracing themselves for slower sales as housing loans become more expensive. With higher interest rates, house buyers borrowing money from the bank will have to pay back more over a period of time.

In a telephone interview with Business Times, Real Estate Housing and Developers Association (Rehda) president Datuk Jeffrey Ng Tiong Lip talked about how developers are coping in this challenging situation.

“It’s a buyers’ market now. House buyers are not rushing in, particularly those who are buying for investment. Instead, these investors are more selective, taking their time to make sure they are getting the best deals. It’s very challenging for property developers like us,” he said.

Despite Bank Negara’s recent decision to keep the overnight policy rate (OPR) at 3.5 per cent, Ng said that Rehda members are not taking it easy because they anticipate interest rates will climb further in the second half of the year.

With the Government approving an average 12 per cent hike in electricity tariffs from tomorrow, this is set to fuel inflation and thus mounting pressure on the Government to further tighten monetary policy by raising interest rates again later.

Another factor that has curbed consumer spending is the 30 sen per litre increase in petrol and diesel prices three months ago. Having to spend more on transportation, consumers have less money and take a longer time to save to buy property.

Since November last year, Bank Negara has raised interest rates three times, or a total of 80 basis points to 3.5 per cent.

“When I say black clouds in the property market, I’m not saying that there’s no growth. Over all, there is growth. It’s not all doom and gloom.

“The property market is growing, but it’s growing at a slower pace. Higher interest rates mean house buyers having to service more expensive housing loans,” Ng said.

Mayban Securities Sdn Bhd, in a recent note to investors, downgraded its recommendation on property firm Boustead Properties Bhd to “hold” from “buy”, citing rising interest rates having a negative impact on demand for the company’s development in Mutiara Damansara.

Also, Paramount Corp Bhd, in a recent analyst briefing, cautioned that its results for financial year 2006 could see an up to 25 per cent sales drop in its property division.

No developer would want to openly admit that their own business is not doing well. But one can sense property developers intensifying their marketing activities through newspaper advertisements and radio commercials.

Ng explained that property developers try to catalyse sales by offering value-for-money packages. Instead of reducing house prices, many developers come up with disguised discounts to make the purchase more affordable.

Without naming names, he said a handful of developers are paying the stamp duty for buyers, which can be very substantial considering it is 4 per cent of the property value.

There are also some developers who accept deferred payments; a buyer pays 10 per cent downpayment and the balance only when the house is completed.

Ng also revealed that several Rehda members even waive the usual requirement to pay the 10 per cent downpayment.

“Of course, the most common value-add offerings are goodies and freebies. House buyers are offered air-conditioners, washing machines, holiday packages, and even luxury cars like BMWs,” the association president said.

“Despite all these factors making it more challenging to sell properties, there are still pockets of location that see robust demand for office units and shopping spaces,” he said, citing certain properties on Penang island that can fetch higher prices than prime areas in Kuala Lumpur.