Rising Foreclosure Cases in Malaysia

The number of properties foreclosed is rising and is expected to increase in the second half of 2019, according to The Star.

  

The volume of auction properties rose to 32,611 cases, with a total reserve value of RM15.56 billion in 2018, according to AuctionGuru’s 2018 Auction Report. It was about 90 properties a day!

Up to April 30, 11,203 units valued at RM3.85 billion were being auctioned in the first four months of this year. The number of properties went under the hammer is rising every year, indicating the housing loan defaults are rising as well.

According to AuctionGuru, the challenging part in the property market currently is that salary increments among workers have not caught up with property price growth, and therefore limiting affordability.

Banks on the other hand may have problems with the way properties were priced, marketed and sold in last few years.

Banks disbursed loans based on sales and purchase agreement (SPA) price, instead of the actual house price, less rebates and freebies. For instance, if the rebate is 35% to 40%, giving a 70% financing is still considered high. The bank is disbursing more than the net house price.

Ten years ago when the market began to revitalise, mortgage brokers would apply up to six banks for a buyer. The buyer may then end up buying more than one unit if more loans were approved, sometimes with the “motivation” of a cash rebate. The more units they buy, the more rebate they get, and if the cash rebate is big enough, they believe they could use it to pay their car loans, or even use in house flipping.

Banks however were unaware of the multiple loan applications. “This led to banks asking for termination letters from the other banks, when they got wind of it,” the source says. “Buyers may face financial difficulties when they have to pay full instalment.”

As a result, some banks today request the property to be valued independently when the developer sells to buyers. They want to know “the real price” instead of the SPA price for loan approval.

This whole phenomenon of a property cycle is not new. The level of coordination is always low. The authorities approve development, developers look for a quick return and banks channel liquidity into “safe” assets like property. Then there is growing urbanisation, young people on their first rung of their career (hoping to purchase) and speculators – what would we do without them! Once the “bubble” is reached, there is catharsis with significant drop in prices and more foreclosures! Politicians, bankers and others promulgate “new” policies and create new institutions like “Danasomething”. For a while, we will not sin! Then we forget and the whole process starts again to reach new heights – just examine 1985-87, 1997-99, 2008 (U.S. case), if you don’t believe!

Referrence:

Foreclosures on the rise, The Star, 15 Jun 2019

More defaults expected in the second half, The Star, 15 Jun 2019

More went under the hammer in 2018, EdgeProp, 23 February 2019