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The decision to allow developers to extend loans to house-buyers has received lots of comments and criticisms from various sources, from consumer advocates, analysts to politicians. This decision has far-reaching implications which require careful consideration. How many developers will be allowed to extend loans to buyers? Five, 10, 100? Once a developer is given a licence to extend loans, can he do so to buyers who purchase property from other developers? Second, loans are part of credit creation in the financial system – part of monetary policy under the purview of Bank Negara Malaysia. Would developers be placed under the watchful eye of BNM once they are authorised to extend property loans to buyers? If not, how would the central bank be able to control interest rates and regulate credit creation? Third, financial institutions such as banks set loan conditions for various reasons. They want to make sure borrowers are able to service the loans, taking into consideration their current and future incomes, the value of the property involved, interest rates and repayment schedules. The objective is to minimise non-performing loans in the banking system. If a buyer does not qualify for a bank loan, it must be for one of these reasons: the income is too low when compared with the loan amount to be taken; a borrower has too many other existing loans; the price of the property is “overinflated”, i.e. there is a wide divergence between valuation and price; and the repayment schedule, even extended to 30 years and beyond, is still too daunting for the borrower. How then could a developer extend loans to buyers who fail to secure loans from banks in the first place? Are they not trying to create a problem that is bound to happen? If fact, developers are non-deposit-taking institutions, unlike banks. The cost of funds for developers can only be higher, not lower, than banks. With higher costs, it is natural to impose higher interest rates. If borrowers are not qualified to take loans from banks with lower interest rates, how then are they able to take loans from developers with higher rates? It would be quite irresponsible for us to focus on business sentiment, growth and buoyance, but at the expense of creating a nation of unsustainable debtors. The only “justification” I can think of is that our underground economy is getting bigger by the day. There are more people now with lots of money, but without income or tax evidence to show. Taking loans from developers could be part of the money laundering process. |
