By Farah Wahida:
The significant rise in Malaysian home prices over the past few years has shifted the focus on the credit quality of mortgages, according Standard & Poor’s (S&P) Ratings Services.
The credit rating agency’s report titled, Rising Property Prices Could Expose Vulnerabilities in the Malaysian Banking System, noted that the country’s low mortgage rates and resilient economy has supported the sales of houses. However, demand surpasses the growth of supply, leading to spiraling prices.
Moreover, people earning less than RM3,000 are especially at risk of defaults due to their limited income.
“In an economic downturn, these borrowers are more vulnerable to rising unemployment. They are also more at risk when interest rates increase,” noted S&P Credit Analyst Ivan Tan.
Nonetheless, “the Malaysian government is aware of the growing risk from household debt and rising home prices and has taken steps to address weak links in the system.”
S&P also believes that the credit risk of these loans is likely to remain limited even though mortgages form the bulk of the debt portfolios held by banks.
One reason behind this is that “the pace of loan growth has generally been in line with the overall loan growth, and does not suggest a property bubble developing in the country,” said Tan.
A number of factors also indicate that borrower will be able to service their monthly installments.
“One is the resilient economy. With that comes low unemployment. The prevailing low interest rate environment also is a factor.”
“In addition, household indebtedness levels have remained relatively constant even as property prices have gone up, suggesting that household borrowings remain broadly in line with rising household incomes and stable employment,” he added.
Farah Wahida, Editor of PropertyGuru, wrote this story. To contact her about this or other stories email farahwahida@propertyguru.com.my
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