Despite the link between banking collapse and housing bubble, the National House Buyers Association (HBA) has urged the government not to relax guidelines on foreign property buying in Malaysia, reported Free Malaysia Today.
The call comes after veteran property expert Ernest Cheong expressed concern that the luxury home glut may ruin banks and eventually lead to a financial crisis.
Based on data from the National Property Information Centre, the number of unsold homes priced above RM1 million increased in Q1 2015 from the previous year.
Since most of such homes are owned by developers or speculators, the failure to sell them could result to banks being unable to recover loans taken on such properties, said Cheong.
With this, he urged the government to introduce measures aimed at encouraging foreigners to acquire luxury homes within the secondary market, since majority of locals cannot afford such homes.
HBA honorary secretary-general Chang Kim Loong said relaxing guidelines on foreign property buying is not the right way to go.
This is because the type of properties that usually cause a property bubble to burst are those targeted at lower- to mid-income groups.
“There has always been a direct correlation between a housing bubble leading to a banking collapse, which further leads to collapse of the overall economy, which ultimately leads to a recession,” said Chang.
However, he noted that the economy would only be in trouble when more lower- and mid-income borrowers defaulted on their housing loans.
According to him, majority of home loans by banks are within the RM150,000 to RM300,000 range, followed by those between RM300,000 and RM500,000.
“The housing loans for properties above RM1 million are the minority. Even then, for anyone to secure a housing loan above RM1 million, they must have a very high credit rating.”
Given the weakening ringgit, Chang said guidelines for foreign property ownership should be tightened instead of being relaxed, increasing the cap to RM2 million from RM1 million to prevent too many properties from landing into the hands of foreigners.
Currently, only Selangor and Penang impose higher minimum purchase price for foreign property buyers, with both states setting the minimum price at RM2 million.
Image sourced from FMT