BY Chris Prasad
While rising non-performing loan (NPL) figures do not paint a pretty picture for the overall economy, some property market experts predict that there could be an unintentional positive flipside to the situation.
Industry professionals engaged in the secondary market believe that the threat of increased loan defaults this year could result in a higher number of properties being put up for auction, thus providing homeseekers with a larger selection of properties that can potentially be secured at bargain prices.
Additionally, many of these are expected to be new properties, as those who opted for “easy purchase” schemes three or four years ago may now be struggling to cope with loan financing commitments given the drastic change of our economic climate.
In Malaysia, property auctions are limited to foreclosed properties that are auctioned off by banks or the High Court, primarily as a means to recover the loan sum and not necessarily to make a healthy profit. To buyers, this presents an opportunity to secure choice properties below prevailing market prices, which contemporary homeseekers widely criticise as being inflated.
The influx of newer properties into the auction market has been predicted by a number of auction-related firms, including online auction listing platform AuctionGuru.com which recently said that auction cases are expected to rise by the third quarter of 2016 as a result of the (now banned) developer-interest-bearing-scheme (DIBS).
DIBS was a short-lived payment deferment scheme which allowed developers to absorb the mortgage interest during the construction period and buyers to only make loan repayments once the property is completed. The scheme was outlawed by the government in 2014 amidst concerns that it would encourage speculation and push up property prices.
The key factor in play now is the fact that many if these DIBS properties will soon be completed and payments are due. However, a number of aspiring home buyers may have initially overreached in utilising this easy payment scheme during healthier economic times, not foreseeing the downturn that would occur a year or so later.
“What this means is we could see brand new properties going under the hammer. Making the situation even more enticing is the fact that these properties will come into the market at a time when there is a surge in supply of residential properties, particularly high-rises, which translates into good bargain opportunities for buyers,” said veteran property investor and auction enthusiast Tiang Boon Chong.
Furthermore, given that an array of easy payment schemes that were popular between 2009 and 2013 focused on inner-city high-rise residential projects, there is likely to be more SoHo (small-office home-office), SoVo (small-office virtual-office) and SoFo (small-office flexible-office) units making their way to the auction platform.
Meanwhile, the growing impact of NPLs on the property market has been confirmed by Bank Negara Malaysia (BNM) in its Financial Stability and Payment Systems Report 2015, which states that the NPL numbers are rising for loans issued in 2009, an indication that the first batch of loans under DIBS or similar schemes are beginning to turn sour.
The central bank said that the effect of selling properties under such schemes is expected to be seen this year and in the 2017-2018 period. In some areas, it said, this is already evident in the rising oversupply of high-rise residential units.
“Because there is an oversupply situation, owners may not get the rental they need to cover their mortgages. Coupled with the rising cost of living, repayment difficulties may increase eventuating in some of these properties entering the auction market,” said a BNM source.
Although BNM cites a marginal 1.6 per cent annual increase in NPLs (as at Nov-2015), leading financial institutions such as Maybank Bhd forecast a gradual increase of between 2 per cent and 2.5 per cent over the next two years.
On the auction front, an increasing number of new properties could spell resurgence of popularity for this method of home purchasing. Enthusiasm for auctions has declined over the last three years, due to the fact that a large portion of the property stock has been from the secondary or sub-sale market. The influx of newer properties is expected to change that dynamic.
In 2015, the Malaysian auction market saw 28,750 properties with an estimated value of RM7.6 billion go under the hammer. By comparison, 35,576 units worth almost RM8 billion were auctioned in 2014.
However, residential units have long been the favoured stock at auctions, accounting for 89 per cent of all auctioned properties last year.