Last updated Thursday, September 29, 2016 12:01 am GMT+8

Thursday September 22, 2016
03:23 PM GMT+8

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A worker is seen at a construction site, with the Malaysia’s landmark Petronas Twin Towers in the background, in Kuala Lumpur September 12, 2013. — Reuters picA worker is seen at a construction site, with the Malaysia’s landmark Petronas Twin Towers in the background, in Kuala Lumpur September 12, 2013. — Reuters picKUALA LUMPUR, Sept 22 — The Urban Wellbeing, Housing and Local Government Ministry’s suggested 6 per cent cap on interest for loans from housing developers is not viable, according to economists.

They also maintained their criticism of minister Tan Sri Noh Omar’s proposal, saying it would create a “shadow banking” network that is not a long-term solution to current problems with housing affordability.

Former RAM Holdings Group Chief Economist Dr Yeah Kim Leng further said Noh’s suggestion could drive developers to financial and cash flow problems, indirectly worsening the problem.

“There is a risk of creating a shadow banking system since this is unregulated and developers may face risk of delinquency that may affect their business in the future, especially their ability to assess credit worthiness,” he told Malay Mail Online.

Another chief economist with a local bank shared Yeah’s sentiment, adding that there were still too many unresolved technical issues for the scheme to be considered seriously.

The person who requested anonymity said matters such as loan types and tenures must be clearly defined before the system could be fully evaluated.

But he voiced concern about the long-term effects of the plan on the government’s commitment to providing affordable homes, saying the scheme may allow buyers to purchase more expensive homes with the added loan, and artificially subdue demand for cheaper houses.

RHB’s research division chief economist Peck Boon Soon was more receptive of the proposal, saying that the interest cap suggested would not lay the foundations for a subprime crisis as initially feared.

Peck was unconvinced, however, about the attractiveness of the loan scheme, pointing out that the 6 per cent interest was significantly higher than the home loan rates currently charged for mortgages.

“For normal buyers, they would not want to borrow from developers. In general, if you look at commercial banks, the rates are all below 5 per cent. So how does it make sense to borrow from developers who impose a 6 per cent rate?” he said.

Earlier this month, Noh announced an initiative for property developers to offer bridging loans to consumers who could not come up with the higher down payments due to the lower loan-to-value ratio set by Bank Negara Malaysia.

However the proposal has been met with fierce opposition, including from his very own colleague, Second Finance Minister Datuk Johari Abdul Ghani, who deemed the proposal illogical and unsustainable.

The move was initially thought to be for the full loan amount and at interest rates of up to 18 per cent as allowed under the Moneylenders Act. It was later clarified that these would be for shortfalls in downpayment and at interests marginally higher than bank loans.

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