Freebies, low interest rates pamper house buyers

IT looks like potential house buyers are having the best deal ever — they are being courted by developers who are eager to seal more sales by offering better terms, including freebies, as well as financiers who have brought down interest rates to among the lowest since 1980.

At rates as low as base lending rate (BLR) of 5.25% minus 2.3%, buyers can lock in their loans for the whole of their loan tenure.

This is made possible by the all-time low overnight policy rate at 2% per annum now.

This compares with the previous rates of BLR plus a certain percentage of spread in the past two to three years.

The high liquidity in the local banking system as a result of the people’s high savings rate, coupled with a low loans growth in the past three to four quarters, has resulted in banks having huge cashpiles.

As at Feb 28, the loans-to-deposits ratio stood at only 73.6%, compared with 92.8% during the 1997 Asian financial crisis and 85.9% in 2001 during the dotcom bust. The banking system is flushed with total deposits of RM976.5bil while total loans disbursed amounted to only RM729.2bil.

This means close to RM250bil is still available for financing purposes.

Amid the global financial crisis and the adverse impact on the local economy, loans for most business sectors, including for small and medium enterprises, are expected to slow down further.

Property loans are still a major source of financing for local financial institutions but since last October, the monthly residential property loans growth has contracted by 5% to 27% on a year-on-year basis.

The low loans rate reflects the people’s cautious sentiment on the state of the economy and their unwillingness to spend on big-ticket items, including property.

Besides new property loans, banks are also looking at the refinancing market as more borrowers are considering the option of re-financing or re-mortgaging their properties to benefit from the existing low interest rates.

If one were to opt for a new loan facility from another bank, the borrower has to be prepared to pay penalty charges for early redemption of the loan. This usually works out to between 3% and 5% of the outstanding loan or the total amount taken.

Depending on the loan tenure and financing rates one has signed up for, it looks like most borrowers will opt to refinance their property as it will still work out to be cheaper for them, even after paying the penalty charges.

In view of the current challenging times when most people are watching over their spending, any amount of savings will be welcomed.

It is understood that some banks have offered to absorb the loan processing fees and penalty charges if the borrower switched to their loans.

With the many financing packages available today, the onus is on the borrowers to weigh all the costs and benefits before signing on the dotted line.

Angie Ng is deputy news editor at The Star

By The Star (by Angie Ng)