Forced reckless lending: new form of vote buying

The New Straits Times today screamed this enticing headline:

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Newly employed to gain under 'My First Home' plan
BETTER PROSPECTS: Requirement to work for at least six months abolished


FROM Jan 1, Malaysians, especially young adults, can now buy a house as soon as they get jobs.
Under the tweaked My First Home Scheme rules, they can immediately apply for loans to buy their first home
Earlier, they had to work for a minimum of six months before they qualified for loans.
Cagamas SRP Bhd (Skim Rumah Pertamaku) said it had abolished the minimum employment period.
It also cancelled the stipulation that workers needed a minimum savings record of three months in banks.
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The original intention of Cagamas maybe noble, helping Malaysians to own their first home.
However, like many of the good institutions in Malaysia, for example, the judiciary, the Employee Provident Fund, Petronas, Bank Negara Malaysia, Felda etc, once under Barisan Nasional management, dubious and worrying development would occure.

Any responsible lender calls for proper scrutiny of the borrowers' ability to repay. Cagamas is guaranteeing housing loans with tax payers' money hence has a huge responsibility to safeguard tax payers' money as well as the financial position of participating financial institutions
Imagine putting a retiree's hard earned savings into the hands of a young and untested upstart.
Unless one is incredibly lucky, one should live by the practical code of "learn to walk before you run". From young, I was taught to save enough money before spending on non essential items like a new toy. This lesson should be extended to as far as purchase of one's home as well - earn and save enough before you are ready to buy.
Picture this, a young person who just started working and have very little savings goes to a bank and ask for a housing loan. He earns RM1,800 and asking for a 40 years old loan to purchase a RM300,000 condominium. Any sane credit officer applying standard operating procedure would turn him away ("come back when you are ready, sonny") and the market forces even itself out .
The borrower needs to show some track record of earning to convince the bank to take deposits from the public and lend out the cash. Property developers will not find unreasonably subsidised purchasers and over build properties or over value their stocks in trade.
Yet with one stroke, Najib administration does away with professional prudence. It is interfering with judgement of professional bankers, destroyed carefully laid down standard credit evaluation procedures, putting bank customers' hard earned savings at risk - all for the another GE goodie package?
Imagine, a person started working and quit within 4 months and yet he or she is entitled to Cagamas / general public's guarantee! Just barely a year ago, Bank Negara impose more stringent lending requirements and now a complete reversal just because a political alliance is desperate?
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Wednesday January 4, 2012

Banks tighten lending rules amid uncertainty

By DANIEL KHOO danielkhoo@thestar.com.my


“Given the state of the global economy, it is timely that Bank Negara imposes stricter rules on lending to continue to keep lending activities in the country at a healthy state. A healthy banking system will only ensure a healthy economy,” the analyst added.
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Given the ridiculous and run away increase in cost of housing in Malaysia, salaried population whose wages can't keep up with property prices need assistance. However, this latest loosening of lending requirements is focusing on the wrong area.
If housing prices have shot up tremendously and yet salary levels lag behind, one has to ask, "where did the money go"? If a businessman's sales increased by 50%  and yet his workers are given a 3% raise, one has to ask, "where did the money go?"
BN administration has failed to answer this question and the only solution seems to  allow more hard pressed wage earners to borrow more and easier. This is not the right emphasis or solution!

According to a Nov 2012 issue of Chinese language real estate magazine REAL ESTATE MALAYSIA (KDN: PP17682/03/2013 (031980)), property developers defending themselves claim that construction costs have skyrocketed in recent years.
Among the highlighted reasons are:
* Land prices appreciated sharply with areas within Kuala Lumpur and Penang are going for as much as RM2,000 psf
* Malaysian Construction Industry Development Board reveals that there is a 50% increase in construction material costs from 2002 to 2010 with particularly steel prices have gone up by 150% from 2006 to 2008
* Developers also cite the Caj Pemajuan 2010 as a factor for the increase in cost whereby developers are taxed on appreciation of the land bank value.

BN is not doing enough, if at all, to stem inflation, curb speculation or reducing the cost of business by eradicating corruption, inefficiency and wastage. Making borrowing easier is just passing the burden and risk to the rakyat, whether as the purchaser or bank deposit customers whose savings and interest rate earnings are under siege.






4 comments:

  1. Like everything else the government does lately , these are unsustainable goodies to get the votes. This is very similar to the zero down policies to increase housing demand that eventually led to the subprime disaster in the US. The difference is that these were backed by private companies most of which went belly up because of this. But ours is backed by Cagamas using public funds. Let's see,anybody can qualify for a loan the moment he gets his first job.Obviously he doesn't have much,if any savings for the downpayment.(Looks like it will be Zero down) So what is there to stop a new buyer from quitting his job in one month because he does not like his bosse's face? It has been known to happen with the new generation of choosy spoil brat workers. He's got absolutely nothing to lose. The sub prime meltdown in the US has left large swathes of homes going for pittance with no takers. If the banks go along with this, they are as irresponsible as the government.

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