Urban Well-being, Housing and Local Government Minister Noh Omar’s decision to grant housing developers moneylending licences to provide financing to home buyers for the purchase of their properties have been likened to creating loan sharks by elected representatives from DAP and PKR.
PKR’s Pandan MP Rafizi Ramli and DAP’s Damansara Utama state assemblyperson Yeo Bee Yin took issue with the interest rate of up to 18 percent that these developers-turned-moneylenders can impose on home buyers.
“The interest rates… are simply too exorbitant. Is Putrajaya trying to make the developers to be the ‘loan sharks’ to the home buyers?
“Allowing developers to loan to home buyers, especially at such high interest rates, will only further exacerbate Malaysian household debts problems, making households even more vulnerable to economic shocks,” said Yeo in a statement today.
Citing Khazanah’s ‘The State of Households II’ report, she pointed out that only 10.8 percent of households in Malaysia could deal with financial shocks and a fifth would not be able to sustain themselves for more than three months if their income is cut off.
Echoing this, Rafizi said the interest rates imposed is similar to ‘Ah Longs’.
“Any borrower that takes out a house loan at this rate is like becoming a slave to the lender as they would have paid four- to six-folds of the borrowed sum at the end of the term,” he said.
Rafizi also warned that it is this practice – lending to those who cannot afford to borrow – that led to the US sub-prime mortgage crisis.
“As a result of the sub-prime crisis in the US, its economy faltered and the country had yet to full recover from its effects particularly in a number of cities such as Detroit,” he said.
‘Plan will drive up housing prices’
Both Rafizi and Yeo also concurred that allowing developers to loan money to home buyers at high interest rates, who otherwise would not qualify for conventional bank loans for their property purchase, would keep property prices artificially high.
“With such lending licences for developers, more unaffordable housing projects would be developed while affordable housing sidelined on the grounds that buyers would still be able to secure 100 percent financing (from non-bank sources),” he said.
Yeo said allowing buyers to borrow more is not the solution to unaffordable housing and questioned if the scheme is merely to help developers to clear unsold units.
“The influx of easy loans from the property developers will enable them to sell their properties at artificially high prices.
“Easy loan coupled with artificial high prices will in turn encourage speculative behaviour, pushing the property price even higher and making housing even more unaffordable.
“We urge Putrajaya to abort the proposed new scheme that allows property developers to become the loan sharks to home buyers,” she said.
Meanwhile, PKR’s Lembah Pantai MP Nurul Izzah Anwar in a statement also urged that the plan be aborted.
“We need to go back to solving the root of the problem by improving comprehensive policies and reevaluating the ownership of affordable housing, coupled with a transparent and people-friendly banking policy,” she said.
Nurul Izzah warned that if the government insists on turning developers into moneylenders, it needs to consider the high household debt and also the risk of developers facing insolvency themselves.
She reminded that the government had pledged to construct half a million affordable housing units and questioned when this promise would be fulfilled.