Developers having hard times?

Foo says individual banks and lenders have their own policies.

STARTING this year, more banks have been seeking out valuers to assess property values for projects they are end-financing, something not widely practised before but rightly, should have been part and parcel of the lending process, property consultants say.

The aim of these extra precautions – which banks began to practise this year – in addition to the macro-prudential measures issued by Bank Negara, is to limit exposure and risk to the property sector, consultants conclude.

Prior to this, valuers were more involved in the secondary market when buyers buy directly from owners.

Starting this year, increasingly valuers have been involved even in the primary market where buyers buy directly from developers.

This means lenders and banks are taking more precautions in their risk assessment process. 

Choy: ‘The demand is there and the buyers are more genuine.'

“If there are 100 units, a bank may provide end-financing for 30 units to limit their exposure to any one particular project,” says Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS) vice-president Foo Gee Jen.

Foo was speaking to reporters at a press conference to promote the 24th National Real Estate Convention with the theme Real Estate in 2014: Issues, Perceptions & Review to be held on Oct 21.

Banks’ stringent risk assessment is one of the many factors contributing to the high rate of loan rejection, says Foo, who is also CH Williams Talhar & Wong Sdn Bhd managing director.

He says individual banks and lenders have their own policies which give different weightage to developers and their track record, projects, the location of the project and other factors.

“They formulate their own policies in order to improve their risk assessment process,” says Foo.

Besides assessing developers and their projects, the lending institutions are also more stringent when assessing potential borrowers.

PEPS treasurer Choy Yue Kwong says the lending institutions are cross-checking the payment patterns of credit card holders when they apply for housing loans in order to work out a profile of the applicant.

“If they missed a month or two settling their credit card bill, they run the risk of their loan application being rejected,” says Choy, who is also Rahim & Co (Selangor) Sdn Bhd manager director.

“The demand (for housing) is there and the buyers today are more genuine (they are not speculators) but banks are not helping them (as before),” says Choy.

Mani: ‘Is there really hard times?’

How the different parties view this is moot but lenders are finally – it seems – no longer trigger-happy in that they are taking responsibility they do not over-lend. If one were to consider history, there are just too many economic and financial crisis that are property-related.

Choy says lending institutions are also more strict with developers and contractors. The last couple of years have seen contractors and small developers entering the market in order to make quick gains. Although these contractors have their own land, lenders – practising discretion – are advising contractors-turned-developers to enter into joint ventures with developers to qualify for bridging loans.

Therefore, when developers lament about going through “hard times”, they need to define what they mean by “hard times”, says valuer Datuk Mani Usilappan, the organising chairman for the coming real estate convention.

What is this hard times in relation to the good times? Is there really “hard times?” he asks.

If developers take three weeks to sell instead of three days, is this considered as hard times? If they have to build less, because of the current slowdown, can this be considered as “hard times”?

“I have yet to see an anatomy (a breakdown of the cost to build) a house. What is the cost of construction? What is the land value? What is the profit margin?” Mani asks. 

If 2014 is considered as challenging based on the sector’s “good times” a couple of years before that, then maybe 2014 is not really hard times, says Mani of Mani Usilappan Chartered Surveyor. - The Star