Bank Negara is studying the risks arising from DIBS with a view of potentially imposing curbs on it

PETALING JAYA: Bank Negara is studying the risks arising from the developer interest-bearing scheme (DIBS) with a view of potentially imposing curbs on it, sources said.

Although it is unclear if or when such curbs would be put in place, Hong Leong Investment Bank (HLIB) said that it may be “later this week”, adding that such a move would be a negative for future sales in the primary property market.

Other industry players think that the measures might be introduced in the second half of the year.

DIBS has become a popular easy financing package offered by property developers in joint-promotion activities with banks in recent years.

Under the scheme, buyers need not fork out much initial downpayment to buy properties, as the developer supposedly absorbs the initial interest. This is until the buyer takes possession of the property.

A high number of buyers enter this scheme with the intention of flipping the property when they gain possession of it, making a profit without having to come up with much capital in the process. Such a scenario fuels speculation.

“Typically, under the scheme, buyers only foot between 5% and 10% of the house price upon signing the sale and purchase (S&P) agreement and only begin payment when the project is completed,” a property consultant told StarBiz.

“There are caveats to this scheme, as buyers commit to a financial obligation upon the signing of the S&P and the interest cost has actually been already passed on to buyers via the higher selling prices.”

DIBS is mainly offered to the high-rise residential segment. Some property consultants have opined that the presence of DIBS in the market has caused prices to be set on an artificially higher trajectory.

Notably, the Singapore government banned DIBS in 2009.

“While the exact measures are yet to be revealed, we believe the curbs would impact this easy financing scheme,” HLIB said in a note yesterday.

According to analysts, most of the sales in the recent property bull cycle were tied to the attractive DIBS scheme at the expense of the secondary property market which has remained sluggish. And given the persistent rise in household debt, the Government is mulling over measures to limit it.

“In the recent past, Bank Negara has been compiling information on the scheme and studying its impact on the sector,” a source said.

Bank Negara had yet to respond to StarBiz’s queries as at press time.

“The difference between the non-DIBS and DIBS pricing can range from as low as 5% to as high as 30% if other incentives like early-bird discounts, stamp duty waivers and cash payments are taken into account,” said Elvin Fernandez, managing director of Khong & Jaafar group of companies.

He advocates regulators to compel developers to be transparent on the various incentives, as it may be difficult to do away with DIBS packages.

“Developers should inform buyers and bankers of the actual value of the discounts they are getting so that house buyers know the true value of the house they are buying,” he said.

UOB Kay Hian Research noted that new launches in selective high-rise projects in the suburbs of the Klang Valley were transacted at over RM1,000 per sq ft (psf) vis-a-vis RM450 psf two years ago.

“Household debt has risen to 80.5% of nominal gross domestic product as at end-December 2012, up from 60.4% as at end-2008.

“We also note that outstanding banking sector loans in the household sector has risen 3.6% year-to-date as at end-April to RM638.5bil from RM616.5bil as at December 2012. As the rise in consumer credit is partly linked to housing, curbs may be introduced to dampen speculation,” UOB Kay Hian said in a report yesterday.

On the financial impact of curbing DIBS on property companies, HLIB said that it would be “negative for future sales in the primary market but the extent of damage varies with the degree of exposure to the high-rise segment for each individual developer”.

UOB Kay Hian reckons that if DIBS or similar schemes were to be tightened, it could “significantly dampen new property launches as speculators will be filtered out”.

The company also does not rule out the possibility of a further upward revision in real properties gains tax (RPGT) to dampen speculation.

In Budget 2013, the Government had raised the RPGT for the second time since 2011, stipulating a 10% to 15% tax for the disposal of properties within two years of purchase, and 5% to 10% for the disposal of properties within three to five years. However, properties sold five years after purchase are exempted from the RPGT.

Source The Star, 25 June 2013

Analyst: DIBS curb would have little effect on banks

y Maybank Investment Bank Research

It has been speculated that Bank Negara is studying the risks arising from DIBS with a view of potentially imposing curbs on it.

ASSUMING the developer interest bearing scheme (DIBS) is curbed, we estimate the worst case scenario to be a marginal 0.7 percentage points (ppt) shave off our 2014 industry loan growth forecast of 10.5% to 9.8%.

We believe domestic banks have been more tempered in their exposure to the mortgage segment and channel checks point to limited exposure at this stage. We maintain our industry loan and earnings forecasts for the individual banks for now.

Speculation has it that Bank Negara is looking to curb the DIBS. General guidance is that such loans have made up 15%-20% of new mortgage loans over the past few years and thus some dampening effect is to be expected.

Nevertheless, we believe the impact is likely to be contained by the fact that housing loan growth of the Big 6 banks has been measured and such loans account for less than 5% of total residential loans for the big banks.

Assuming DIBS loans account for 20% of new mortgage loans, we estimate the worst case impact to be a marginal 0.7-ppt decline in our 2014 industry loan growth forecast to 9.8% from 10.5%.

While industry housing loan growth rose 13% year-on-year (y-o-y) in 2011 and 2012 respectively, housing loan growth for the Big 6 banks rose 14% y-o-y in 2011 and at a more measured pace of 10% y-o-y in 2012, with foreign banks picking up the slack in 2012.

Public Bank continues to be the most aggressive in the market, with growth of 17% y-o-y in 2012, but with stringent controls, we understand that DIBS loans make up less than 2% of its mortgage book and that it has been very selective about which developers it ties up with for this scheme.

Based on our channel checks, AMMB (2-year housing loan compounded annual growth rate of 6%) has shied away from the property sector for several years while DIBS loans account for about 1%, 2% and 5% of CIMB’s, Maybank’s and RHB Cap’s mortgage books respectively.

Any move to curb the DIBS would be aimed primarily at further curbing speculative activity in the property market. To be fair, measures to date such as the raising of the loan-to-value (LTV) ratio in 2010 and a hike in real property gains tax in January 2013 have had some success.

Bank Negara had highlighted in its 2012 Financial Stability and Payment Systems Report that ever since the imposition of a LTV ratio of 70% on individuals with more than two housing loans, the annual growth in lending to such individuals had declined sharply to 14.5% y-o-y in November 2010 to 1.9% y-o-y in December 2012.

Individuals with multiple housing loans made up less than 3% of total housing loan borrowers and their borrowings accounted for 13.7% of outstanding housing loans.

Source : Maybank Investment Research, June 27, 2013