Spectre of rising household debt

PETALING JAYA: Although the latest measures introduced by Bank Negara to rein in household debt would ensure a sound and sustainable household sector, more is needed to prevent debt from reaching alarming levels, said economists.

The household debt in Malaysia, which stands at about 83% of gross domestic product (GDP), is higher than many other countries in the region like the Philippines, Indonesia, Singapore, Hong Kong and Japan. If not prevented, it could put a damper on the country’s 5%-6% projected GDP growth this year.

RAM Holdings Bhd group chief economist Dr Yeah Kim Lengsaid he believes the latest measures, in combination with the earlier ones, would have the cumulative, albeit modest and gradual, effect of crimping household debt.

The latest measures would help to moderate the increase in total household debt, as the earlier responsible lending guidelines introduced last year have only had a marginal impact on slowing down the rise in total household debt to 13.0% in 2012 from 13.4% in 2011.

Certain measures, therefore, have to be in place in combination with the existing ones to ensure the soundness and sustainability of the household sector. “The loan-to-value (LTV), currently at 70% for the third housing loan, and debt-to-income net of all other borrowing measures, could be further tightened. For instance, the 70% LTV could be lowered or applied to the second or first loan, while the debt-to-income could be lowered to 30% instead of 50% of monthly net income,’’ he told StarBiz.

In addition, he said the net income could be defined more stringently to include other obligations of the borrower. To rein in excessive property price increases that have contributed to rising property loan demand, the real property gains tax (RPGT) could be further raised to curb speculative activities, he added.

Other complementary measures needed include efforts to boost housing supply and containing construction cost increases, he said, adding that more blunt monetary measures such as raising the overnight policy rate or banks’ reserve requirements could be applied if the macro-prudential measures applied thus far prove inadequate to contain household debt build-up.

The latest measures by the central bank to curb household debt include imposing a maximum tenure of 10 years for the repayment of personal loans and a maximum of 35 years for property loans, and prohibiting the offering of pre-approved personal financing products.

Apart from this, key credit providers are required to observe prudent debt service ratios in their credit assessment to ensure households have sufficient buffers to protect them against rising costs and unexpected adverse events. The bank’s new measures also bring some of the lending practices at development financial institutions and non-bank financial institutions (NBFIs) in line with those of conventional banks.

Malaysian Rating Corporation Bhd chief economist Nor Zahidi Alias said more measures were needed to curb speculative activities. “Implementing more measures to curb speculative activities in the property market can be positive. This may include a lower LTV ratio for third property purchases, higher stamp duty for property transactions and higher RPGT. All these would help curb speculative activities,’’ he noted.

He said the latest measures by the central bank were positive in view of the serious level of household debt in the country. The growth in personal financing has been robust in the past several years, especially among NBFIs, he said, adding that NBFIs had collectively extended 57% of personal financing credit to households in 2012.

Zahidi said no doubt they are secured by automatic salary deductions (for civil servants), but the rapid surge in the amount of personal financing extended to households would pose some sort of risk to the economy through a possible decline in private consumption in the event of a serious downturn.

He foresees the household debt level beginning to stabilise next year should the new measures begin to take effect in controlling the growth in personal financing. He said no doubt there was still a sizeable amount of loans related to mortgages, but at least, they were backed by underlying assets.

In a recent report, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz noted that housing loans formed the bulk of Malaysia’s household debt at 44.5%, while 16.8% were personal loans.

(The Star, July 22)

UEM Sunrise to fully develop Mont Kiara landbank within eight years

KUALA LUMPURL: Property developer, UEM Sunrise Bhd, is aiming to fully develop its 36.42 hectares (90 acres) landbank in Mont Kiara within eight years, said its Chief Marketing Officer, Siti Mariam Mohd Desa.

"At the moment, we have not really thought out in detail, the sort of development for that prime land. We will look at the market (demand) and are not in rush to develop it," she told press conference on an update to the company's Arcoris Mont'Kiara project here today.

She said due to its strategic location and easy accessibility, the company also planned to expand the landbank in the related areas.

To date, UEM Sunrise, the master developer of Nusajaya, has a landbank of 4046.85 hectares (10,000 acres)in Peninsular Malaysia.

Arcoris Mont'Kiara, a mixed-use commercial high rise development project, comprises business suites, small office home offices (SoHo), service residences, a retail plaza and boutique hotel.

Providing an update on the sales progress, Siti said the business suites had been fully sold, residences at 95% and 70% for the SoHo. The retail plaza and hotel are not for sale.

The company is currently looking for suitable food and beverage tenants, as well as potential hotel operators, to run the 275-room boutique hotel.

The projected RM1bil gross development value project is targeted to be fully complete by the first quarter of 2016. - Bernama (19 July 2013)

New lease of life for ageing buildings

There are a few things you can do to an ageing building: abandon it, live with it, knock it down or redevelop it to adapt to the times.

In space-hungry cities, the first option is rarely the solution. On the contrary, the scramble for a central location means that developers are willing to buy old buildings and rebuild it higher.

As developers build taller structures, should they also be building to last?

Ranhill Bersekutu mechanical services deputy director Arvind Menon notes the importance of building adaptability.

In his presentation at the Veritas Design Group seminar on tall buildings recently, he speaks of the need for foresight, to build for future use rather than only current needs.

“A building can stand indefinitely if it is maintained and or rebuilt as required,” he tells StarBizWeek. “Iconic towers such as the Chrysler building, over 83 years old, have remained functional.”

In a building’s life span, he says, the way it is used, viewed aesthetically and its adaptability towards technology ensures its survival.

“Great buildings and iconic structures can revive its surroundings when they are upgraded,” he says.

He gives a local example of the old Empire Tower which is now the landmark Intermark.

Arvind believes that all buildings regardless of usage should consider the provision to adapt for the future, although this is more so for commercial developments.

“Adaptability would be more important in commercial high rise than residential as residential developments have a fixed usage with residential amenities. Commercial building are usually built with higher floor-to-floor heights, which allows them to be converted to residential if necessary,” he says.

That said, there is no denying that the cost to maintain a building will also eventually exceed its functional value. However, a well-designed building with sufficient room for expansion would delay this eventuality.

Arvind points out that there have been few buildings in Malaysia that have “lived out” their life expectancy, unable to cater to the needs of the current times. The Pekeliling Flats and Wisma Angkasaraya are some examples.

“Both have been demolished to bring forth new development, but similarly there are also buildings, like the Empire Tower, which have had a new lease of life through new technology and risers,” he shares.

Under Ranhill’s portfolio, Arvind notes that its recently completed project, Menara Binjai, has provision for vertical and horizontal services expansion, “allowing the building to meet its tenant needs now and in the near future” as a land-scarce city continues to expand upwards.

As Veritas CEO David Mizan Hashim puts it: “We should embrace this evolving urban paradigm (building higher) that offers humanity the promise of an energy-efficient ecosystem wherein populations have migrated to dense and tall cities.”

The Star July, 13