Malaysia Tightens Mortgage Rules to Curb Speculation

Malaysia’s central bank placed a limit on the loan-to-value ratio for people taking out third mortgages to buy homes in a bid to moderate “excessive” investment and speculation in urban areas.

A maximum lending limit of 70 percent will take immediate effect, Bank Negara Malaysia, the country’s central bank, said in a statement today. Banks typically provide loans of as much as 90 percent of the value of a property.

The Southeast Asian nation joins Singapore, Hong Kong and China in introducing measures to cool their real estate markets on concerns that asset bubbles are forming as home prices surge. Singapore in August increased down payments for second mortgages and imposed a stamp duty on property held for less than three years.

“While Malaysia is not experiencing a general property bubble, targeted pre-emptive measures are appropriate to moderate the increases in property prices that are evident in selected locations that are speculative in nature,” central bank Governor Zeti Akhtar Aziz, said in a speech sent to the media today.

Home prices rose 5.6 percent during the first quarter of this year and 4.2 percent in the second quarter, Zeti said. Specific locations, particularly in and round urban centers, have experienced faster growth, both in the number of transactions and values, the central bank said.

Multiple Purchases

This has been coupled with an increase in financing provided for multiple-unit purchases by single borrowers, the statement said. The targeted implementation of the loan-to-value ratio should moderate “excessive” speculation, it said.

The central bank’s ruling “should not affect the overall sentiments of the market significantly which comprises mainly first time buyers and upgrades,” Leong Hoy Kum, Group Managing Director of Mah Sing Group Bhd., a developer, said in an e-mailed statement. “There is no property bubble as price increases has only been for properties with good concepts by branded developers sited in good locations.”

Malaysian home sales may rise 26 percent to a record 52.9 billion ringgit ($17.2 billion) this year, boosted by low lending rates and liquidity, Yeow Yeonzon, an analyst at Kenanga Investment Bank Bhd., said in a report on Oct. 14. Loans applied for purchasing residential properties rose 32 percent in August from a year earlier to 15.4 billion ringgit, according to central bank data.

The Kuala Lumpur Property Index, comprising 88 developers’ shares, has surged 28 percent this year, outpacing an 18 percent gain in Malaysia’s benchmark stock index.

In January, the government imposed a 5 percent capital gains tax on homes sold within five years of their purchase.