Finance Minister II Johari Abdul Ghani has underscored the challenges with regard to the proposal that housing developers be issued moneylending licenses to provide loans for non-bankable property buyers.
Though the Real Estate and Housing Developers' Association (Rehda) views the suggestion in a positive light, Johari told Malaysiakini that such a move might not be sustainable for the developers.
The minister explained that developers need to secure a loan from the bank to start a housing project.
"Tell me, which developer in Malaysia is able to build a house and sell it after completion? None. All developers have to sell houses based on progress, because they have no money.
"It looks like a very unsustainable business model for the developers to borrow money to complete the project and at the same time give loans to house buyers," he said.
Yesterday, Urban Wellbeing, Housing and Local Government Minister Noh Omar announced that moneylending licences can be provided to the big developers to provide loans to those who cannot get them from banks.
Noh said the maximum interest rate for loans with collateral is capped at 12 percent while those without collateral would be capped at 18 percent.
However, his proposal drew flak from the opposition, stakeholders and the public.
The current interest rate for housing loan for residential properties from commercial banks range between four and six percent.
How to service 18 percent loans?
Meanwhile, Johari asked how buyers who failed to secure a housing loan from the banks at a six percent interest, would be able to service a loan with a higher interest of 18 percent.
"It doesn't make sense. To me, it doesn't sound logical.
"You must tell the public so that they will not be trapped into simply borrowing without knowing their ability to pay... it is very important," he said.
The minister also denied that the problem stemmed from the banks' refusal to provide loans.
"This is not an issue of Bank Negara Malaysia (BNM) not doing their job. All banks want to give loans and it is their job to give loans.
"They (the applicants) do not have enough income to buy the house as the house price is a mismatch to their income," he said.
Johari said moneylenders also face higher risks, for unlike banks, they cannot collect deposits to buffer their capital to ensure the continuity of loans.
"You must remember the difference between bank licence and money lending licence, the latter cannot collect deposits.
"You have to use your own money. You lend money at your own risk.
"Banks are properly licensed by Bank Negara, with proper capital put in place by all the bank operators, wherereas moneylending is not under the supervision of Bank Negara or the Finance Ministry. It is under the Local Government Ministry," he said.
Asked if Noh’s suggestion, if implemented, could lead to a similar situation as the subprime mortgage crisis in the US, Johari explained that it was different.
"When you talk about US subprime, they went through the banks instead of moneylenders in the first place.
"You cannot compare US subprime with money lending, it is two different ball games," he said.
The subprime crisis, fuelled by predatory lending, sent the US into recession.
Johari's view is shared by Selangor state executive councillor in charge of housing, building management and urban settlement, Iskandar Abdul Samad.
"Developers should focus on their role as builders of properties, while banks should concentrate on providing the financing," Iskandar said in a statement.
He argued that instead of muddling the roles of the two different groups of entities, the government should ensure that both can play their roles more effectively to fulfil their separate objectives.
"The federal government should not muddle the roles between the two parties," Iskandar said.