The Implications of Developer-cum-Financier !!! (Sept 2016)

Yeah. You see it right. Eligible developers can now apply for moneylenders licences to provide loan facilities of up to 100% to property buyers. The licence would be issued by the Urban Well-being, Housing and Local Government Ministry under the Money Lending Act 1951 (Amendment) 2011.

Developers providing housing loans???

With this new licence, developers can help their customers to finance whatever percentage of the property purchase price. The ministry views this as a win-win solution for both developers and house buyers. House buyers who faced difficulties of getting a loan can have another source of funding now. Meanwhile, developers can now easier to sell their property as well as profiting from the end-financing schemes. Sounds good? Don't happy too early...

What's the terms and conditions?

1. It's open to all house buyers (not necessarily first-time buyers)
2. Interest rate of up to maximum of 12% if with collateral
3. Interest rate of up to maximum of 18% if without collateral
4. Only for approved developers
5. The financing license was issued on project basis (even though it was from the same developer)

In fact, Sunway Property already launched a similar scheme to help its potential buyers to overcome the difficulties of getting housing loan via financial institutions. Early this year, Sunway Property launched its own "Certainty Campaign" which will end by 30th September 2016. Under the campaign, one of the key highlights was "Guaranteed Loan" being given to eligible buyers where Sunway will provide a loan of up to 88% at Vacant Possession.

What's the implications from such license?

• 12% or 18% interest rate is way too high compared to normal bank housing loans averaging 4.55% only.
• What kind of collateral was referring to? Obviously, it will be the property that the develop sold you. Meaning, it's ZERO risks for the developer, and you're carrying both the project abandoned risk and the high-interest rate risk. And, the most important part is, it's all depends on the financial/cash flow of the said developer.
• If it is with bank housing loan, at least bank side will counter check the progress of the project before releasing more money to the developer. However, under this new measure, a developer can almost 100% decide the fate of the buyer because everything is controlled by the developer.
• Well, you would say that the developer also took the risk of providing financing to those sub-standard buyers who can't secure a bank housing loan. (this is the reason why interest rate was so high)
• It was like transferring the responsibility of banks to developers (also the financial risk of course) so that the bad debts won't pop out under our banking system?

In conclusion, the below questions should be posted to both buyers and developers under this new scheme.

• Attn to Developer
  Why provides loans to those buyers whom bank rejected them?
  What is your primary business? Selling property or providing financing?
  Would you mark up the selling price to further protect yourself due to such financing?
  
  
• Attn to Buyer
  Is it worth to borrow money under such scheme?
  Why stretch yourself to purchase a property?
  Is it really a win-win situation or a sure lose situation for you as a buyer?

Have a nice day.

Thank you.