Sunday, June 9, 2013

The growth of residential properties and housing loans

Properties cannot grow without its twin brother's help - the banks. Over the years, we have witnessed the growth of the residential property sector, both in terms of prices as well as total houses sold. I have not been comfortable with the property sector for quite a while, especially since 2010. There are very little being talked about the danger of the loan exposure to the property sector as well as the financial sector - mainly banks because the lesser we talk about this, it is hoped that nothing will happen.

I could not see or project for sure how the sector will pan out in the near of medium future, but as I said I have not been comfortable. Let me show some numbers as below.


The above chart shows the loans to personal consumption market. I have taken out the commercial sector loan. The total loan is the total for all purposes - inclusive of housing, credit cards, commercial purposed, cars etc. As it is based on above, the Compounded Average Growth Rate (CAGR) of Total Loans between 1997 and 2012, is already very high at 9.03% (above average GDP) but the CAGR for loans to the residential property sector grew even faster - at a whopping 15.34%.

Another clearer table is shown below. The percentage of residential property loan to total loan size grew from 11.07% in 1997 to 27.24% in 2012. (highlighted in yellow)


On the other hand, the loans for purchases of securities to total loans dropped from 11.85% in 1997 to 4.54% in 2012. As at 2012, loans to residential consists of more than a quarter of the total loans. Is it worrying enough?

To soothe the worry, % residential loans to total loans exceeded 20% since 2001. Total loans however has started to register double digit growth since 2004 (except for 2007 and 2009). The question now is whether keeping residential loans to total loans of 25% to 30% is a new normal.

We have heard of the sector being still bullish-ly projected by research houses still in the future. Frankly, I am not too sure but we know the housing sector is much too dependent on financial sector. And I am sure that the loans growth cannot continue to grow more than 10% all the time. Sometime, it has to slow down.

We see what happened to the US housing market and the collapse of it. The aftermath, what happened to the banking sector - i.e. to Bank of America, Citigroup and many others. The Malaysian housing loan profile is a lot different to the US crisis, as the collapse were quickly done by subprime in US while in Malaysia, that part is not a thing to worry about. But still these numbers does not seem good.

13 comments:

wei chong said...

Hi, can share where is the source of such data? is it bank negara website?

felicity said...

http://www.bnm.gov.my/index.php?ch=fs_mfs&pg=fs_mfs_indic&lang=en

simplelifeadvocate said...

Sure felicity, I'm also worried when I saw this data. Malaysian is on the trail duplicating what happened in US (baby boomers). The only consolation (which I'm still evaluating) is that you need to look at population growth data as well. You will see an explosive growth of Gen-Y into the population starting now. These high demand will persist for next 10 yrs. Maybe property sector had good analysis of this data and is banking on it, of course with collaboration their twin to make real big buck out of us!

Fung C.F. said...

Thanks for the compilation Felicity, it is very useful :)

I have been equally worried on property sector especially in Iskandar. The property price-to-household income ratio (no solid data though) is shooting up year by year and I believe there is a resistance level, which will eventually burst the bubble. The million dollar question remained as-When? Nobody knows and I think nobody can and should predict.

I agree with simplelifeadvocate on population growth. That's why I think the property sector in Klang Valley should be quite sustainable in the future 10 to 20 years, as most of the Gen-Y will be entering Klang Valley for their career.

Anyway, Felicity your article inspired me to conduct an analysis on [Total Residential Loan / (Total Existing Properties + Incoming Supply)] = [RM1,161,154,000,000 / 5,270,281] = approximately RM220k per residential property. (Source: http://napic.jpph.gov.my/portal/content/Publication_PDF/q113residential.pdf)

Not sure how to interpret the "RM220k loan per property" as I dunno what is the average market price of the overall property market. However, given that many properties in market are unencumbered (no debt), this figure should be quite alarming.

felicity said...

I think quite a fair amount, a section in BNM report which provides the category of loan size and total loans. Have to check on that

YO said...

The country's economy is basically fueled by DEBT, DEBT....and more DEBT.

We have reached the debt ceiling but it was shown otherwise.

snowball said...

Hi Felicity,

The data understate the amount of loans being extended for "personal uses" purposes as it is not included in the data. Most of these personal loans is extended via Development Financial Institutions (DFIs) thus not captured under the monthly statistical bulletin data which only captured commercial and islamic bank. Do take a look at the account of Bank Rakyat, BSN or MBSB and you will notice the amazing growth in their loan book. Loan standards is low as it is supposedly "risk free" if one only defined risk free as ease of collection rather than quality of the collateral.It is quite amazing that certain segment of our society is so levered.

felicity said...

Snowball

You can be a great economist!

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Any risk here we can use to make money?

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Are you looking for Finance?
Are you looking for a Loan to enlarge your business?
I think you have come to the right place.
We offer Loans at low interest rate.
Interested people should please contact us on
For immediate response to your application, Kindly
reply to this emails below only
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LOAN APPLICATION INFORMATION FORM
First name:
Middle name:
Date of birth (yyyy-mm-dd):
Gender:
Marital status:
Total Amount Needed:
Time Duration:
Address:
City:
State/province:
Zip/postal code:
Country:
Phone:
Email ID.....
Mobile/cellular:
Monthly Income:
Occupation:
Which sites did you know about us.....
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