Banks have trained eyes to identify the real thing from those guised pricing and hence, should act as the final checker of property prices.
This article was in response to a report on financing issues entitled: “Banks aware of ‘discounts’ given by developers”. The House Buyers Association of Malaysia (HBA) is glad to hear the report of “two commercial banks stating that they are aware of discounting practices by developers recently and have taken the necessary mitigating measures to ensure that the end-financing is reflective of the “value of the property purchased”.
Debunking The “Open Secret” & Marketing Ploy
For many years, HBA has spoken against the “open secret” of housing developers who artificially inflate property prices and then offer a rebate to offset against the 10% down payment, thus indirectly giving their buyers up to 100% endfinancing.
As far back as the year 2013, Bank Negara Malaysia (BNM) had officially instructed all banks in Malaysia to offer a maximum 90% end-financing based on the net selling price of the property after deducting all discounts and rebates offered by housing developers. However, housing developers continued to openly advertise the existence of such rebates. It was only lately that the Real Estate Housing Developers Association of Malaysia (REHDA) highlighted the issue whereby house buyers were not given full financing which means that most banks just closed both eyes when it came to the rebate issue.
Effects of “Marked-Up” Prices
Although the act of increasing the property price and then offering a rebate, say up to 10% appears to help the rakyat to purchase their dream homes, such acts actually do more harm than good in the long run. Using the example of a property that is only valued at RM450,000, should the housing developer want to offer a 10% rebate, the selling price will then be inflated to RM500,000 and the developer would then offer a 10% rebate equal to RM50,000. Hence, the house buyer would get a full loan of RM450,000. Some of the negative consequences of this rebate nonsense would result in:
• Higher cost to the house buyer as costs such as Stamp Duty for the transfer of properties and Loan Agreements are based on a regulated percentage of the value of the property or loan. Therefore, the higher the property price or loan, the higher the Stamp Duty. The artificial increase of RM50,000 will hence result in a higher Stamp Duty on the transfer of property of RM1,000 and loan agreement of RM250.