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Malaysia: Overpricing for ‘extra cash’
PETALING JAYA: Property developers have overpriced their units to help buyers obtain extra cash, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) said.
Buyers secure a loan based on the inflated price in the sale and purchase agreement with extra cash at hand in what is termed as a “cash-back” feature.
President Michael Kong told StarBiz: “Because property prices rose so much, buyers were unable to fork out the downpayment.
“Developers gave rebates and other freebies, but this distorted the market,” he said.
Kong said the association has been calling for Bank Negara to come down hard on this practice, but developers continue with it.
With the current Home Ownership Campaign, this practice has been “legitimised”.
The central bank had in fact imposed the need for market studies on all new projects a few years ago but this was relaxed after a few months.
Some banks instead use a simple mellowed-down, two-page project assessment to assess a developer’s pricing mechanism.
Project assessment gives an overall per-square-foot (psf) value.
He said there have been occasions when the project prices were above market value.
“It is, therefore, up to the bank whether it wants to lend or not,” said Kong.
But over and above the issue of rebates, freebies and the use of market studies to control prices, there is also the other issue of banks having an approved developers’ list.
“This list comprises top developers, so to speak,” said Kong.
“When a developer is on the list, there are no questions asked where the bank is concerned. In other words, the bank will accept whatever pricing the developer comes up with.
“This use of the approved developers’ list has been in practice for many years. Banks have their own preferred list of developers. However, there are repercussions to this practice.
“Sad to say, during the good old days, it was okay. But when the (property) market came down, you could see the high disparity between the fair price and the price the developer was selling for,” Kong said.
“They overprice by 20% to 25% and put this as rebates or discounts,” Kong said.
They will call up a few valuers informally to find out the current indicative price and sell the units at future prices.
Kong said some banks are of the view that if the difference is not more than 10% from the fair market price, they would still lend.
Kong said PEPS has asked Bank Negara and relevant authorities to reinstate the need for new projects to be valued.
“We can only give our views,” he said.
A buyer who buys directly from the house owner has to get the house independently valued if he were to seek bank financing.
However, this is not required when buying directly from the developer, Kong said.
A source from the Royal Institute of Surveyors Malaysia who declined to be named concurred with Kong.
It is “common practice” for developers to call up a valuer for indicative prices and hike it up a few notches to get “future prices”.
The indicative price may be RM1,000 psf today. All valuers will look at today’s value, not how much it would be in three or four years from today when the project is completed.
But developers charge future prices today because they take the three-year construction period into consideration.
The source said: “In order not to have any price escalation, you must have a property market and feasibility study, including the suggested selling price. That way, developers cannot determine prices arbitrarily.”
The source said these flaws in the property industry have to be corrected.
Source: https://www.thestar.com.my/business/business-news/2019/06/18/overpricing-for-extra-cash/#C91RqwebbjDR0yy7.99