Homebuyers are being persuaded by developers to take on heavy debt to purchase multiple properties.
“Loan compression might harm borrowers, especially millennials who do not have long-term positive cash flow, as it means taking on never-ending debt. “We own properties with negative equity and have withdrawn our savings, even from the Employees Provident Fund, just to keep up with the monthly instalments. If something sounds too good to be true, it probably is, and we have learnt this the hard way,” said a member of the group who spoke on condition of anonymity.
Today, some owners are unable to keep up with the monthly instalments and have put their properties up for sale. “We are those owners. You could buy one of the high-rise units last year for as low as RM690,000 on the sub-sale market.” She said the cashback money is alluring as buyers can use it to service their mortgage. Essentially, one is “paid” to buy the property from the developer.
What is the impact of loan compression on the market? The ultimate concern for those who commit themselves to loan compression is that they are now overleveraged. During the 2008 crisis, lenders were giving out loans under very lax conditions, especially in the US where billions of dollars of home loans were sold to people who could not afford them. When interest rates began to rise, house prices started to fall and borrowers began to default on home loan payments.