KUALA LUMPUR – May 8, 2019: Two economists who talked to The Mole today gave conflicting views on a recent move by the government to ease the applications of housing loans.
The Finance Ministry is currently working with Bank Negara Malaysia (BNM) to ease the terms and conditions for housing loan as well as considering to penalise banks that reject housing loan applications without strong justification.
Associate Professor Dr Ahmed Razman Abdul Latiff of Putra Business School warned the government that making housing loans easier to obtain could result in higher prices of products and services.
“If loans are made easier, it will allow credit creation by lending activities of commercial banks to expand even bigger.
“The consequence of this is that demand will outstrip supply even more, as individuals and corporations will have greater access to credit. This eventually will increase the price of products and services hence the cost of living,” said Ahmed
When queried on who is going to benefit the most from this move, Ahmed believes that it is the bank and developers.
“This will help developers sell off their remaining unsold properties and banks to create more credit which will give them profits in term of interest of the loans.
“However, in the long run, the country might be exposed to a credit crunch similar to the sub-prime mortgage crisis in US back in 2008. This is because a debt based economy can never be sustainable and the country will be more susceptible to external threats,” he said.
However, another analyst, Professor Dr Faridah Hassan of Universiti Teknologi Mara believes that the government’s move could be benefitted by all quarters, including the banks and developers.
“The government (will benefit) from a revived economy, the banks with liquid businesses, the developers making more sales, and ultimately the people who could better afford houses,” said Faridah
“Cheap credit creates more money in the system and people would want to spend that money,” she added.