Doing away with DIBS may not solve the problem

There have been much talk about Bank Negara outlawing DIBS or Developer Interest Bearing Scheme. You can basically read about DIBS here and here.

DIBS are bad for the market as it is misleading especially to those whom are unaware of the risks that they are taking. Obviously, the S&P lawyers as well as the banks whom most of the time are representing the developers would not be warning the buyers of the risks, and even if they did, buyers whom have witnessed the emanating rise of the property sector would still be willing to take the risk. I have read and heard of a young guy in his early 30s with 10 properties into his name - basically gearing himself to the maximum and riding on the property boom. Hearing from the market, there is no one such guy but many.

If you walk into the local books section of MPH, quite a number of them on display are how to be rich through properties. There is already a sense of something wrong here as whenever the market is over exuberant, there is always a huge danger. I can probably bet you that if I put a book on stocks investment, it will probably not get picked up as much as a book on property investment.

The rise of the property prices I think pose a problem to Bank Negara and as in most central banks, the trick of the trade is to slowly cool down the sector. It may seem to be easy as reducing credit, coming out with more stringent lending practice will look like able to do the trick. However as in most central banks, they would want to have what you call a Goldilocks economic results from the steps taken - i.e. not too hot and not too cold, just nice. What they are afraid of is it gets too cold after a certain measure has been put in place. That would again jeopardize the economy. Look at what Bernanke has done to the stock markets in the last few days - just from a very honest statement!

Although eliminating DIBS is a must, this I think may still not be enough, though. Why? Singapore has already outlawed DIBS in 2009. The property market in Singapore is still hot and continue to rise - that's one. China has put in place very tough measures - years ago - for those who buy their second home. It did nothing to the market. It was very hot, until very recent few days where there were talks of a probable crash in the property sector there, and obviously the banks are the ones which will get impacted due to over lending. Mark Mobius has come out and made his comment that the Chinese banking sector is seriously in a critical situation.

While eliminating DIBS is a must-do, the core of the problem is not that. It is to do with the players in the sectors - banks and property developers. They have always worked hand in hand. Some banks are giving 100% loan with low interest rates especially during the construction period. Yes, that is not as bad as having DIBS but still...And recently, the government is introducing a 100% financing scheme to families with income below certain level. That is sending the wrong message. Where has the government housing scheme gone to? The government has land, but like what it is for the Kwasa Development under EPF, most probably it will go towards the higher end market - as I see it.

As I walk into some launches or sale at the malls, another indigenous scheme which the developers have come out with is rebates. One which I have come across is a newly-launched property put up for sale at RM1.3 million. And if I were to lock in my purchase by say 31 July 2013, I will get a RM100,000 rebate from the purchase price. That is vastly cheating, in another name. This basically mean that the price of the house is actually RM1.2 million but the developer has just jacked up the price to RM1.3 million and reduce my minimum upfront payment by 77%. That's all. I think sooner or later property developers will just go to Groupon to do their discounted sale.

Another wrong message is, now that pushing up the property price among locals would be difficult, guess what the developers have done - just go overseas to do the launches - Singapore, Hong Kong, China. Like it or not, it will just push up property prices again. That's just what happened to Singapore and many other larger cities in Asia.

I think with just Bank Negara trying hard, it will not do the trick as the other sectorial players together with authorities have not done enough and in fact sending the wrong messages and that would just be very bad for the man on the street.