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Housing Finance Market Overview
In 2008, commercial banks were the most important originators of housing loans in Malaysia (81.5 per cent), followed by the Treasury Housing Loan Division (THLD; 12 per cent) which provides (subsidised) housing loans to government employees only. The building societies which were the biggest originators until the early 70s, accounted only for a small share (around 2 per cent). The ratio of mortgage debt to GDP has been growing only slowly from 27.7 per cent in 2000 to 31.5 per cent in 2008. However, this moderate relative growth in housing loans masks an impressive growth in absolute terms.
The Market from the Perspective of the Demand Side
In Malaysia, the usual maximal loan-to-value ratio can reach up to 90 per cent. There are mortgage loans with fixed and variable interest rates available, although the standard product is a variable rate loan with an initial fixed interest period. Also Shari’ah-compliant mortgage products are readily offered by banks. The government has set up a fund to provide guarantees to end-financiers for house purchasers without fixed incomes to avail housing loans. Though Malaysia has with Cagamas a housing finance agency it does not seem to seem to receive government subsidies (even not indirectly) as even the market view is that Cagams does not have a government guarantee which is consistent with the formal level of government support.
House Price Development
House prices increased with a modest rate, with an average annual growth rate of 4 per cent from 2000 to 2008.
Special Characteristics of the Market
Malaysia has an Employees Provident Fund, a government-sanctioned statutory body, in which employees accumulate savings until their retirement. However, members can opt to withdraw part of their savings earlier for specific purposes like house ownership.
With Cagamas, Malaysia has also a secondary mortgage liquidity facility and securitization conduit. Cagamas is owned by private commercial and investment banks (80 per cent) and the Malaysian central bank, Bank Negara Malaysia (20 per cent). Cagamas is not involved in origination but only in refinancing. Loans sold to Cagamas are not off balance sheet.
Banks use deposits, issue unsecured debt securities and use the refinancing opportunities offered by Cagamas to fund their mortgage market activities. The housing loans of the THLD are financed by other entities in the private sector or by federal government loans. The building societies are the only financial institutions which do not resort to refinancing with Cagamas but rely almost solely on deposits. Cagamas refinances by issuing unsecured debt securities and mortgage-backed securities. The impact of Cagamas on the mortgage market has been especially high in the mid-90ies but declined steadily. Outstanding mortgage-backed-securities (issued by Cagamas) have a share of 4 per cent on the market.