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Cagamas Berhad National Mortgage Corporation of Malaysia
7th Annual Affordable Housing Projects 6th – 8th April 2016, Kuala Lumpur, Malaysia
Promoting the Broader Spread of House Ownership and Growth of the Secondary Mortgage Market
Nora Tahir Chief Financial Officer
Overview of Malaysia’s Housing Market
Challenges and Prerequisites to Sustainable Housing System
Building a Sustainable Housing Finance System
o Calibration of Government Participation
o Active and Efficient Mortgage Market
o Development of Secondary Mortgage Market – Cagamas Berhad
Cagamas Guarantee Model
o My First Home Scheme
o Youth Housing Scheme
Agenda 2
Overview of Malaysia’s Housing Market
Source: Department of Statistics, Malaysia, Central Bank of Malaysia, Annual Report (Various years)
Malaysia - 2015 Quick Facts
*Exchange Rate of RM1=USD0.2327 as at 31st Dec 2015
30.1 million population with 41% of young population (age 25 – 54) (2014)
GDP growth of 5% with Real GDP of RM1,063 bil (USD247bil*)
GDP per capita RM33,091 (USD7,700*) (2014, at constant prices)
Stable unemployment rate at 3.4%
0
10
20
30
40
50
0
500
1000
1500
2011 2012 2013 2014 2015
% RM’Bil
Real GDP (RM) Total Housing Loan as % of GDP
Housing Development in Malaysia
• Growth of mortgage as a significant contributor to Malaysian GDP - 36% in 2015
4
0
2
4
6
8
10
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14
90
100
110
120
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230
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Q2
20
15
% c
han
ge
Ho
use
Pri
ce I
nd
ex (
20
00
=1
00
)
House Price Index % change
Malaysian House Price Index
Source: National Property Information Centre
• Growth peaked at 11.8% in 2012 but slowed down thereafter
• Post effect from cooling measures implemented by Government of Malaysia and Central Bank to curb the increase in property prices
• CAGR of 6.1% from 2003 to Q2 2015
5
Housing Finance System in Malaysia
Mortgage Originators
Private Sector Commercial banks
(Conventional and Islamic)
Malaysia Building Society Berhad (MBSB)
Other Development Financial Institutions
Public Sector
Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA), Statutory Body
Over 86% of total mortgage financing
originated by Commercial Banks
Source: Central Bank of Malaysia, Annual Report, various years
* Others inclusive of Bank Kerjasama Rakyat Malaysia Berhad, Borneo Housing Mortgage Finance Berhad, Bank Simpanan Nasional and Sabah Credit Corporation
-
100
200
300
400
500
600
2011 2012 2013 2014 2015
RM Billion
Commercial Banks
LPPSA
Malaysia Building Society
Others*
Mortgage Outstanding in the Banking System
6
Challenges and Prerequisites to Sustainable
Housing System
A sustainable housing finance system would require the optimal mix of the following:
Sustaining Housing Finance System
Facilitative Government Policies and Initiatives for Housing Finance Sector
Role of Housing Finance Regulatory Authority
Development of Fundamental Infrastructure for Housing and Technological Innovations
Distribution of National Capital among Population
Availability of Funds
Land Acquisition cost
8
The basic elements that enable a well-functioning housing finance system include:
Prerequisites of Sustainable Housing Finance System
Enhanced risk management, underwriting standards and
supervision
Calibration of government participation
Improved alignment of incentives of participants using capital
market funding
Sustainable funding through reducing maturity mismatch
Low default rates in the
financial system
9
Building Sustainable Housing Finance Systems:
Malaysia Experience
Calibration of government participation
Active and efficient mortgage market
Development of Secondary Mortgage Market
Establishment of Cagamas Berhad in 1986
Building Sustainable Housing Finance System 11
Government’s Role in Promoting Housing Finance
Objective of housing policy
– to increase accessibility to
adequate, affordable and quality
houses
Actively promote home ownership
since the 1970s
– especially among the lower and
middle income groups
Promote Home Ownership
Government Policy
• Increase supply of housing to the market
• Provision of adequate,
affordable and quality houses
• Enhancing accessibility to housing finance supply
• Encourage home
ownership
12
Measures and Initiatives Introduced by the Government
Year Measures
2008 Monthly withdrawal from Employees Provident Fund (Account 2) for the repayment of housing loans
2013
• Raising RPGT for local buyers
• After 5th year, no RPGT for local buyers but properties bought by local companies will be taxed at 5%
• RPGT for foreign buyers raised to 30% for the first 5 years and 5% thereafter
2014
• Prohibition of the Developer Interest Bearing Schemes (DIBS) • Minimum purchase price for foreigners raised from RM500k to RM1 million • Four unit limit for bulk purchase by individual – any higher to seek permission
from Controller of Housing
Others
Provision of adequate, affordable and quality houses for all Malaysians : 1. My First Home Scheme (2011) 2. Perumahan Rakyat 1 Malaysia (PR1MA). 3. My Home Scheme (2014)
13
1-3 yr 30%
4 yr 20%
5 yr 15%
Schemes Youth Housing Scheme 1Malaysia People's
Housing Project (PR1MA)
Skim Rumah Pertamaku (My First Home Scheme)
Target segment
Married Malaysian citizen couples aged between 25 to 40 years .
Malaysian citizen and at least 21 years old at the time of the application; Those who currently own no more than one property
Young adults entering the workforce with fixed income. 35 years old or less (age next birthday is 36 years old or less)
Salary Range
Combined household income not exceeding RM 10,000 per month
Open to Individuals or families (husband and wife) with an average monthly household income of between RM2,500-RM7,500
Gross income of not more than RM5k p/m for single borrower and gross income of not more than RM10k per month for joint borrowers
Service/ Product Offering
Provision of financing / loan up to RM500,000 with a financing tenure up to 35 years or at the age of 65, whichever is earlier to the eligible borrower.
RM1.9 billion to be allocated to build 123,000 affordable housing units in strategic locations
Guarantees 10% on a “first loss” on mortgage loans given by banks (Guarantees provided by Cagamas to FIs)
Eligible Property
Homes ranging from RM100,000 to RM500,000
Homes ranging from RM100,000 to RM400,000
Housing valued between RM100k to RM400k
Home Financing Schemes in Malaysia 14
Schemes People-Friendly Home Housing Loan Fund for Lower Income Group
My Home Scheme
Salary Range Household gross income does not exceed RM1,500
Household gross income between RM500 and RM1,200
Household gross income for MyHome1 (RM3k-RM4k) and MyHome2 (RM4k-RM6k)
Service/ Product Offering
- 1/3 funded by Govt - 2/3 via zero interest financing
Funding to build a new house with a cost not exceeding RM25,000 or to buy a fully built low cost house
RM30,000 incentive for each affordable house
Eligible Property
1000 sq ft 3 bedroom 2 bathroom single storey bungalow
Low cost house Housing valued between (MyHome1 RM80k-RM120k) (MyHome2 RM120k-RM250k)
Max Loan Amount
RM76K RM20K MyHome1 (RM90K) MyHome2 (RM220K)
Lending Rate Zero interest - Zero interest on first RM10,000 - 4% service charge on 2nd RM10,000
Respective BLR of the offering FI
Home Financing Schemes in Malaysia… cont 15
Strengthening the Housing Finance System
BNM also takes a responsible and measured approach to ensure Malaysia’s housing market remains strong and stable. The regulatory measures include: 1. Strengthening of risk management standard and corporate governance practices
of financial market players Focus accorded towards enhancing capital and liquidity standards of financial institutions as well as raising their governance and risk management standards.
2. Effective policies in place for development of housing finance system Strengthened the financial infrastructure in housing finance system including the development of a Secondary Mortgage Market to help the primary lenders, maintaining low default rates in the system and effective financial safety net
3. Comprehensive and robust regulatory and supervisory framework and effective
surveillance Forward looking and focused on addressing the risks to overall financial stability
16
The soundness and robustness of the housing finance system lies with the strong supervision functions by Central Bank of Malaysia which acts as the main regulator for housing finance.
Areas of regulations include margin of finance for the purchase of 3rd house and above, capital charge on mortgage financing according to its loan to value and priority sector lending guidelines which set the financing terms and condition for the purchase of low cost house.
Vested with comprehensive legal powers under legislation to regulate and supervise the housing finance. Under the loan/financing contracts, the financiers generally have the avenue to:-
transfer/assign its rights vested in the property to a third party; and
Enforce legal action ie; foreclosure proceedings, bankruptcy upon any event of default.
CBA
FSA
IFSA
DFIA
MSBA
CBA Central Bank of Malaysia Act 2009 FSA Financial Services Act 2013 IFSA Islamic Financial Services Act 2013 MSBA Money Services Business Act 2011 DFIA Development Financial Institutions Act 2002
Robust Regulatory and Legal Environment 17
Prudential Lending Guidelines by Central Bank of Malaysia
• Mandated lending to priority sectors including affordable housing was introduced by the Central Bank in 1976.
• Aimed at increasing the access of credit for
affordable housing as well as providing them with subsidized access to such credit
• Maximum margin of 1.75% above BLR and
maximum profit rate of 9% were imposed for lending for houses costing not more than RM100,000 in Peninsula Malaysia and RM120,000 in Sabah and Sarawak.
• Guidelines were issued by the Central Bank
to the banking system requiring banking institutions to internally set lending/financing target for the priority sectors which include housing loan to low cost houses.
Other recent measures introduced by the Central Bank: Responsible Lending Guidelines • Impose the loan-to-value (LTV) ratio
of 70% for 3rd house purchased
• Lowering the maximum tenure of home loans
• All banks to fix their loan-to-value
ratio based on the net selling price rather than gross selling price.
18
Building Sustainable Housing Finance Systems
Development of Secondary Mortgage Market:
Cagamas Berhad
Creation of a secondary mortgage market as a result of a liquidity crunch in the
1980s and public policy objective of a “homeownership democracy”
Spearhead the development of Private Debt Securities (PDS) market
The market situation in the mid-1980’s:-
Financial institutions were not lending to homebuyers
despite demand
Funding mismatch in financial institutions
resulting in liquidity crunch
Limited funding source in the market – no bond
market
There was a need in the market for an institution to:-
1. Function as intermediary between primary lenders and investors of long term funds; and
2. Take on role of credible issuer of mortgage securities
Secondary Mortgage Market - Background 20
• Commenced operations in 1987 as the National Mortgage Corporation • Objective
• Cagamas issues local and international debt securities to finance the purchase of loans/financing assets (mainly mortgage) from financial institutions and non-financial institutions.
• The provision of liquidity to financial institutions at a competitive cost to the primary lenders of mortgage encourages further expansion of financing for houses at an affordable cost and increases home ownership by Malaysians.
• The Cagamas model is well regarded by the World Bank as a successful secondary mortgage liquidity facility.
• Cagamas’ debt securities continue to be assigned the highest local ratings of AAA by RAM
Rating Services Berhad and Malaysian Rating Corporation Berhad, denoting its strong credit quality.
• In 2014, Cagamas established its conventional and Islamic EMTN programmes of USD 2.5billion respectively. Cagamas has been internationally rated A3 by Moody’s.
• Sovereign Malaysia rating by international rating agencies are Fitch (A-), Moody’s (A3) and Standard & Poor (A-)
Cagamas Berhad
To promote the broader spread of house ownership and growth of the secondary
mortgage market in Malaysia
21
Business Model
Mortgage Originators
Liquidity Model
CAGAMAS
Investors
CAGAMAS MBS
Sells ABS
Securitisation Model
Sells Cagamas Bonds/Sukuk
$
Bond/Sukuk proceeds
Purchase assets
without recourse
$
Sales proceeds
Purchase assets with
recourse
$
Sales proceeds
Stru
ctu
re
Pro
du
ct
Purchase with Recourse Programme (PWR)
Net income FY2015: 10.7%
Purchase without Recourse Programme (PWOR)/
Securitisation
Net income FY2015: 87.7%
Co
nd
uit
fo
r Liquidity Management
Hedging
Capital Management
Risk Management
Portfolio Management
Asset Warehousing
Guarantee Model
CAGAMAS SRP
Guarantee/ Wakalah Fee
Unfunded
Mortgage Guarantee Programme / My First Home Scheme, Youth
Housing Scheme
Net income FY2015: 1.6%
Capital Management
Risk Management
Portfolio Management
Guarantee
Mortgages
Cagamas Berhad
Investors
22
Cagamas’ Role in Housing Finance System
Provide liquidity and hedging to mortgage financier
Provide lower cost of funds – AAA funding and high demand of Cagamas
Securities.
Narrow the gap between the maturity structure of the housing loans and the
source of funds
Link the mortgage market to the capital market securities – development of the
Residential Mortgage Backed Securities (RMBS) market for both conventional
and Islamic
Develop innovative structures for mortgage financier – mortgage guarantee to
promote home ownership among first-time homebuyers.
Cagamas’ role in supporting sustainable housing finance system in the primary market
23
0
100,000
200,000
300,000
400,000
500,000
600,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Year
Commercial Banks & Finance CompaniesTreasury Housing Loans DivisionMalaysia Building Society BerhadOthers*Cumulative Housing Loans Purchased by Cagamas
16 years after Cagamas incorporation
Source: BNM Annual Report, various years
* Others inclusive of Bank Kerjasama Rakyat Malaysia Berhad, Borneo Housing Mortgage Finance Berhad, Bank Simpanan Nasional and Sabah Credit Corporation
RM Million As at Dec 2015, mortgages make up
33% of banking system loans / financing
Housing Credit Outstanding – Banking Sector
Cagamas as important source of funding to the mortgage market.
24
Cagamas has cumulatively refinanced housing loans in the secondary market equivalent to RM122 billion (USD28.4 billion*) or around 1.8 million houses
Cumulative Refinanced Housing Loans
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2
4
6
8
10
12
14
19
87
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89
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Houses in Million RM Billion
Annual Total Purchases CumulativeTotal Loans/Houses
25
* As at December 2015; RM1=USD0.2327
Liquidity Provider to the Primary Market
Provided liquidity of about RM289.3 billion (USD67 billion*) to the financial sector to date
* As at December 2015; RM1=USD0.2327
0
50
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350
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5
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MYR BillionMYR Billion
Annual Issuances Cumulative Issuances
26
Bond Market Development
• Fulfilling role as a provider of competitively-priced liquidity to the financial system • Addressing the changing needs of financial institutions
• RM5 billion ICP IMTN • Sukuk Al Amanah Li Al-
Istithmar
• Islamic house financing
• Sukuk Mudharabah
• Securitisation of Government staff housing loans
• Residential Mortgage-Backed Securities (RMBS)
• Sukuk Musyarakah RMBS
• Purchases without Recourse • Synthetic Securitisation of small
medium enterprise loans • Secured Credit Linked Notes • RM60 billion CP MTN
Programme
• Mortgage Guarantee • Sukuk Commodity
Murabahah
1987 2004
2005
2007
2008
• Purchase with Recourse
2010
2011
2012
• Skim Rumah Pertamaku (My First Home Scheme)
• Sukuk Wakalah Bil Istithmar
1994
2014
• USD2.5bn Conventional and USD2.5bn Sukuk Multi-Currency MTN Programme
2013
• MYR 3.80 billion Multi-tenor Sukuk
• MYR 2.20 billion Multi-tenor conventional MTN
2015
27
Cagamas Guarantee Model
Cagamas: Guarantee Model
My First Home Scheme Aimed at assisting young urban adult who have just joined
the workforce to own a home
For first time homebuyers with gross income not exceeding RM5,000/month
Allows homebuyers to obtain 100% financing from financial institutions, enabling them to own a home without having the need to pay a 10% down payment
Cagamas SRP will then guarantee the first 10% on a ‘first-loss’ basis, whereby the guarantee fee will be borne by the Government of Malaysia (“GOM”)
Youth Housing Scheme Aimed at assisting married youth to own their first home.
Offers a funding limit for a first home not exceeding RM500,000 for married youth aged between 25 and 40 years with household income not exceeding RM10,000.
Allows homebuyers to obtain up to 100% financing from Bank Simpanan Nasional (“BSN”).
Cagamas SRP Berhad will then guarantee the first 10% (LTV >90%) on a ‘first-loss’ basis, or up to a period of 5 years, whichever comes first. The guarantee fee will be borne by the Government of Malaysia (“GOM”).
The Scheme is offered for 20,000 units only on first come first served basis
Mortgage Originators
Guarantee Model
CAGAMAS SRP
Guarantee/ Wakalah Fee
Mortgage Guarantee Programme / My First Home Scheme, Youth
Housing Scheme
Net income FY2015: 1.6%
Capital Management
Risk Management
Portfolio Management
Guarantee
Mortgages Stru
ctu
re
Pro
du
ct
Co
nd
uit
fo
r
29
My First Home Scheme: Criteria
• First time home buyer
• Young adults (defined as up to 40 years old)
• Single borrower gross income not exceeding RM5,000/month and joint borrowers gross income not exceeding RM10,000/month (gross maximum income of RM5,000/month per borrower)
• Malaysian Citizen
• Repayment of total financing obligation must not be more than 60% of the net monthly income or maximum financing limit of the participating bank, whichever is lower.
• Proof of Income
Borrower Property
• Residential property valued between RM100,000 and RM500,000
• The Property must be for residential purpose, located in Malaysia and in compliance with relevant regulations under the Malaysia laws
• Compulsory fire insurance
• Bank’s usual underwriting standards apply
• MRTA / MRTT as per bank’s requirements
• Amortizing loans only. Redrawable excluded
• Full documentation
• Salary deduction or Standing instruction
• Financing tenure not exceeding
years, subject to borrower’s age not exceeding 65 years at the end of financing tenure
Loan / Financing
30
Youth Housing Scheme: Criteria
• First time home buyer
• Married youth (defined as up to 40 years old)
• Household income not exceeding RM10,000/month
• Malaysian Citizen
• Repayment of total financing obligation as per bank’s guideline and BNM’s measure to promote sound and sustainable household sector
Borrower Property
• Residential property valued between RM100,000 to RM500,000
• The Property must be for residential purpose, located in Malaysia and in compliance with relevant regulations under the Malaysia laws
• Compulsory fire insurance
• Bank’s usual underwriting standards apply
• MRTA / MRTT as per bank’s requirements
• Amortizing loans only. Redrawable excluded
• Full documentation
• Guarantor as per bank’s requirements
• Financing tenure not exceeding 35 years (as per BNM’s measure to promote sound and sustainable household sector)
Loan / Financing
31
THE END
This presentation was prepared exclusively for the benefit and internal use of the recipient. This presentation does not carry any right of publication or disclosure to any other party. Neither this presentation nor its content may be used for any other purpose without prior written consent of Cagamas Berhad (“Cagamas”). The information in this presentation reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of any information available from public sources. Except as required by law, Cagamas and their officers, employees, agents and advisers do not accept any responsibility for or liability whatsoever in respect of any loss, liability, claim, damage, cost or expense arising as a consequence (whether directly or indirectly) of reliance upon any information or any statement or opinion contained in this document, nor do they make any representation or warranty (whether expressed or implied) as to the accuracy or completeness of this documents or its contents. This presentation is not an offer documents and cannot give rise to any contract.
Disclaimer
Cagamas Berhad
Level 32, The Gardens North Tower Mid Valley City, Lingkaran Syed Putra
59200 Kuala Lumpur
MALAYSIA
Tel: +603 - 2262 1800 Fax: +603 - 2282 8125 / +603 - 2282 9125
www.cagamas.com.my
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