The DIBS Debate Rages On

Bank Negara is rumored to be curbing DIBS in order to cool the upward trend in property prices – see our previous coverage here. Of course, everybody has got a point of view, and proponents and critics may well have vested interests to see their points of view prevail.

We are listing down the pros and cons here so that you can make your own conclusions. 🙂

 Cases FOR DIBS

  • It eases the burden of buyers as the initial outlay is minimal.
  • It’s a way to encourage home ownership as it “facilitates” the transition from renting to owning since the entry barrier is lowered.
  • DIBS should not be “blamed” for the price hike. Instead, other factors such as land scarcity, increasing demand vis-a-vis supply and escalating material costs may be more salient.
  • DIBS may “pressure” the developer to complete the development on time (or before schedule) because the interest is borne by the developer before development completion.
  • It’s a free market, and DIBS is just another option available to homebuyers. They have the option not to take it up.

Cases AGAINST DIBS

  • DIBS effectively pushes prices up, as claimed by The Star here.
  • There’s misconception that DIBS is “BTS” (Build-Then-Sell), and apparently some packages get marketed that way. Homebuyers may mistakenly think that they won’t have to service their housing loans if the property gets abandoned.
  • It encourages speculation as the initial outlay is low. Properties get flipped even before the development is completed, and so it’s “pure profit” for speculators without having to pay bank interest.

NK Tong of Bukit Kiara Properties pointed out in NST today that any “cooling” measures introduced by regulators tend to be short-term in nature, citing examples from China, Singapore and Hong Kong. Prices are determined by supply and demand, and as long as demand is strong the price uptrend will continue. A logical conclusion to this argument would be to simply build more houses!

GoodPlace.my’s Opinion

Removal of DIBS will have a somewhat negative impact on the property sector for the short term, but it’s essential for the long term health of the market. As it stands, there is a rather disproportionate divergence between the primary and subsale markets, and this discrepancy will be reduced to a certain degree with the elimination of DIBS schemes. Some may argue that some level of speculation is good for the market, and we agree to a certain extent. However, we have seen excessive speculation for the last three years which have somewhat “distorted” the level of the fundamental housing demand.

So who gets affected mostly by the elimination of DIBS? Speculators, for sure. And second-tier developers, which often rely on DIBS as their main selling point. Higher end properties will also see higher impact with disproportionate exposure to DIBS. Moving forward, a viable option would be to only limit DIBS to certain segments where speculation is less prevalent (e.g.  lower priced apartments).

We shall await the official announcement from Bank Negara with bated breath. 🙂

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

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