High selling prices risk derailing development financing, OCBC tells Rehda conference
Setting a high selling price may lower a developer's chance of securing financing for its projects, according to OCBC Bank Malaysia. The warning was delivered at the Rehda Institute conference on Sept 8-9, where lenders also flagged concerns over breakeven levels above 85 per cent and stretched deve
KELANA JAYA (Sept 9): Setting a high selling price may lower a developer’s chance of getting financing approvals for its projects, OCBC Bank Malaysia has warned. The caution was delivered on Tuesday at the Real Estate and Housing Developers’ Association (Rehda) Institute conference, held at Wisma Rehda here on Sept 8-9 with EdgeProp as media partner.
Speaking at the conference, OCBC Bank Malaysia managing director (real estate corporate banking) Mohammad Fadzli Ahmad cited increasingly high selling prices as one of several challenges banks face in approving property development financing in 2026. He said prices per square foot that exceed comparable projects are a particular concern. Other considerations weighed by lenders include the costs associated with development features, financing and sales, as well as developers launching multiple projects concurrently, which may be viewed as stretching resources and leaving less buffer for slower sales or cost increases.
Fadzil pointed to the impact of higher construction costs from April onwards and its potential pressure on buyers’ disposable income, which could contribute to slower sales and lower developer margins. He noted that the high breakeven sales level is above 85 per cent for most projects, despite developers often indicating that buffers have been incorporated. Financing could reach 99 per cent, he said, while redemption is capped at 35 per cent.
For background risk assessment, Fadzil said one of the minimum requirements is that the developer must have completed at least two projects within the past five years, with at least two years of profitability within the same period. “For established developers, we would look at their track record and financial performance. If a company has generated revenue of RM20 million or RM30 million, for example, we need to see that it has the ability to make a profit. The key is for the bank to have confidence that the developer has the financial capacity to deliver the project,” he said. Other considerations include spillover from other projects and the subordination of advances.
Developers were also reminded to ensure that project documentation is accurate from the outset. Chur Associates founder Chris Tan, whose presentation examined the property development lifecycle, warned that even discrepancies between the property description stated in an advertising permit and the project name used by a developer could potentially result in delays to bank disbursements. Tan highlighted that financing risk is not confined to the ability to secure funding at the outset; factors including development approvals, construction progress, sales performance, purchaser payments and compliance with statutory requirements can influence whether financing continues to flow as anticipated.
Tan noted that non-compliance or delays in obtaining necessary approvals may delay drawdowns, creating funding gaps for construction, consultants, contractors and other project expenses while potentially increasing construction, interest and holding costs. For financiers, key risks include completion delays or abandonment, cost overruns, cash-flow constraints, legal and compliance issues, as well as changes in property values that could affect the security supporting the financing. For lenders, completion risk remains a key concern: a delayed or abandoned project could leave the lender with security in the form of an incomplete development with reduced realisable value.
