Zero Entry Cost (ZEC) housing loans means bank will absorb the legal fee, stamp duty and valuation fees. However, it can result in an unhealthy price war in the banking industry due to it ate into their profit margins.
There’re few financial institutions (e.g AIA, ING, MBSB and Kuwait Finance House Bhd) that are offering Zero Entry Cost housing loans in the property markets. Those who offering this kind of scheme are actually making the housing loan market more competitive. As we can see, the current interest rates are as low as BLR -2.3% to BLR -2.5%, compared with the previous range of BLR -1.8% to BLR -1.9%. Besides that, the loan approval rate will be lower nowadays due to the implementation of credit-tightening measures. Thus, ZEC housing loans are not profitable especially if the loans are offered at a competitive interest rate.
In my opinion, many banks tend not to introduce the ZEC home loans due to it’s more of a pricing war, which can slow down the growth of the economic. Therefore, this will not be healthy for the industry. So, banks should offer at interest rates of BLR – 1.8% to BLR – 1.9% as opposed to BLR -2.4% for ZEC home loans in order to sustain their growth in the industry.