Loan Approvals Drop, Impaired Loans Rise: A Lelong Buyer's Guide

Malaysian banks became noticeably more selective with property loans in August 2026, even as the stock of property debt kept growing. The Rakyat Post, reporting on 12 October, pulled together figures from MBSB Investment Bank and BIMB Securities Research based on Bank Negara Malaysia data.

According to MBSB Investment Bank, property loan applications fell 4.0% year on year to RM58.4 billion in August, the first drop in five months. Approvals fell harder, down 13.1% to RM23.8 billion, and the approval ratio slipped to 40.8% from 45.0% a year earlier. MBSB linked the caution to higher living costs and persistent inflationary pressure.

At the same time, BIMB Securities Research said outstanding loans for residential and non-residential property purchases reached about RM1.23 trillion, or 50.3% of all banking system loans. The gross impaired loan ratio for residential property purchases rose to 1.2% in August from 1.1% in July, while the ratio for non-residential property held at 1.4%, in line with the whole banking system. MBSB also noted that unsold completed homes rose for a seventh straight quarter to 33,094 units in the second quarter of 2026, with Selangor among the states with the highest overhang.

What tighter credit means at auction

Financing is now the first hurdle, not the last. At a bank auction, you pay a deposit on the day and must settle the balance within the deadline in the conditions of sale. If your loan is rejected or comes in lower than expected, the deposit is at risk. With fewer than half of property loan applications being approved in August, buyers who rely on a loan should treat pre-approval as essential.

Bank valuations matter more than the reserve. Lenders finance based on their own valuation, which may differ from the auction reserve or your winning bid. For high-value lots such as bungalows, shop offices and land, a gap of a few percent can mean a large sum to cover in cash.

Impaired loans are an early signal, not a forecast. A rising impaired ratio does not automatically mean more auctions, since many troubled loans are restructured or settled. But foreclosures start from loans that have gone bad, so the trend is worth watching alongside the overhang figures. It is one reason to stay patient rather than chase the first lot you like.

Use the round data to your advantage

When fewer buyers can secure financing, fewer bidders turn up. BidNest's market report shows how much this matters: across 9,205 resolved auctions, only 11% of first-round auctions sold, rising to 56.7% by the fifth round or later, with each unsold round usually cutting the reserve by about 10%. The overall clearance rate was 41.2%. Cash-ready buyers with financing in place are the ones best placed to act when a lot reaches a price that makes sense.

Practical steps

1. Get a written loan pre-approval, or confirm your cash position, before you shortlist from the auction listings.
2. Ask your banker how they will value the specific property, and plan for a shortfall between valuation and your bid.
3. Read the conditions of sale for the deposit amount and balance deadline. Our lelong guide walks through each step.
4. Track how many rounds a lot has already been through in areas such as Selangor, and set your maximum bid in advance.

This article is general information, not financial advice. Speak to your bank and lawyer about your own situation.

To plan your financing and bidding for a high-value auction lot, contact Peter Tan, Real Estate Negotiator (REN 12771) with CID Realtors Sdn Bhd.

Sources

• More Debt, Fewer Buyers: Malaysia's Property Loan Stock Swells Even As Demand Cools, The Rakyat Post, 12 October 2026
• BidNest auction market report