The idea of owning your first home may seem overwhelming, especially with the amount of responsibilities such as planning, paper works and subsequent processes after the keys are finally handed to you.
Furthermore, the prices of residential properties in urban areas are generally seen as increasing at a faster pace than before, spurred by the influx of residents lured by rapid developments across the country.
According a CH Williams Talhar Wong and Yeo Sdn Bhd’s (WTWY) Sarawak property bulletin, during the first half of 2013 (1H13), in Kuching, prices of newly launched single-storey terraced units ranged from approximately RM165,000 to RM386,000, while double-storey terraced costs from circa RM308,000 to RM838,000. While prices for single-storey semi-detached residential properties are unavailable, it reported that double-storey semi-detached units can range from RM359,000 onwards.
In 2007, WTWY in its 2007 property report showed that newly launched residential units cost slightly less than those seen today, with single-storey terrace units priced from RM133,800 onwards and double storey terrace units priced from RM209,800 onwards.
On top of being new in the working world and earning a minimum salary in Malaysia, the new generation in the workforce could also feel hampered by the increased cost of living.
With the current rate property prices are going at, the very notion of owning a house may seem like an overwhelming task achievable only after a decade or two in the workforce.
Despite this ordeal, industry observers encourage the young generation to invest in properties as early as possible while prices are still at reasonable stage in urban areas.
WTWY managing director Robert Ting viewed that prices for residential homes and high rise residentials will definitely increase over coming years.
“With rising costs of living and scarcity of urban lands, prices of houses are expected to be on the rise in the long term view. Therefore, young buyers are encourage to buy their first home as soon as they can afford to do so,” he urged.
“Landed properties houses are normally considered as better investment as compared with high-rise development in view of future capital appreciation, scarcity of lands and others,” Ting added.
“But for those young buyers who prefer to have convenience and urban style living and can afford the high rise apartments and condominium, then they should invest in these high rise units.”
Increase in younger buyers
Meanwhile, online property portal group PropertyGuru Malaysia country manager Gerard Kho highlighted to BizHive Weekly that there has in fact been a rising interest from young purchasers, especially for the last six months due to the high, and increasing cost of living with economic effects.
“The biggest pool of property buyer is from age group 25 to 34 years which is also primarily first home buyers,” it said.
In a property buyers’ profile survey conducted in the fourth quarter of 2013 (4Q13), PropertyGuru Malaysia noted that property buyers aged 30 to 35 years old made up 28 per cent of the total property purchases while 26 per cent consists of buyers aged 25 to 29 years old.
“The interest to purchase of homes is on an increasing trend due to the awareness of home pricing may rise in line with cost of living that will impact the city folks significantly.
“That would trigger young adults to be aware of the need to purchase a house anytime soon before it is too late,” Kho said.
Similar to WTWY’s view, Kho opined that younger purchasers tend to go for high-rise residential units based on the following reasons:
1.Market trend
Effect of supply which concurred by insights provided by WTWY, 2013 recorded the highest number of condominium and apartment units launched.
2. Affordability based on income bucket (property value ranging between RM200,000 to RM400,000).
It also attracted high take-up rate, hence strong demand for such properties affected price surged from RM300 psf two years ago to more than RM550 per square feet currently.
3. Easy maintenance
Smaller/sufficient living space means lesser cleaning and up-keeping that save their time from busy daily schedule.
4. Security
Enhanced security with guardhouses where entry and exit is monitored. These security features create a safer environment for residents. Lesser chance of vehicle and home break-ins and others. Secure and usually, covered parking.
5. Facilities and amenities
Various facilities and amenities are provided such as clubhouse, fitness centre, tennis/squash courts, swimming pool, children’s playground, pedestrians’ path, car wash services, home cleaning services, launderette, hair salon, mini-market, cafes, bakeries, provision store, and others. The use of a multi-purpose hall or space for big gatherings is usually rent-free for owners
6. Facility support
In times of electricity failure or water cuts, there are usually generators or spare water tanks that help maintain residents’ lifestyles, at least for a little longer
With this growing interest in property seen among the new generation in the workforce, BizHive Weekly delves into affordable ways of owning a residential property.
A silver lining in the property market
Financial comparison site CompareHero assured that nowadays, with programmes such as myHome, PR1MA, 1MBD, and SPNB, it is becoming easier for young people to become home-owners.
“These programmes offer subsidised, high-quality housing to low to middle income earners. For example, the myHome programme grants a subsidy of up to RM30,000 for eligible first-time home-buyers.
“For a property valued at RM200,000 that’s a 15 per cent down payment in cash; something very helpful for young people who haven’t been working long enough to build up a critical mass of savings,” CompareHero head of banking Andreas Ghani Weiler highlighted to the BizHive Weekly.
“What you should do if you want to use property as an investment tool and have sufficient (RM3,000 or more) income is to purchase a property with a bank loan by the rest of the population,” he said.
Ideally, he said, discounting the presence or availability of government funded housing subsidies, those earning RM1,500 to RM3,000 a month can potentially look at properties valued between RM140,000 and RM300,000, unless they have a weak credit score, which would drive up their interest rates significantly.
“Just last week, I was speaking to a 28 year old who had just purchased his third property, yet still lives at home with his parents! He said that at 24 he purchased his first property valued at RM80,000 with a RM16,000 (20 per cent) down-payment from his savings.
“The resulting lower margin-of-finance meant he got close-to-advertised rates, making his monthly repayments under RM700, whilst charging rent to tenants at RM900 or more.
“This rent covered interest and principle re-payments and then some, which along with the disposable income that he had by saving on his own rent (by living at home with parents), allowed him to gain equity in the property at a very fast rate.
“Here it is important to note that this is only possible in the case of flexible loans which allow you to re-pay more than the standard value to decrease the principle owed at an accelerated rate.
“These practices, along with prompt repayments, allowed him to build up a strong credit score (and knowledge/experience) to invest in his next property just two years later,” Weiler commented.
Similarly, WTWY’s Ting commented that for those who can earn combined income of RM5,000 or less per month; a residential property priced around RM400,000 and below would be recommended for them.
In an explanation on how a person, working a minimum salary job of about RM1,500 to RM3,000, can afford a house, Weiler said, “Borrowing RM270,000 against a property valued at RM300,000, paying interest of between 4.2 to 4.3 per cent over 30 years means that your monthly repayments will be around RM1,300.
“Say you have utilities commitments of about RM200 per month you’ll still have RM1,500 (half of your total income) in disposable income to spend on food, entertainment, transport and others for the rest of the month.
“Here, it’s important to note that you need at least RM30,000 in savings to make a downpayment.
“Similarly, for those taking home RM1,500 per month. Borrowing RM125,000 against a property valued at RM140,000, paying interest of between 4.2 to 4.3 per cent over 30 years means that your monthly repayments will be around RM600 per month.
“Spend another RM150 per month on utilities, you’ll still have RM1,500 (half of your total income) in disposable income to spend on necessities and some luxuries each month.
“Again, it’s important to note that you would need at least RM15,000 in savings to make a downpayment.”
Aside from the programmes offered by the government, he also advised those interested should get a subsidy to help with the downpayment and start saving every penny possible to reduce the principal owed on the loan as fast as possible.
“I say this because this will help you build up an excellent credit score early on in life – something that will make starting a business, buying more properties, cars and others much easier.
“Also, make sure to scrutinise the asset your investing in. Use sites such as iProperty and PropertyGuru to get a good oversight of the market, connect with agents and really understand what’s available to them,” he added.
Housing loans 101
When asked to comment on housing loans, Weiler explained that housing loans in Malaysia are basically secured bank loans, whereby the consumer borrows against the value of a particular asset – the home they are purchasing.
“Upon application, the consumer is assessed based on credit scoring (CTOS, CCRIS) as well as their age, occupation and fixed monthly income. Depending on the provider, variable income can also contribute to the assessment.
“The consumer is then offered a lending/financing rate (the rate of interest they will be paying on the principal) as well as a margin of finance (percentage of the value of the asset being borrowed against) based on this assessment.
“They will of course then have to deliver a downpayment based on the margin of finance offered before the loan can be legally executed,” he said.
As for joint housing loans, Weiler commented, “Basically, the main benefit of a joint loan is that it’s easier to qualify for loans by combining income and credit scores of two or more individuals.
“More income means more money to pay off the loan and borrowers with good credit scores can pull borrowers with bad credit scores above a critical score value.
“In this case, the person with the bad (or non-existent) credit is the real winner. It would make sense for young adults who don’t have any recorded repayment behavior – leveraging of the financial stature of their parents or older family members.”
However, he cautioned that an issue with joint loans are notions of ownership as all borrowers have equal rights to the asset (home) unless clearly stipulated in the sales and purchase and/or loan agreement.
“However, they are both also 100 per cent responsible for the repayment of the loan. For this reason, lenders will usually only accept applications from people with very strong relationships – usually only family members (parent-child, husband-wife).
“Accordingly, you can see that a scenario in which a joint loan would be very appropriate is for a young married couple who both generate income,” he viewed.
A helping hand
Aware of the ongoing increases in property prices, the government as well as Malaysia’s central bank has undertaken various efforts to ensure that the public as well as developers can benefit in programmes and schemes under implementation.
Weiler from CompareHero said the responsible financing mandate from Bank Negara Malaysia (BSN) last year is one of many moves that can prevent household debts from rising any further and hence encourage financial savings by the public.
In fact, he noted that the mandate has affected lender’s underwriting and approval processes significantly; which is a good move on BNM’s part as something has to be done to prevent household debts from rising and this can indirectly support the development of the country as well as stabilise the property market.
On the flipside, PropertyGuru Malaysia’s Kho viewed that the buying power of residential properties in Malaysia will potentially slow down due to the tightening of BNM regulation on loans.
He viewed that cooling measures by BNM is needed to avoid aggressive rush of surge that could affect us more.
Additionally, the implementation of RM1 million threshold for foreign investor could also help to push sales of high end properties that may not affect the mass market or the first-time home buyer.
The government has also implemented various schemes, programmes and subsidies to aid in the process of owning a house and boost the property market in Malaysia.
More recently, the government has announced the launch myHome programme (Private affordable ownership housing scheme) this month, which is expected to enable qualified applicants to get a subsidy of up to RM30,000 to buy selected low-cost housing unit.
According to a national news report, developers could also benefit from the programme as they could apply for it to a special committee under the Housing and Local Government Ministry and once approved, they can advertise the eligible units for the subsidy and the Government will pay the developers directly.
More importantly, industry observers viewed that programmes like these are ideal to curb speculations in the property market, which can lead to a softer increase in property prices.
On top of supporting first-time home buyers, Weiler highlights that these programmes have caveats to prevent speculative behavior (short-term investment).
“For example, PR1MA homes carry a 10-year moratorium during which ownership of the property cannot be sold or transferred,” he said, hence deterring active reselling of properties.
All in all, the foundation of buying a home revolves around finding a suitable property that fits your income range.
It is also crucial to plan ahead and have enough finances or financial support to the upfront cost and miscellaneous costs such as sales and purchase agreements, stamp duties and so on.
It is also important to note that while there are programmes and schemes available to aid in almost all the financial aspect of owning a house or residential property, it may take a reasonable amount of time to receive approvals for loans and schemes.
Schemes and subsidies offered by the Government:
myHome programme
Features and criterias:
• Applicant must be a Malaysian citizen
• Applicant must be aged 18 years and above
• Applicant must be a first time home-buyer
MyHome 1
• Three bedroom, two bathrooms for minimum 800 square feet
• Market price for Sabah and Sarawak: RM90,000 to RM120,000 (Actual purchasing price: RM60,000 to RM90,000)
• Household income: RM3,000 to RM4,000
MyHome 2
• Three bedroom, two bathrooms for minimum 850 square feet
• Market price for Sabah and Sarawak: RM120,001 to RM250,000 (Actual purchasing price: RM90,001 to RM220,000)
• Household income: RM4,001 to RM6,000
PR1MA Eligibility criteria:
• Applicant must be a Malaysian citizen
• Applicant must be 21 years old and above at the time of the application (single or married)
• Individual or combined household income (husband and wife) between RM2,500 and RM7,500
• Owns no more than one property
Note: Currently, there are no PR1MA homes in Sarawak. However, PR1MA homes will be available in various areas in Peninsular Malaysia and Sabah.
Schemes under SPNB:
SRP (My first home scheme)
Features:
• 100 per cent financing from financial institutions
Residential property only
• Cagamas SRP Bhd will guarantee the banks on financing above the 90 per cent level which is if a borrower obtains 100 per cent financing, Cagamas SRP will guarantee 10 per cent (from 90 to 100 per cent) of the financing.
Eligibility criteria:
• Applicant must be a Malaysian citizen
• Applicant must be a first time home-buyer
• Applicant(s) must be up to 35 years old
• Single borrower gross income must not exceeding RM5,000 per month and joint borrowers gross income must not exceeding RM10,000 per month (based on gross maximum income of RM5,000 per month per borrower)
• Repayment of total financing obligation must not be more than 60 per cent of the net monthly income or maximum financing limit of the participating bank, whichever is lower
For properties:
• Residential properties located in Malaysia
• Minimum property value of RM100,000
• Maximum property value of RM400,000
• Owner occupied (buyers are required to reside in the property)
Financial requirements:
• Financing tenure not exceeding 35 years, subject to borrower’s age not exceeding 65 years at the end of financing tenure. Revised maximum tenure is in line with Bank Negara Malaysia’s ruling announced on July 5, 2013
•- Amortising facility only (no redrawable features)
• Installments payable via monthly salary deduction or standing instruction
• Compulsory Fire insurance/takaful