It is not uncommon to see daily advertisements from local developers promoting new properties on the market, and most of us will excitedly look at the features and amenities being offered while daydreaming about how it would be like to live in a house like that.
Those dreams are usually dashed when we look at the prices, knowing full well the extend of difficulties in securing a housing loans from banks.
But while high prices and low loan approvals remain deterrents for prospective buyers, it still does not stop most of us from trying to purchase a home and make the best out of our housing situation.
On that note, Sim Kiang Chiok the advisor for Sarawak Housing and Real Estate Developers’ Association (Sheda) Kuching Branch agrees that housing can be much cheaper if some factors such as legislations and policies are modified.
But as many these factors are currently outside of our control, he advocates that in the meantime, all Sarawakians should consider buying a house once they reach a stage in their lives where they are able to.
And to help these current and future prospective consumers in the housing sector, Sim who is also a local developer, has shared with BizHive Weekly several tips and advices that he thinks would benefit these buyers in their hunt for the perfect home.
Step 1: Figuring out what you want and what’s best for you
Before you embark on your journey to being a homeowner, the very first thing you need to have is an idea of exactly what type of house you would like and where its location would be.
By figuring out what you want and need first, it will help you pinpoint and focus on only properties that fit your criteria while also allowing real estate agents and developers to help you to their best capabilities.
For most Sarawakians living in major cities and towns in Sarawak, single or double storey terrace houses would be the most desirable as often times, many of us are still unable to accept the concept of apartment living and having only a wall and a floor separating us from our neighbours.
This preference is highly apparent as data from CH Williams Talhar Wong and Yeo Sdn Bhd (CHWTWY), parent company of the local real estate agency WTWY Real Estate Sdn Bhd (WTWY), shows that double-storey terraced units are currently representative of 70 per cent of the housing market segment in the Kuching division.
And being so highly sought after, double-storey terrace houses have increased in price steadily over the years with data from the second half of 2016 (2H16) showing that units range from RM250,000 in secondary locations to more than RM500,000 in prime locations.
Meanwhile, detached units such as semi-d’s in primary locations can easily exceed the RM1 million mark. Based on this data, it is clear that terrace and detached units in Kuching are far from being affordable to the general public as our median household wages in Sarawak were recorded to be only RM4,934 monthly or RM59,208 annually in 2014.
If we follow the age old rule of thumb that house prices should not exceed three times our annual household incomes, this means that ideally, our house prices should hover around RM180,000 instead.
STEP 2: If you can’t afford it, consider other options
Recognising this as a problem, Sim explained that a lot these houses are really only affordable for mid- to high income households but if buyers are dead set a landed property, then perhaps looking for one in a secondary location would be the most ideal plan of action.
For those determined to stay in prime locations and willing to forsake some of the luxuries of landed property, Sim recommends that they should instead consider buying an apartment as apartments in the prime areas of Kuching can be priced anywhere below RM350,000 – making it a cheaper alternative to terrace and detached units in the same areas.
“This is because of the affordable housing 1Malaysia People’s Housing (PR1MA) which is priced RM350,000 and below. These projects are usually located within the city and have good access to shops, schools and amenities.
“Currently PR1MA is building about 3,000 to 4,000 over untis in Kuching which should be able to meet market demand. There are PR1MA houses currently in the Matang area, Pending area, Siol Kandis, and 15th mile on the Old Serian road, with more to be added in the near future,” he guided.
But as these units are in high demand and may not be available anymore at this juncture, Sim suggested other federal government agencies such as the Jabatan Perumahan Negara (JPN), Syarikat Perumahan Bhd (SOB), and state government agencies such as the Housing Development Corporation (HDC) which have all unveiled plans to build affordable houses all across Sarawak.
“To make sure you don’t miss out, remember to register with PR1MA at their website as there will be a ballot held if there is oversubscription, and also keep a look out for announcements of housing developments either in the main stream media or websites of these federal and state agencies.”
As for houses from our private developers, Sim guides that the affordable houses by private developers policy which mandates private developers build a certain percentage of their developments for affordable houses is well underway and will be offered to the market soon.
“The policy has been changed from two bedroom to three bedrooms as announced in the last DUN sitting and selling prices for the landed terrace People’s Special Housing Scheme (Spektra) lite units are to start from RM100,000 (RM120,000 for corner units); Sepktra Medium from RM130,000 (RM168,000 for corner units); and Sepktra flats from RM120,000.
“When these units are ready to be offered to the market by private developers, we are expecting a huge demand for them.”
Step 3: Procedures to obtain financing
The reality is well over 90 per cent of Malaysians will need to utilise a long-term mortgage loan from our local banks in order for us to purchase our homes.
In recent years, that source of financing have been hindered severely as Bank Negara Malaysia’s (BNM) new stricter lending guidelines has caused banks all over Malaysia to clamp down on their mortgage loan approval rates especially.
The new BNM lending guidelines were in response to the soaring national household debt and have caused a huge drop of mortgage loan approvals from banks in both normal housing loans and affordable housing loans.
Data from a study done by the Real Estate and Housing Developers Association (Rehda), found that more than 50 per cent of affordable housing loan applications had been rejected by banks – leading to the sluggish property markets we’ve been experiencing in recent years.
Sim guided that banks will require all relevant financial information of the applicant such as three to six months of their bank statements and pay slips, list of assets and liabilities, two to here years of income tax EA forms, and etcetera.
But even with all that information in order, there is still a chance of a loan getting rejected as banks may calculate the type of risk differently or they may have certain quotas.
To guide through that, Sim assures that most developers and businesses associated with the property sector would be more than willing to help advise prospective buyers on the best type of loan for them.
“Usually the developer will assist you to get the best end financing bank by recommending which banks will offer the best rates and higher margin of loans. And besides developers, some law firms that handle the sales and purchase agreements (SPAs) will also recommend the financing bank.
“But while advice given to you by your lawyer and developer is mostly likely sound and good, it always pays to shop around among the banks yourself in order to ensure that you are getting the best possible loans for yourself.”
Step 4: How much can I borrow?
On the limit of the loans that can be borrowedl BNM guidelines to all commercial banks in Malaysia stipulate that bank loans for house purchases should be based on your proven income or the income which you’ve declared to the IRD.
“Based off that, banks would lend 30 per cent net off the proven income to all your commitments in credit card payment and car hire purchases,” Sim added.
Because of this, many households have been unable to secure the loans that they want as their proven incomes are not sufficient to warrant a larger loan for their dream homes.
“Many people have extra income like giving tuition classes, babysitting, or making profit from internet e-businesses.
These are all sources of income that are not declared to the IRD and as such they will not be taken into account of the amount you can borrow.
“So maybe, paying some extra income tax will be a good thing in long run. I highly encourage everyone to declare all their sources of income to help increase their chances of securing a larger loan.”
But even with better reporting of outside sources of income, Sim admits that the utilisation of using proven income only as a basis for housing loans is very restrictive for most.
“I do not agree with this practice because we are guided by national wages and minimum wages legislatures which take into the account of the raising our income based on cost of living and inflation.
“There is not consideration that your income will rise due to adjustment by employer and doesn’t include the increase in salary from promotion.”
Preparing youths to handle mortgage loans
Not every aspect of the property segment is efficient, but it is a situation that we have to make do with as we slowly push for improvement.
So knowing that bank loans are especially strict now, what can youths do to help increase their chances of obtaining a house when they are ready to purchase one?
First and foremost is to ensure that your credit rating remains healthy, always make sure that you credit cards bills, car loans or any bank borrowings in timely manner.
By doing so, you can maintain your credit rating in the Central Credit Reference Information System (CCRIS) which all banks will refer to when handling loans.
And besides that, Sim recommends that youths should be more financial prudent by saving early to help in paying their first deposit for their house purchase.
This can range from 0 to 10 per cent of the housing unit’s total price depending on the type of loan secured and whether or not the applicant has qualified for the My first Home Scheme (SRP).
SRP allows first home purchasers to have 100 per cent financing as their usual five or 10 per cent down payment will be serviced by government agencies Cagamas SRP Bhd instead.
This scheme is open to all Malaysian citizens aged 35 years old or less (age next birthday is 36 years old or less) with gross income of not more than RM5,000 per month for single borrower and gross income of not more than RM10,000 per month for joint borrowers.
Addressing the issue of affordable housing
After covering the topic of how to buy a house, it’s pretty clear that despite the affordability issues in our housing sector, owning a house isn’t an impossible feat especially with the PR1MA housing and upcoming Spektra houses from our private developers.
Nevertheless, a survey from PropertyGuru Malaysia has shown that a whopping 43 per cent of our homeowners have reported utilising their Employees Provident fund (EPF) savings to buy property.
According to the survey, this was a fiver per cent increase compared to the 38 per cent records in the second half of 2016 (2H16) and was done either as a part of the initial down-payment or to offset their principal home loan amount.
“Generally speaking, dipping into one’s retirement savings to buy a property is a sign of unaffordability in the market. It could also mean that consumers are prioritising home ownership over their retirement years.
“Others may feel that returns from EPF were not that attractive, hence, the money was better invested into a home that would generate capital appreciation and also provide a roof over their heads,’ said PropertyGuru Malaysia Country manager, Sheldon Fernandez said in a statement.
So how do we fix the issue of unaffordability?
Reducing costs, meeting public demand
In a research report entitled ‘Making Housing Affordable’ by the federal government linked Khazanah Research Institute (KRI); it was revealed that almost every state in our country had unaffordable housing prices.
The main reason for this, it said, was due to in efficiencies in the planning of housing supply by developers and unresponsiveness of housing supply to effective demand which has led to oversupply in some areas and under supply other areas.
Speaking on the findings during a press conference, KRI managing director Datuk Charon Wardini bin Mokhzani said, “It is generally perceived that high housing prices are a direct result of high land and construction costs but this is not the case.
“It is because developers are willing to pay for increased land prices as the market price for housing increases that ultimately causes housing prices to increase.”
“The problem will become more acute with population growing at two per cent and urbanisation continuing to increase and households getting smaller – with four persons per household in 2020 compared with six persons for every household in 1970.
“What we need now is for developers to sell a wide spectrum of housing aimed at all quarters of the population,” Charon as quoted saying in a report from The Star dated August 25, 2015.
On that note, the KRI report suggested three possible remedies to combat this.
First, it suggested that we develop a designated procurement route for affordable housing that moves away from our traditional general contracting route towards a more efficient and resource effective design and build or turnkey governance structure while forming frame agreements with material supplies.
Second, measures to reduce pressures of our rapid house-price escalation should be developed. It was suggested that a procurement method with a five year moratorium be enforced to allow ample time for new housing supply to come onto the market.
And finally, a steady supply of housing at affordable prices should be planned and shared on an integrated data base for housing as recommended in the 11th Malaysia Plan.
“This would provide information needed for efficient planning of housing supply according to effective demand and socio-economic requirement,” the report explained.
Policies to accommodate developers
On the flipside, the private sector is adamant that they are unable to deliver affordable homes due to the current restrictive policies and regulations governing the housing sector.
Speaking on the matter, Rehda president Datuk Seri FD Iskandar said, “When we want to build affordable homes, give us some incentives, such as a lower tax or allow us higher density; don’t charge development charges or lower the conversion premium.”
“A lot can be done, however, the government cannot keep on pushing and increasing compliance costs or getting new policies in place and charging us for them,” FD Iskandar was quoted saying in a report from the The Edge Financial Daily on September 21, 2017.
Giving an example, Iskandar explained that levies for construction materials in Malaysia was especially driving up construction costs as steel prices in Malaysia and Thailand were similar at around RM1,700.
But due to the levy imposed by the government, Malaysian contractors are paying upwards of RM2,800 per tonne instead.
And in local waters, our very own Sheda Kuching branch has also been very vocal on regulations and policy changes they wished to be addressed in order to reduce the cost of building homes in Sarawak.
“We have proposed several solutions and recommendations to the State Government; first, we have proposed that there needs to be an increase of infrastructure such as roads, electric lines, running water and connectivity all around the State,” said Sim.
He explained that the move was to open up more land for housing as the current supply of developable land is low and has caused our land prices to match Penang despite our abundance of space.
And to further increase the supply of developable land, Sim guided that Sheda Kuching branch had also suggested that the government allows for the automatic conversion from native land to mixed zone within 20km radium of cities and 10km within of town in Sarawak.
Following the theme of FD Iskandar’s previous comments, Sim also reiterated that there should be a reduction of compliance costs, but he emphasised that the resource of time was much more important.
Calling for a more efficient system, Sim declared that compliance costs for developers in the state would radically reduce if the approval time for planning layout, building plan, engineering plan, developer licence, advertising permits, road certification, and occupation permit could be reduced or streamlined.
He went on further to add that the development process can be streamlined even more by allow self-certification by consulting architect of the development to certify occupation.
“This practice is already in place in West Malaysia and the certificate given by the consulting architect is called the Certification of Completion and Compliance. Allowing us this same practice, would be highly beneficial to reducing compliance costs in the long run.”
Better and more loans
And taking a left into the consumer sector, who also has a say in the matter, it seems that many of our consumers are also placing the blame on banks as the survey from PropertyGuru Malaysia also highlighted that 46 per cent of their respondents felt mortgage loan interest rates were too high.
Compared to the 31 per cent who felt that interest rates were acceptable, this indicates that loan packages offered to consumers currently are just not as attractive and with 91 per cent of respondents also stating that they would need a loan to secure a home, it is of little wonder that consumers are being so dissatisfied with their banks.
However, the KRI report advised heavily against making loans more readily available or attractive as they believed that it would further exacerbate our current affordability issues in housing by reducing our current supply even more.
“More people would be able to buy a house at any particular price. Given the inelastic supply of housing, this would paradoxically make housing even more expensive! While measures to make credit more available and less costly may seem to make housing affordable, our position is that affordable housing means lowering the price of
housing and not increasing the debt burden of households,” said the report.
And in line with that, the report also questions the sustainability of our affordable housing schemes as well in the long run.
The main argument against affordable housing scheme is that it is not a solution that reduces the cost of housing but a band aid that helps people buy those expensive houses while steadily increasing our household debt.
“A government subsidy to developers is a needless drain on government finances.
“Affordable housing is not a welfare issue and if proper remedies are taken, it is possible for us to have a productive and profitable housing sector that provides affordable housing without requiring government subsidies.“