Tuesday, April 8, 2014

As we wait, properties may become harder to afford

I recall reading a letter written to the editor of a popular daily which caught my eye. The man related the story of the advice given by his grandfather and father about getting onto the house ownership ladder as early as possible. He was a young man, a fresh graduate in the mid-70’s with a starting salary of RM900 per month. He came from a humble background and every month he had to carefully allocate his limited earnings to his ageing parents and younger siblings as well as plan for his expenditure.
With his meagre salary, he rented a place close to his place of work so that he did not need a car, ate modestly at food stalls and saved every ringgit he could. Life was no doubt rather tough in the beginning but he worked hard at his job. He built up his career and gradually moved up the corporate ladder and by then, managed to save enough to buy a small Datsun (now Nissan) for RM8,000 (with 80% loan) and also put the 10% down payment for a linked house in the outskirts of PetalingJaya priced at RM83,000. It was not near his workplace but that was all he could afford at the time.
It was a choice worth his sacrifice, the location he chose to stay has today boomed into a township and the home he bought is worth more than RM800,000. Looking back, the man made a wise decision to have his own financial planning set at an early stage and we should all learn from the young man’s experience.
Lesson number one
Choose a property that you can afford at that particular time when you are ready to purchase. The longer one waits, the higher the property price would become and the increase of such price will be higher in rate than the increase in our salaries and savings.
Wait further to try and match the original price tag, and you will find yourself chasing after the property forever and lose out on other opportunities.
Lesson number two
Be realistic in your choice of your first home. Everybody wants to buy their dream home but unless we are realistic and practical, this will remain a dream forever. While the young man in the story above is lucky enough to buy a linked house in the outskirts of Petaling Jaya during that time, it is now impossible for young new graduates to purchase a landed three-room unit in the same area. Whilst it may be prudent to plan ahead for future needs and family expansion or proximity to ageing parents and other priorities, we should be open to other affordable choices – perhaps a strata property, a studio or one bedroom unit, or a location further from the major urban centres where prices are relatively cheaper.
Eventually, when salaries have gone up and the need for bigger units is more evident, you can upgrade to a more suitable housing unit which could be partially funded by the capital gains from your initial unit. The purchase of that bigger unit may otherwise be impossible if you wait until you have accumulated enough savings and earn a high enough salary!
Lesson number three
The most important lesson to first time house buyers is to start saving for your home purchase early. Prices are not going to be cheaper in the future as development costs will continue to increase due to price hikes in land, building materials, labour, logistics, utilities and inflationary pressure which will inevitably lead to escalation in house prices. In addition, the challenge to come up with the 10% down payment, be it for purchase from the primary or secondary market, will be tremendous.
The Employees’ Provident Fund or EPF housing account II from the monthly contributions will help to a certain extent but it needs time to grow the fund and you still need to come up with the upfront payment and other acquisition costs – legal fees, stamp duties etc, so it makes sense to start planning and saving for your first house purchase as early as possible in your career, along with other plans like car purchases, getting married or starting a family.
Youths of today should have greater awareness and appreciation for the importance of saving for their future and investing in property at an early age rather than constantly changing their smart phones, buying designer goods and frequently hanging out at overpriced cafés and bistros. Buying a house definitely cannot be an afterthought that youhave not prepared yourself financially for; for some who are more fortunate, you might be able to seek help from your family members in planning for your first house purchase but for those who are not, without early and proper planning you will find that you will never have enough to buy a house of your own even later in life.
Let’s take heed of the lessons learnt from the young man’s life story. At some point in the future you may look back and be grateful that you purchased the home despite some struggles to make a living. The young man, now older and wiser is sitting on a lot of gain and equity for his next purchase for investment.
Datuk Seri Michael Yam is the president of REHDA Malaysia. Apart from managing his own consultancy firm, he is an independent director of several public-listed companies and also a global bank in Malaysia.

Sunday, March 30, 2014

RM8.50 to use second Penang bridge, collection begins April 1

 Second Penang Bridge.

GEORGE TOWN: The toll rates for the Sultan Abdul Halim Mu’adzam Shah Bridge have been announced and collection starts on April 1.
The collection will start from 6am Tuesday, with toll charges for vehicles ranging from RM1.70 to RM70.10.
In a statement released Sunday, the Malaysian Highway Authority announced that rates for cars except taxis and buses (Class 1) is set at RM8.50; motorcycles (Class 0), RM1.70;  two-axle and six-wheeled vehicles except buses (Class 2), RM30.50; three-axle or more vehicles except buses (Class 3), RM70.10; taxis (Class 4), RM8.50; and buses (Class 5), RM26.20.
The toll will be collected from either the Bandar Cassia toll plaza for those going through the North-South Expressway (NSE), or at the bridge toll for those going via the Batu Kawan Interchange.
Meanwhile, there will also be toll collected for those using the link road to exit the NSE via the Bandar Cassia toll plaza as well as those who entering NSE through the same toll plaza.
The rate will be RM0.60 for cars except taxi and bus (Class 1), RM0.90 for two-axle and six-wheeled vehicles except bus (Class 2), RM1.20 for three-axle or more vehicles except bus (Class 3), RM0.30 for taxi (Class 4) and RM0.50 for bus (Class 5).
The 24-km second Penang bridge, which is the longest in South-East Asia and spans 16.9km over the sea, was launched by Prime Minister Datuk Seri Najib Tun Razak on March 2 and it has been toll-free for a month.

Sunday, February 16, 2014

How much can I borrow?

This is the most important question to ask before purchasing any house.

If you like old school, we can share with you the way to calculate your entitlement.
This may not be 100% correct because every banks may have their own calculation and guidelines. But,  can use as a guide. 
First, write down all your commitments:
Car Loan instalment: RM1000
Housing Loan instalment: RM1200
Personal Loan Instalment: RM500
Credit Card min payment: RM5000 (Outstanding) x 5% min payment = RM250
Total commitment: RM1000 + RM1200 + RM500+RM250 = RM2950.00

Secondly, check out your latest payslip and look at your net income. For example, net income is RM10,000.00.

Normally, bank will use Debt Service Ratio (DSR) to calculate your entitlement.
Healthy DSR will be less than 70%.
For example, net income RM10,000 x 70% = RM7000.00

***Your existing commitment and new instalment cannot exceeded RM7000.
If your commitment is RM2950, your new instalment should not exceeded RM4050 ( RM7000-RM2950 = RM4050)
So, how much you can borrow with instalment RM4050.00?
Now you have to work backwards, if your age is 30 yrs. The maximum tenure now offer by bank is 35 year or up to age 70 years, whichever comes first.
With 30 years old age, you can still entitle for tenure 35 years.
Interest rates offer in the average of 4.20% or 4.30% per annum.

I manage to get RM890,000 loan amount for instalment RM4050.00
If RM890,000 is 90% of loan amount, the purchase price you are entitle to purchase is RM890,000 / 90%( max margin) = RM988,888.88
So your entitlement of purchase price is, house price not more than RM988,888.88.
Are you able to calculate?
Don’t worry, if you are confused.