There are many pitfalls that one cannot afford to ignore.
By V Bharathi
Until quite recently, the housing market in Malaysia went through a period of irrational exuberance. The typical house buyer was someone who wanted a home to call his own, but many also bought additional houses as investments. But with the changed economic circumstances, people have become more careful.
N Murthy is an administrator at a factory in Senawang, Negeri Sembilan. He currently lives in a rented home. With his substantial EPF savings, he now plans to buy a house which he says will eventually belong to his daughter. He and his daughter have a combined income of RM10,500 a month.
His reluctance thus far in buying a house comes from regret over a decision he made some time in the 1990s. He lost the RM5,000 deposit he had paid for a house in a low-cost project near Port Dickson, which never took off.
He is now looking at a housing project near Seremban 2, which is being undertaken by a reputable home grown listed company.
Understanding that it is a huge long term commitment, he’s not about to be carried away by all the sales pitch and beautiful brochures coming from property brokers and companies. Instead he will take to understanding the pitfalls, such as the one he has suffered. He wants to arrive at a well-informed decision.
According to a real estate broker, no one should take the plunge before understanding his own finances and understanding the market conditions. He must also do a lot of research to find out which loan giver gives the best deals and he must not forget to read the fine print in the agreement he is signing. The wise buyer would also always keep tabs on his debt levels, constantly looking for ways to reduce them.
Understand your finances
A top real estate agent says that buying a house that you can’t afford is like eating more food than you can digest. So you must look closely at your lifestyle and financial capabilities. You need to plan for an unfortunate eventuality, such as the loss of your job, illnesses or even death, and ensure that your finances will be able to cross the road blocks and move on. The banks don’t want to hear your tearful story. They just want back their money.
So think long term and make sure your wallet is strong enough to undertake the long arduous journey of about 25 years.
Understand the market conditions
Since buying a house could be your biggest investment, you need to study the real estate market to understand the conditions that exist. The property sector is one of the worst hit in the current economic doldrums. The demand for houses and commercial property has stagnated, land values have softened and there’s an unpredictable interest rate scenario weighing in that might make things worse. Furthermore, Bank Negara has implemented measures restricting access to capital to cope with rising debts. This sector is under-performing and under great pressure, and this is reflected in the stock market.
Beware of banks
In a competitive environment, banks offer housing loans with different conditions. Borrowers generally get deals that fit their credit profiles. Check them all out patiently. Understand the trigger points that would cause you to lose your house. While you are all positive about getting a new house, you must get a firm grasp of the negatives so that if you do choose to take a loan, you can discipline yourself to meet and resolve the problems that might crop up later.
Read the fine print
The fine print is usually where your problems are hidden. Many of us just close our eyes and sign on the dotted line. We forget to read the clauses that are in fine print in the loan agreement. You need to understand the significance and impact of these clauses. Take some time to read through the agreement carefully so as to avoid ending up in a financial hell hole.
Keep tabs on debt levels
If you have other savings on top of those from the EPF, direct them all as payment towards the new house. Everyone wants cash and that could enable you to negotiate a better deal in a weak market. Secondly, try pre-paying from any extra income derived from bonuses or rises in your salary. This is because you must ensure that your debt liabilities are not more that 15% of your purchase price. Remember, this can reduce the tenure and help you save on interest.
Most Malaysians view a house purchase as one of their wisest decisions. But with debt defaults at their highest levels in recent history, Bank Negara has found it necessary to impose restrictions on the granting of bank loans to new applicants.
Buyers, says an analyst, must understand that in a stock market, price fluctuations every minute are the norm. This fast pace environment gives investors the excitement and the gyration needed in stock price movements. But in the real estate market, things happen much more slowly but stay stable for a longer period. This makes it relatively easier for property buyers to take their time to check through the available deals thoroughly.
V Bharathi is an FMT columnist.
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