Just married and looking to own some property together? The experience can be daunting. Prices seem higher than ever before and it does feel like it will wipe out nearly all your savings of many years almost immediately.
Here’s a guide to keep you on the right track without losing your mind in the process.
1. What is the first non-obvious thing a couple should consider before deciding to purchase property (besides value, location, etc)?
Both should know the actual financial situation of the other. Leave no room for surprises. No wife should assume she can rely on her husband, or the other way around only to find out later that both are actually in bad shape financially.
Credit card debts, existing monthly car loan payments and even total savings in the bank are matters that must be made transparent before any joint purchase is even considered.
A decision should only be reached once both know exactly what they will be getting themselves into. Remember, one major argument that has lead to many a breakup is the one about money.
2. How can couples (married or not married, familial, friend/investment partners) maintain their personal financial securities when obtaining joint loans?
It is advisable that only married couples take up joint loans. However, if there is a very clear financial goal to be achieved from a joint purchase, then it is still okay to proceed.
Spell out the commitment from the parties involved beforehand. For example, a certain target price that would trigger a sale. Drafting out a simple agreement (without the need for a lawyer) that is signed by all parties is a good idea.
3. What are recurring or indirect charges that new homebuyers must consider before making an offer on a house?
Beyond the home loan, there would be four other components one should take note of. Three are quite certain.
#1 LEGAL FEE: The first RM500,000 would incur a 1% fee and the next RM500,000 would be 0.8%. It is assumed first time homebuyers will not buy anything above RM1,000,000. A minimum fee of RM500 will be applicable should the 1% fee be lower than RM500. If the house is RM500,000 then the legal fee applicable is RM5,000.
# 2 STAMP DUTY: This is NOT based on the purchase price of the property but on market value. For example, an undervalued condominium near KLCC is RM750,000. However, the stamp duty will be based on the market value of the condominium which is RM850,000. This is to prevent any hanky-panky transactions. The following is the applicable stamp duty schedule:
For the first RM100,000 – 1%
Subsequent up to RM500,000 – 2%
Again, it is assumed the buyer buys a RM500,000 property. In this case, the stamp duty calculation would be RM100,000 x 1% and RM400,000 x 2%. Total would be RM1,000 + RM8,000 which totals RM9,000.
#3 LOAN STAMP DUTY: This is straightforward i.e. the total loan amount X 0.50%. Assuming it is a RM500,000 property, the total loan stamp duty will be RM2,500
In conclusion, for a RM500,000 property, the homebuyer must have RM16,500 in his pocket.
#4 RENOVATION AND FURNISHINGS:. A general number would be 15-20% of the property price. The reason is because if one spends too much and there’s a need to sell the property in the near future, chances are one would sell the property at a loss due to the substantial amount for renovation and furnishings.
4. Which locations are considered affordable choices for young couples in major Malaysian cities?
Seriously, stop looking at location. The question is not WHERE but WHY.
Assuming you love area A. List three reasons why. If Area A is still affordable, by all means buy a home in Area A.
However, if the three reasons stated can be fulfilled by Area B and it is 20% cheaper, it’s time to understand that the savings you get from buying area B can be invested into something else. Perhaps even a second property a few years down the road.
Secondly, think duration and not distance. An area could be 10km away from the city centre but driving to work and back home may still take almost the same time as another area 20km away. Usually, the nearer the property is to the city centre, the more expensive.
Again, thinking about duration instead of distance may save you a tidy sum which you can use for many other purposes.
5. What should young couples know when choosing a real estate agent?
Go online and find their listings in various property sites. See how they write about the property they are selling. It should be a good write-up, showing they put effort or know enough about the property they are selling.
Talk to the real estate agent. If the real estate agent knows nothing about the area they are selling, it’s time to find another one.
A good real estate agent is able to ask the right questions and provide the right answers. You would also be able to make a better choice because of the information provided by the real estate agent. In fact, the person may become your good friend and may just be the same agent you use when you are thinking of the second property.
6. What type of screening procedures should young couples prepare for during the pre-application process?
If the credit score is good, please proceed. If it is not, it is perhaps a good idea to make it better first. Else, your application may get rejected. Do note that the rejection rate these days can be as high as 50% of all applications.
7. Advice for young partners looking to obtain joint ownership of a property.
Be serious about it. This is most likely the single largest purchase of your life. View more units before deciding on one. Be transparent about it. Know the financial limitations of one another. There should not be sudden surprises six months down the road. By then, it’s too late.
Be comfortable. Do not stretch yourselves beyond what you can afford. Always buy below what you can afford. This helps to manage the risks. The next purchase can always be an upgrade while the current one can be turned into an investment.
Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.