As young Malaysians get married and plan to settle down, they might think about buying property for themselves or as an investment, which they could rent out or sell for profit in the future.

One common question is whether they should buy a property as individual owners, or whether the purchase should be made jointly.

To answer this, imagine a couple named Eric and Lin who plan to get married in six months’ time. They are looking to buy a residence in Kota Kemuning for RM700,000. What are their options?

In truth, there is no straightforward answer as it really depends on how they plan to work this out as a couple. Communication is key to ensure their interests are aligned and safeguarded. Here are five key factors to consider.

1. Do they both want to be property owners?

In Malaysia, buyers are required to place a 10% down payment on the price of a residential property if they do not already have two mortgages.

If Eric has one or no mortgage when he decides to buy this new property, he will have to place a down payment of RM70,000. If he has two or more existing residential mortgages, he will need to place a 30% down payment of RM210,000.

If Eric and Lin intend to build their property investment portfolio, it is better for them to purchase properties as sole owners. This will allow them to buy up to four residential properties with 10% down payments.

• Eric (2 properties) + Lin (2 properties) = 4 properties

However, if Eric and Lin purchase this property as co-owners and finance it with a joint mortgage, they are viewed to have one mortgage between them, and consequently can only buy up to three residential properties with 10% down payment.

• Joint mortgage (1 property) + Eric (1 Property) + Lin (1 Property) = 3 properties

So, if Eric and Lin wish to be serial real estate investors, it is ideal for them to buy the house as a sole owner.

2. Who pays the down payment and mortgage?

Assuming Eric and Lin are first-time property buyers in Malaysia, they will also incur 5-10% in property transaction and renovation costs. Thus, the initial cost would probably be around RM140,000 to purchase this property.

If Eric buys this residence himself and fails to service the mortgage in the years to come, his credit score alone will be affected.

Similarly, if Eric and Lin buy the residence with a joint mortgage and fail to service the payments, it will impact both their credit scores. One of them will have to make up for the shortfall if the other is unable to pay an instalment.

It is, therefore, crucial for couples to consider whether they both wish to be responsible for servicing the mortgage.

3. What of the future sale of this property?

As the sole proprietor of the residence, Eric or Lin can decide on the disposal of the property on his or her own.

As joint owners, they will both need to agree on the terms of sale for the property. If one of them wants to sell but the other does not, then they are at a stalemate and the property cannot be transacted.

So, if Eric and Lin are happy to make their decisions on the property together, they can consider purchasing it as joint owners.

4. What happens if one of them passes away unexpectedly?

If Eric is the sole proprietor of this residence, he can write a will bequeathing the entire property to Lin.

However, if Eric and Lin are co-owners of this property, they should get their wills written and leave their stake in the residence to each other.

If they pass on simultaneously, they can instruct the executor to distribute the residence or the proceeds of its sale to their nominated beneficiaries.

5. What are their debt-cancellation strategies?

The ownership of a property is only transferable if its mortgage is fully settled.

Assume Eric is the sole owner of the residence and has written a will to leave the property to Lin. Upon his death, there is RM400,000 in outstanding mortgage. This debt must be settled before the residence can be transferred to Lin.

From this, two questions will arise:

• Did Eric buy a Mortgage Reducing Term Assurance (MRTA) policy to settle the debt in full upon his death?
• If not, did he buy an insurance policy to enable Lin to settle his mortgage?

A similar debt-cancellation strategy must be carefully considered if the couple wishes to purchase their residence as joint owners.

This article first appeared in KCLau.com.

Ian Tai is a financial content writer, dividend investor, and author of over 450 articles on finance featured in KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore. He is a regular host and presenter of a weekly financial webinar in KCLau.com.