PETALING JAYA: Thinking of buying a RM500,000 house?
A veteran property expert said for that amount of money, renting might be a more viable option given the price of properties and the rising cost of living.
“There is no shame in renting,” Ernest Cheong told FMT in a recent interview.
“People often say, ‘If I rent a house, for the next 30 years I will only enrich the landlord and after 30 years I won’t own a home’.”
Cheong said this was only true if a person could afford the monthly instalments for 30 years.
But even then, Cheong said, given the inflated price of properties and the rising cost of living, people looking to own a home shouldn’t rush into owning one because, in the future, they might have other needs such as their children’s education or medical expenses.
“Let’s look at a RM500,000 property as an example. Say, for that price, it is a 1,000 square feet apartment in Puchong with three bed rooms, with a rental value of RM1,500 a month.”
“One man, Harry, rents it for RM1,500 a month, and his neighbour Sally decides to purchase her unit for RM500,000.”
After 30 years, Cheong said, Harry would have paid his landlord a total of RM702,000 assuming that after every three years the rent was increased by RM100 per month.
Sally, meanwhile, would have paid RM50,000 for the 10% deposit required and taken a RM450,000 bank loan to pay the balance 90% of the purchase price.
“She would also have to pay around RM40,000 in stamp duty and legal fees.”
With a 30 year loan, Cheong said, Sally’s monthly repayment to the bank would be around RM2,734 per month.
“In 30 years, Sally would have paid the bank a total of RM984,240 (RM2,734 x 360 months) and plus the 10% (RM50,000) deposit and RM40,000 legal fees and stamp duty, she would have paid a grand total of RM1,074,240 for her apartment.”
Cheong, a chartered surveyor, said over the period of 30 years, the value of both properties might increase three-fold, but this might only be on paper.
“In reality, we are now seeing an oversupply of residential units and with the rising cost of living, can many people say with confidence that they can afford a bank loan repayment of over RM2,734 a month for 30 years? Or that the value of properties will go up as planned?”
In recent times, Cheong noted, it had been reported that EPF figures showed there were 14.5 million working Malaysians in the country, of whom 89% were earning less than RM5,000 a month.
Cheong said a lot could happen in 30 years, with children needing to go to college or salaries not rising in tandem with the cost of living.
“So in reality, renting may not be a bad option because it allows you to be flexible. Lose a job or need to raise funds? Move to a cheaper place. If you take a loan, you’re committed for 30 years. Sure, you could sell the place, but are you sure you can get the ideal price given the oversupply of properties nowadays?”
Cheong said if people couldn’t afford to repay their bank loan at any time within the 30-year period, they might lose all their money, or even be made bankrupt if they could not sell the property at a price sufficient enough to pay the balance of the loan.
This, Cheong said, was why renting a property – rather than buying one – was a viable option which people should consider.