Common Problems Faced by Home Loan Borrowers in Malaysia
Real estate properties in Malaysia cost relatively lower compared to neighbouring Singapore and Hong Kong. However, buying a house in the country – for both citizens and foreigners – is likely to become an even greater challenge due to a variety of factors, among them, growing interest rates on housing loans, rising property costs, and the unavailability of properties their income affords. In a nutshell, the basic laws of supply and demand is what has been primarily driving up real estate prices.
The government has set in motion initiatives such as PR1MA (1Malaysia People’s Housing Programme) and SRP (My First Home Scheme) to help citizens afford homes more easily but it low would take some time to gauge the effectiveness of these government schemes. Reports say only a small percentage from the hundreds of thousands of mortgage loan applications have so far been approved under the said schemes.
The higher your income, the easier it will be to get approved for a mortgage loan, and applying for mortgage loans can be a problem to low-income to middle-income families. Even those on the higher end of middle-income workers earning between RM4,000 – RM7,500 might not find it easy to get approved for a loan with Bank Negara Malaysia’s tight restrictions on mortgage loans.
Programmes like PR1MA area designed to make owning a house more affordable to Malaysians. However, the bigger problem is that not many families can afford even a unit that costs as low as RM100,000 to RM400,000 per unit on an average income of RM4,000 a month or even less.
Kluang MP Liew Chin Tong was one of those who voiced out concerns about the problem of high property prices against income levels of a majority of Malaysians. He bemoans how the government has approved only a small number of mortgage loans under the SRP scheme despite having been active since 2011. SRP offers 100% loans for first-time buyers earning below RM5,000 a month. “On paper, this sounds like a good solution to ease the house-hunting dilemma of young working adults. In fact, calculations will show that the figures are too good to be true for young, middle income, families,” Liew said in an interview with Astro Awani.
Tax gains and rising value of property
According to the planned budget for 2014, the Malaysian government is set to double real property gains tax (RPGT) from 15% to 30% on properties disposed within three years of purchase, among other related measures to prevent real estate prices from ballooning out of control. Some industry observers speculate that raising RPGT could push real estate prices even higher and make it more difficult for first-time home buyers to afford a home.
Also beginning January 1 next year, property developers and financial institution will no longer be allowed to implement the Developer Interest Bearing Scheme, wherein the developer absorbs the interest on mortgage loans during the period when the property on sale is being constructed. There may also be ramifications related to partnerships with private organisations co-investing in the constuction of housing units.
Hefty interest rates
Real estate costs may be relatively cheaper in Malaysia, but interest rates on mortgage loans are definitely higher in the country than countries like Singapore. The good thing is that once granted a home loan, banks would usually cover up to 90% of the total property cost. However, low-income to middle-income Malaysians may not always have the means to make the 10% downpayment. Even if they are able to, repaying a loan plus interest could really eat up a huge percentage of their monthly income and drive them deeper in debt.
Scarcity of land and construction delays
While it is true that the government is already in the process of building low-cost homes under the PR1MA scheme, most of the planned units would be built in areas where demand by first-time home owners is lower than existing owners, specifically on lands owned by federal and state governments. Furthermore, the first batch of 80,000 units will not be ready for vacant possession until around 2015-2016. Property laws and regulations differ in every Malaysian state, leaving production timelines and capabilities in the development of low-cost housing uncertain.
With all these challenges home buyers face, Malaysian citizens would do well to review options carefully before jumping in. They should learn how to determine how much they could afford without stretching themselves out too thin. Income, existing debt, and amount of savings are things property seekers would want to look at before considering applying for mortgage loans.
A good rule of thumb is to never take a mortgage loan that exceeds a third of your monthly income. Find out everything you need and compare mortgage loan packages closely so that you don’t miss out on worthwhile options.
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