A Malaysian Guide to Home Buying Fees & Charges

Like any other country, buying a house and taking a home loan / mortgage in Malaysia involve legal fees & charges - which many people fail to take into consideration especially when they’re buying a property for the very first time.

So to all Malaysians buying your dream houses right now, allow iMoney to show you ALL the fees and charges involved when you buy a house or apply for a home loan.

Is it Viable for EPF to support Subprime Loan? (Feb2012)

In 2008, we have seen the catastrophic effect from the subprime mortgage loan in US. Even now, US is still struggling to fully recover from their worst financial crisis since Great Depression. The problems doesn't build in one day, in fact, it took years to snowball the problem. And, yet Malaysia seems like wanting to catch up with them by supporting the subprime loan. But, the unique part of our version is "using EPF monies"?

When news first broke out last month that EPF would be channelling RM1.5bil for a special public housing scheme, alarm bells sounded off for many contributors. Maybe EPF already knew the result for last year performance, it announced later that contributors are getting a decade-high dividend rate of 6%. Salute to EPF. Since EPF are doing so good even without the said "loan", then, why EPF have to take the risk to loan out to this scheme?

Afterthat, EPF published a statement claiming that the money is loaned to the Government, not to individuals. All the proceeds will go through a special purpose vehicle of Federal Territories Foundation (SPV FT Foundation) where terms and conditions are set.

YOU must be kidding, very obvious the end borrower was individuals, not Government. Where does the risk comes from? Ultimately, the individual borrowers are the one who determine the survival of the scheme.

What EPF gets?

For us, the most important detail that's available is 5.5% profit. The rest, it's very surface only without much details, such as the process of borrowers selections, criteria for loan application, and a lot of what if... Transparency is not there either.

No worry, Government can GUARANTEE the scheme mah!!! Yet, another question comes in. How does Government guaratee it? If something goes wrong to EPF monies, Government will use its money to compensate EPF?

Wait... Doesn't Government money belong to us too?

How did Singapore's Cooling Measures Impact Malaysia's Property Sector? (Dec 2011)

On 7th Dec 2011, the Singapore government announced that it would impose an Additional Buyer's Stamp Duty (ABSD) to moderate investment demand for private residential property and promote a more stable and sustainable market. This is needed in view of the stubbornly high inflation rate in Singapore amidst the slowing demand from developed markets. For those who don't know, inflation rate in Singapore was mainly contributed by surging property prices.

The ABSD was effective 8 Dec 2011. After the announcement, property-related stocks slumped last week, following by a slump in banking stocks because of an expected slower housing loan growth. The latest measures are a near-term negative for property developers with an anticipated trend in lower average selling prices and transactional volumes, which will hurt profitability. Nevertheless, most large-cap property developers in Singapore are relatively well diversified, not just across sectors (industrial and commercial), but also geographically.

Under the latest cooling measure, the ABSD will be added on top of the current Buyer's Stamp Duty, and apply to the purchase price or market value of the property (whichever is higher) according to the type of purchase as below:

1. ABSD of 10% for foreigners and corporate entities buying any residential property
2. ABSD of 3% for permanent residents who already own one property, and buying the 2nd and subsequent residential property
3. ABSD of 3% for Singaporean citizens who already own 2 properties, and buying the 3rd and subsequent residential property.

What's the Impact on Malaysian Property Sector and Developers?

Because of our closely linked economies, some of our property players already ventured into Singapore property market, such as Sunway, SP Setia, IOI Corp and YTL Land. According to OSK research report, Sunway has 4 ongoing projects with a total GDV of around SGD1.7bn under its 30:70 joint venture with Ho Hup Group and a small wholly owned project with at GDV of SGD32.8m. Two of the projects, which are under the Executive Condo (EC) and Design, Build and Sell Scheme (DBSS), are exempted from the ABSD. While the remaining three ongoing projects, coupled with another upcoming project (GDV: SGD357m), are under private development (PD) which is subjected to the ABSD. However, with its ongoing PD projects already achieving a strong take-up rate at around 70%, we believe the impact on Sunway will be rather minimal.

Sector wise, Finance Malaysia believes that there will be a in-flowing of money to our shore given its proximity to Singapore, coupled with the attractively packaged Johor's Iskandar Development Region (IDR). This would be a timely process where IDR is gaining traction with basic infrastructures were almost completed. Those developers which had already jumping into IDR may benefits from the announcement. Tebrau Teguh, being one of the most sensitive stocks linked with IDR may see some buying interest. 

Asia property sector to deteriorate?

A combination of excess liquidity, low interest rates and a robust macroeconomic outlook has pushed prices up over the last few years. As a result, housing affordability for low and middle income families has worsened across the region, with low interest rate slightly cushioning the adverse effect of higher prices. Several central banks have intervened and introduced regulatory measures - such as higher minimum down payments (etc. Msia) and more land releases for construction (etc. Singapore) - to cool down the markets and slow credit expansion.

Within a specific market, the prime segment should hold up better than the mass-market segment. Should the real estate market correct instead, steep corrections for the mass segment are unlikely because of the following reasons:

1. Rental Yields still appear attractive in the current low interest rate environment;
2. Residential vacancy rates are low in many Asian cities, especially in Hong Kong and Singapore (not in the case for Msia);
3. Governments are well aware of the potential negative spillover effects of a strong housing market downturn to the overall economy. Thus, they are more proactive in making monetary decision to juggle between tightening or loosing the monetary policies.

Property prices to Come Down after BNM's latest guidelines? (Nov 2011)

Like it or not, Bank Negara Malaysia announced that effective 1 Jan 2012, financial institutions must make appropriate enquiries into a prospective borrower's income after statutory eductions for tax and EPF, and consider all debt obligations, in assessing affordability.

Aimed at promoting prudent, responsible and transparent retail financing practices, the new guidelines require financial institutions to make assessments of a borrower's ability to afford financing facilities based on a prudent debt service ratio as inputs to their credit decisions.

On top of that, a new guideline was stipulated that the maximum tenure for vehicle financing should not exceed 9 years, with immediate effect (18 November 2011). Right now, there are only 2 banks which offers vehicle financing up to 11 years, and less than 2% of car buyers now opted for tenures beyond 9 years. The changes was neglect-able.

Are you an Informed Borrower?

The guidelines additionally hope to ensure that consumers are treated fairly in the sales, marketing and administration of financing facilities. As such, financial institutions are required to provide consumers with specific information on the following:

• total repayment amount
• total interest cost as well
• impact of an increase in the financing rate

The BIGgest Impact will be on Property sector?

Since that the banks are required to assess the affordability of borrowers based on net income, many people may not have the capital needed to pay for down payment. Although automobile industry will be affected, the biggest victim will be on property sector. This is because property purchasing needs more capital outlay.

On top of that, the value of property went up so high currently where the market value does not match the seller's asking price. To meet the short-fall, buyers are forced to fill-in with cash. This had already slowing down property prices lately. But, after the new guideline, would it be worst? Definitely.

The numbers of affordable buyers will became lesser. Hence, demand for property will be softened. What if supply more than demand? Simple economic theory told us that prices have to come down in order to strike a balance. I think this is true and will materialize next year.

Real Property Gains Tax (2011)

Malaysia is known as "tax heaven" of the world. Why? Because Malaysia does not impose tax on any capital gains derived from investment, such as shares, unit trust... But, there is only one type of capital gains that attracted tax - property.

PARC @ One South, Seri Kembangan

Real property gains tax (RPGT) is a form of capital gains tax. RPGT is charged on gains arising from the disposal of real property in Malaysia. These so called real property is defined as:

• any land situated in Malaysia and any interest, option or other right in or over such land; or
• shares in a real property company

How much?

Actually, we have RPGT in our tax system many years ago until 31 March 2007, when government abolished RPGT to attract foreigners to invest in Malaysia. But then, from 1 January 2010, RPGT is re-imposed at the rate of 5% on gains arising from disposals of chargeable assets in respect of real properties that are disposed within 5 years of owning.

What is real property company?

It is a controlled company holding real property or shares in another real property company as a major asset. And, the "major asset" here refers to defined value > 75% of the value of its total tangible assets.

Mon't Kiara

Withholding of RPGT

With effect from 1 January 2010, an acquirer of chargeable asset must withhold 2% of the total value of the acquisition price to be paid to the Inland Revenue Board within 60 days from the date of disposal.

Are there any exemptions?

• an amount of RM10,000 or 10% of the chargeable gain, whichever is greater, accruing to an individual (w.e.f 1 January 2010)
• gain arising on disposal as a result of compulsory acquisition of property under law
• gain accruing to an individual who is a citizen or a permanent resident in respect of the disposal of one private residence

In other words, everyone of us have one "Free RPGT" card in hand. This is the ONLY card that the government gave us, and we can decide to use it or not, and when to unveil the card. You can saved it for another day, because it is not compulsory to use it for your first disposal.

3 wrong perceptions on Malaysia's Properties

In Malaysia, property investment is gaining momentum since last year. And, the property sector seems unstoppable with record breaking sales. New launches are fully taken up within few hours. Speculators are becoming greedier than ever. Calming down, figuring out, is it so attractive after all? Let's have a look at the 3 big wrong perceptions…

Wrong perception #1: 
Malaysia's properties still attractive?

No doubt, many analysts and researchers comment that the local market price is still low if comparing to regional markets, such as Singapore and Hong Kong. This was wrong because we cannot simply compare with islands, where land is limited. We cannot simply compare with China, where billions of people chasing for limited supply of houses.

Wrong perception #2: 
KL Developers are going high-end?

Yup… KL developers are focusing at launching those high-end residential units. But, do not come into conclusion just that. First, we must look into the locations of these new launches, especially those at golden triangle. Locations play a vital role of setting the price of properties. Second, the cost of acquiring a particular land, and the cost of constructing sure will add to the price where buyers have to bear. Third, I noticed that many super high-end units are located on hills top. Difficulties to get the relevant approvals and moving machines up there was included into the selling price of course. Though, I can't deny there are developers trying to mark-up the price, as buyers think that the costlier the better.

The Pearl @ KLCC

Wrong perception #3: 
Malaysians household debt is high because of house loan?

Generally, house loan could easily be our biggest "earning-eater". House installments eat into our monthly salary. While there is good debt and bad debt, I categorized property as good and car loan as bad debt. Malaysians high household debt is caused by the high car price, which is not worth to have if comparing with a house. And, my previous article "Proton loves Perodua to avoid extinction?" highlighted the problems of local car industry which directly affecting our daily lives.

70% Loan to Value

On 3rd November 2010, Bank Negara Malaysia wishes to announce with immediate effect the implementation of a maximum loan-to-value (LTV) ratio of 70%, which will be applicable to the 3rd house financing facility onwards taken out by a borrower.

Financing facilities for purchase of the 1st and 2nd homes are not affected and borrowers will continue to be able to obtain financing for these purchases at the present prevailing LTV level applied by individual banks based on their internal credit policies.

Why?

The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public. 

At the national level, residential property prices have increased steadily in tandem with economic development and the rise in income levels.  This aggregate growth trend remains largely manageable and has not deviated from the long term trend in residential property prices.  In the more recent period, however, specific locations, particularly in and around urban centres, have experienced faster growth, both in the number of transactions and in house prices. This is further supported by an increase in financing provided for multiple unit purchases by a single borrower, suggesting increasing investment activity that is of a speculative nature.

The targeted implementation of the LTV ratio is expected to moderate the excessive investment and speculative activity in the residential property market which has resulted in higher than average price increases in such locations. This has also led to increases in house prices in surrounding locations, thus contributing to the declining overall affordability of homes for genuine house buyers.  This measure therefore remains supportive of the objective of encouraging home ownership among Malaysians which continues to be an important national agenda.

Finance Malaysia:

A conservative move by BNM, to avoid dampening the whole property market, and at the same time taking pre-cautious measure to "deflate the mini property bubble". As FM mentioned before, Government should introduce a higher Real Property Gain Tax (RPGT) which could effectively curb excessive speculation. But, such move is not popular in view of the upcoming general election which could be held as soon as first half of 2011.

FM DO NOT think that the latest movement by BNM will have any effect on the market. This is because one could buy his/her 3rd house using his/her child or spouse name instead. Maybe this is an advantage of having many children?

Source: BNM website

Budget 2011: Goodies for first-time house buyers

First Home Scheme was being introduced by the Government in Budget 2011 as below to encourage home ownership among Malaysians:

• Specially cater for first-time house buyers with monthly household income below RM3,000.
• 100% loan for houses priced below RM220,000.
• 50% stamp duty exemptions on instruments of transfer on houses below RM350,000.
• 50% stamp duty exemptions on loan agreement instruments on houses below RM350,000.

To facilitate the 100% loan, Cagamas Bhd (national mortgage corporation) will provide guarantee on the 10% down-payment to eligible house buyers.

Signals sent-out by Government:

1. Enabling first-time buyers to afford their first home.

2. Developers should build more houses which is affordable for such categories.

Advise to first-time house buyers:

1. The securing of such a loan is still subject to how much the banker willing to lend you.

2. 100% loan means higher monthly repayment for borrower.

3. Always buy within your means, not because of such scheme.

How about the buzzing higher down-payment ratio?

Although Government does not raising the down-payment to 20% or 30%, I believe it will announce later. The interesting part is always follows later.

Downpayment to be raised to 20%?

According to real estate players, Bank Negara Malaysia (BNM) may impose a lower mortgage Loan-to-Value (LVR) ratio soon. How soon?

What is the rationale?

As reported in all dailies recently, property prices in Malaysia have been escalating since last year. No doubt, many people made handsome profit even in this down time through properties. Even though BNM has upped the base lending rate (BLR) 3 times so far this year, demand for properties seems unaffected, especially for high-end properties.

According to Bernama, Bank Negara is reported to have written to financial institutions to secure feedback on the possibility of capping the LVR for mortgages at 80% to avert the risk of a potential property bubble.

Recalled, government had imposed a 5% real property gain tax (RPGT) during Budget 2010 to curb the speculative buying of properties. So, it’s not surprise that BNM will implement the 80% cap on mortgage LVR, or at least for properties of more than RM500k.

Currently, banks can usually lend up to 90% of the house value, or up to 100% in selected cases. Moreover, developers are promoting 10/90 home loan schemes for their new launches, by the way of interest absorbing, as witnessed last year. Yes, the schemes are very successful given the property outlook last year. Because people can easily buy a house without much commitment, it may pose a danger to banks’ non-performing-loan (NPL), if house buyers default on loan payments later.

To curb speculative buying of properties, countries such as China, Hong Kong and Singapore, have already implemented progressively higher down payment ratio for buyers who own more than one property.

In my opinion, should BNM set new lending rules to cool real-estate industry, I suggest increasing minimum down payment to 20% for high-end properties only, and exclude first-time buyers for all type of properties.

Why?

1. To minimize the impact on the industry.


2. To support government effort to encourage home ownership.


3. To target speculators specifically, not public at large.

Once more, only first-time buyers should be exempted from higher down payment. Because, once high-end properties’ down payment set to 20%, speculators would shift their focus to middle-class properties, which could hit the man on the street.