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Beyond Banks: Circumventing the Credit Squeeze


Beyond Banks: Circumventing the Credit Squeeze

The myriad of sub-sale properties going on the market at below valuation price over the past few years made one thing very clear: there is no time like the present to buy a home despite the seemingly challenging market.

“The worst times are the best times,” says Daniel Gambero, CEO and co-founder of REI Group of Companies. “Prices (of sub-sale properties) are currently as low as they can go—this is a good time to purchase if you can afford it.”

KLCC area according to Adrian Un, CEO of Skybridge International, is a prime example of this (not so) surprising turn of events; The tiny part of the city centre that just two years ago enjoyed yield as high as RM1,600 per sq ft has plummeted to close to RM1,000 per sq ft.

“On the other hand, under construction properties in Klang Valley within the range of RM400,000 to RM800,000 have been enjoying excellent sales in the past three months. Some of the units were snapped up even before their brochures and sales galleries were ready,” shares Un.


The Illusive Credit Crunch

The news on Bank Negara Malaysia’s decision on tightening up standards for lending in the last few years had sent buyers into high alert; horror stories of rejected loan applications started surfacing everywhere. Un admits, that while there is a credit squeeze, the move is only intended to crack down on aggressive borrowers.

“The first and second time property buyers are unaffected by the tightening,” he explained. “You have to understand that banks earn from two sources: credit card/personal loan or housing loan. And between the two, mortgage remains their biggest source of income and banks have to continue lending money.”

Adrian adds, “Go ahead on a buying spree if you are able to service the instalment. Just remember, it’s impossible to get 90% loan for your subsequent properties—but of course there are ways to circumvent this.”


Getting Around the Lending Challenge

1. Multiple financing (compression method)

KC Lau, a financial educator and personal finance author points out that it is important to mitigate risks in investment so that it is profitable. There are two factors involved in ensuring a successful investment: finding a property that gives you a good yield and making sure that over-leveraging doesn’t happen.

“It’s better to receive maximum loan for a property that gives you a lot of cash return than to buy several mediocre properties concentrated in one project with a maximum loan just because you want to make use of the multiple financing method,” advises Lau. “You don’t want to borrow too much and then not being able to pay back.”

Gambero adds, “My advice to those who are looking into multiple financing is to think about who your partners are. It’s much easier to get a divorce from your wife than your partner in property.”

2. Account 2 EPF

With the availability of so many first home schemes, the financing environment today is excellent for the first time home buyers. Although, these first timers may still find it hard to cough out the down payment. “You can withdraw money from your EPF account 2, your insurance policy and borrow from family members for your down payment—then prove that you are able to save 30% of your income monthly, you should be eligible for a loan,” says Lau.

3. Joint Venture (JV)
Although forming a JV to purchase a property has plenty of merits, it can get a little tricky when more than two parties are involved. “Be it an investment holding company that involves five people or a partnership between three friends, make sure that you are the one calling the shots,” advises Un. “Friends can easily become enemies when it involves money. So make sure you appoint a very experienced lawyer who has vast experience in handling JV cases.”

4. Lease Option

This option provides an alternate strategy for sellers looking to get immediate cash to buy more properties to add to their existing portfolio. “The buyer doesn’t have to sign a Sales & Purchase agreement and can elect not to buy the property at a future date,” informs Un. And in such cases, the amount of rent that was intended to go towards the purchase price is usually forfeited to the seller.


DISCLAIMER: The opinions stated in the article are solely of Adrian Un, KC Lau and Daniele Gambero and are not in any form an endorsement or recommendation by Readers are encouraged to seek independent advice prior to making any investments.

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