We are grateful that out PM did not heed the advice from business groups with a vested interest to relax some of the cooling measures announced previously to stem excessive speculation such as lowering the Real Property Gains Tax or re-introducing the Developer Interest Bearing Scheme (DIBS) for first-time house buyers. We are indeed glad that a ‘status quo’ (an existing state of affairs) was retained through the wisdom of our PM.
The positive take from Budget 2017 in relation to property, in particular, Affordable Home are as follows:
(a) The government will build more PR1MA homes, SPNB, PPA1M houses and also PPR homes (“Affordable Homes by the Government”)
(b) Exemption of stamping fees on Transfer instruments and Loan facilities for first-time buyers of houses not exceeding RM300,000
(c) Levy of stamping duties of 4% on properties in excess of RM1 million;
(d) Maximum special loan scheme of between 90% – 100% from participating banks for first-time house buyers
(e) Building 10,000 housing units in the town / city for rental to eligible youths with permanent job including young graduates entering labour market, which duration should not exceed 5 years.
DEVELOPERS’ INTEREST BEARING SCHEME (DIBS)
HBA is glad that the Government has continued to heed our call to ban the concept of DIBS or any permutation that entails interest capitalisation.
Developers being entrepreneurs have to be responsible and bear the risks that come with their investment. They should not be allowed to enjoy profits at the expense of house-buyers bearing the risks on their behalf. Thus, when developers claim that DIBS is good because they “assist new buyers”, they should be asked to use the Built Then sell (BTS) 10:90 concept instead if they are sincere in not wanting to shift the risks to the house-buyers.
We are glad that the developers’ trade organisation did not succeed to convince the Government to be their sales agent. The DIBS prohibition announced in BUDGET 2014 has been effective in curbing the unbridled escalation of house prices. DIBS must continue to be prohibited and outlawed. Do not allow ‘First Time House Buyers’ to be sucked in.
(a) Affordable Homes by the Government
HBA is grateful that the Government has taken the initiative to build more affordable housing. However, HBA cautions that the right implementation to ensure that said affordable housing reaches the right target market.
Affordable housing must be built at the right place and priced reasonably, i.e between RM150,000 to RM300,000 and not more than RM300,000 for prime locations. Also, it must be only for FIRST TIME HOUSE BUYERS and not to be made available for second-time house buyers, which PR1MA is allowing with certain conditions.
PR1MA must also ensure that all the allocated land is used to build affordable housing and not to partner with private developers whereby only 40% of the lands (from what we understand from the market) is for affordable properties with the balance being used for lifestyle properties to build commercial and high-end properties.
(b) Exemption of stamping fees on transfer instruments and loan facilities for first-time buyers of houses not exceeding RM300,000
This is an excellent formula to assist first-time house buyers in buying their first home. The first timers would not be burdened too much with the stamping fees from the onset. In a situation where the sales price is RM300,000 the savings would be as follows:
(c) Levy of stamping duties of 4% on properties in excess of RM1 million;
Current stamp duty on transfer of properties is considered to be low to encourage easy ownership of properties amongst the Rakyat and is based on a scale rate as follows:
Stamp duty is the same regardless of number or properties held. As a result of low entry cost to acquire a property, speculators have taken advantage of low stamp duty regime and able to acquire multiple properties at the same time, this depriving genuine house buyers the opportunity to acquire those houses.
Current stamp duty regime can be maintained for the first two properties held, one being for own stay and one for long term investment. However, stamp duty must be increased for the third and subsequent property held. Our recommendation for stamp duty is as follows:
(a) First Two Properties, based on current scale rate
(b) Third Property – Flat 5% of Value of Property
(c) Fourth Property – Flat 7.5% of Value of Property
(d) Fifth Property – Flat 7.5% of Value of Property
We are glad that our PM has instead adopted another approach to our recommendation – the increase of 4% stamping fees levy for properties exceeding RM1 million and above. HBA supports these initiatives as we feel the rich should contribute more towards our country’s revenue.
(d) Maximum special loan scheme of between 90% – 100% from participating Banks for first-time house buyers
Although this proposal will assist first-time house buyers, HBA urges some caution that such a proposal cannot be implemented across the board. This is because some first-time house buyers may have existing loan obligations and if they were given a 90% to 100% loan, the combined loan repayments could be too burdensome leading to an imminent default in a matter of time.
As such, HBA feels that the decision of how much financing to extend must rest with the respective Banks and this proposal should only be a general advisory and cannot be made mandatory.
(e) Building 10,000 housing units in the town / city for rental to eligible youths with permanent job including young graduates entering labour market, which duration should not exceed 5 years
The building of such housing units to allow eligible youths with permanent jobs to rent is also a good move. These youths may not be eligible for housing loans and this move will allow them to have a stable roof over their head until their income levels improve.
Balancing the risk between ‘Buying” and ‘Renting’
“BUYING a home is typically the largest and most complicated financial commitment most people will ever make”. This is the phrase used whenever there is talk of homeownership and it applies to first time households, too.
First-time buyers face many barriers, one of them being the burden of monthly payments, having enough savings to sustain the responsibilities of owning a house, and income stability to qualify for housing loans. The higher the loan: the larger the commitment and monthly instalments. HBA is not in favour of buyers taking a maximum loan. They will be slaving for the Banks for a long duration and will lose their standard of living and pleasure. If buyers don’t have the initial ‘seed money’, they are advised to rent instead.
Buying and owning a house is a riskier proposition for households compared with renting. Buyers take on enormous debts, sign multi-year loan agreements and become responsible for homeowners’ cost of their homes. Renting is a much simpler undertaking.
Foreclosures can devastate a family’s economic and social standing, leaving them poorer instead. Making sure that first-time house buyers have sufficient personal financial management skills is more than a supplementary issue. Financiers, local authorities and communities benefit from homeowners being better informed of their rights and responsibilities as homeowners and borrowers. Support for potential home buyers and owners is crucial.
Bank Negara has since April 2006 set up the Credit Counselling and Debt Management Agency (Agensi Kaunseling dan Pengurusan Kredit – AKPK) : http:// www.akpk.org.my/my/perkhidmatan/pengurusankredit/pengenalan to provide counselling and debt management to individuals as well as financial education to help individuals take control of their financial situation.
We recommend that a similar programme – Homeownership Education Programmes to be set up to raise overall financial literacy as a method to prepare first-timer households to take on the responsibilities of owning a home, so that the hard task of ensuring a “home for everyone” be maintained and house owners do not end up being “squatters” again.
Homeownership education can be in the form of manuals to be handed out, advice and information given out by telephone, workshops or “face-to-face” counselling.
These services should ideally be provided before a potential buyer signs a purchase contract. Counselling should be provided to help households maintain their homes or to manage their finances.
It is not enough just to provide homes for affordable housing group who are also first-time buyers on the many aspects of homeownership. The success of any public housing programmes can be achieved by assisting the said group to acquire and remain homeowners. A Homeownership Education Programmes could probably include the following:
This recommendation is intended to encourage all potential first-time homebuyers to attend a homeownership education programme before they search for a home or sign a sale and purchase contract. Educate yourself and learn from the mistakes of others to avoid being disappointed or worse, “house poor”.
This article was first published in the iProperty.com Malaysia December 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine.Better yet, order a discounted subscription by putting in your details in the form below!