*This article was updated on 27 February 2020.
Here’s a checklist towards purchasing your first residential property. Also, first-time home buyers who purchase a property under the Rent-to-own (RTO) scheme and not exceeding RM500,000 from January 2020 to December 2022 will receive a full stamp duty exemption!
Sure you have always thought about buying a house but the whole journey just seems long and daunting. I mean, where do you even start and how does one research for a property to buy anyway? After all, real estate is a big-ticket item involving various processes – hence, it is crucial for you to purchase the right product the first time around.
We can’t just “test” one out to see whether it fits our requirements and needs or not – consumers do not have the same luxury as they do with other goods such as shoes, makeup and even handphones.
In this article, we explore the steps leading up to purchasing a home in Malaysia so that you won’t make unnecessary mistakes or face unseen hurdles. For a simplified version, check out this article instead.
1. Research a little bit first
Before jumping into uncharted waters, it makes sense to gain some subject knowledge. Ideally, you would want to understand the basics of residential property in Malaysia such as the various types of homes and land types available, type of home loans and lending guidelines as well as the qualities of a good developer.
Due diligence is vital in ensuring you purchase the right home that fits all your requirements, some of the factors you should be analysing include the property’s location, accessibility, surrounding infrastructure/amenities and pricing analysis.
TIP: Be especially diligent when it comes to newly-launched properties, you have to remember that all that glitters is not gold! Do not be swayed by glossy brochures and the promise of free gifts – remember the mantra: Research, research, research. You might want to check this list of blacklisted property developers before buying a new launch property too.
2. How much can you afford for a home?
Most financial experts will advise that your monthly instalments should not exceed one-third of your household income. Say you have a total combined income (if you have a spouse) of RM9,000; the monthly instalment of your first home must not be more than RM3,000.
3. Get a rough idea of average prices in various locations
Next, you would want to check out the current market value of residential properties. This can be done via brickz.my which provides the latest transaction figures of landed homes and high-rise units of secondary properties in all suburbs throughout Malaysia. Consumers will be able to view the median price per sq ft too as well as the unit size and the number of bedrooms.
The free version of brickz.my shows only the latest 10 transactions within a residential project/landed home schemes, but these are a good enough for you to gauge which areas or projects fall within your budget.
You can also use our home loan eligibility tool, LoanCare to find out if you will be able to secure a home loan from up to 17 banks across Malaysia for that property you have your eye on.
4. Start searching for your property
What shall it be? Condominium, apartment, terrace house, semi detached house or bungalow? Filter through iProperty.com.my by the areas you are interested in as well as your budget range. You can even customize your search according to the number of bedrooms, built-up sizes and property types, be it new launches, sub-sale or auction properties.
5. Need help? Hire a real estate agent
You could also engage a real estate agent to help you out with your home purchasing journey – be forthcoming with your requirements such as preferred locations, home type, unit size, loan tenure, land tenure and estimated budget.
According to the Seventh Schedule (Rule 48) of Valuers, Appraisers and Estate Agents Act 1981, the maximum commission fee for real estate agents for the sale or purchase of land and buildings is 3%. However, the real estate agent fees are subject to a minimum fee of RM 1,000 per property.
6. Do you have enough for the downpayment?
Typically, first-time home buyers have to fork out 10% of the property’s purchase price to serve as down payment while the rest of the home purchase price is financed via a bank loan. If your target home costs RM400,000 – you will have to come up with RM40,000 as its initial downpayment.
Although the industry standard is 90% financing for first-time home buyers, the margin of financing varies according to the type of property purchased and your financial credibility at that point in time.
TIP: For newly-launched properties, many developers are offering rebates between 2%-5% while some only require you to pay the initial 1-2% booking fee (to register genuine interest), which then goes towards paying for the downpayment.
You can also consider financing your home via your EPF monies.
7. There are other or hidden costs involved!
Many home buyers do not anticipate the additional fees involved in home purchasing. These include lawyer fees, stamp duties, Sales & Purchase Agreement (SPA) fees and valuation fees. Some developers will absorb the legal and SPA fees but buyers will have to settle the rest themselves. Also, if you intend to purchase a starter home with plans to upgrade after a few years, you will have to pay Real Property Gains Tax (RPGT) when disposing of your first home.
TIP: Do stash aside some money for home renovations too and for the purchase of furniture, fittings and whatnots. A good benchmark will be 10-15% of your property price.
8. Shop for home loans
Upon paying a booking fee or your earnest deposit, you will start sourcing for a home loan. There are many banks out there offering different home loan products including term and flexi loans.
One of the most important aspects of a home loan is its interest rate – this could either be fixed or floating. The former means that the interest rate is fixed throughout your loan term whereas the latter will have an interest rate that is pegged to Bank Negara Malaysia’s Base Lending Rate (BLR), hence the value will fluctuate according to the BLR’s movement. Even though the rate might be higher, a fixed rate loan is more suitable for the risk-averse as it guarantees certainty.
Research the current packages and go for one that best suits your repayment profile. For sub-sale properties, this process involves a property valuation, where you will have to pay for the report. The bank will engage a valuer to physically inspect the target home.
9. How to qualify for a home loan
Calculate your Debt Service Ratio
Your credit score is one of the most important factors in qualifying for a loan. Banks will measure your repayment capability via the Debt to Service Ratio (DSR), a calculation which shows the proportion of your debt in relation to your total income.
DSR = (Total Commitment ÷ Nett Income) × 100
Each bank has a maximum DSR cap that they impose on a borrower in order to approve his/her loan application. Ideally, your DSR number should not be greater than 70%.
Check your CCRIS & CTOS report
Your Central Credit Reference Information System (CCRIS) report, which is available online displays all of your total credits, interest charges and other outstanding charges for all loans that you have with any banks in Malaysia – everything from a personal loan and credit card to hire purchase and overdrafts.
Delay in repayments for any obligation will show up in your report and is recorded as “1”. Lending guidelines differ across banks, but most will require mainly zeroes as it shows that you are a good paymaster.
One plus point is that the CCRIS only shows information from the latest 12 months. Hence, if you have a less than stellar report at the moment, you could strive to improve and ‘correct’ it in the coming 12 months in order to increase your chances of obtaining a home loan.
Meanwhile, Credit Tip Of System (CTOS) collates information for summons and bankruptcy on individuals and companies from various sources found in the public domain. Banks will examine the information provided by CTOS and decide if it is material to your application. It is important to keep track of your CTOS report to ensure there is no incriminating information that would negate your chances of getting a home loan. Loan applicants can check their credit status online for free instead of having to go to BNM.
TIP: Those who are looking to purchase a home this year should definitely jump on the opportunity to secure a home loan at a lower interest rate – On 22 January 2020, Bank Negara Malaysia reduced the Overnight Policy Rate (OPR) by another 25 basis points (bps) to 2.75%. A lower OPR creates the domino effect of lower interest rates and thus cheaper monthly instalments.
10. Explore other financing options
In lieu of the housing affordability issue and high home loan rejection rates, aspiring homebuyers could explore schemes for selected affordable housing projects such as Rumah SelangorKu and RumahWIP; Youth Housing Scheme (BSP) by BSN and the MyHome scheme.
Moreover, the new government has promised to widen the Rent to Own (RTO) scheme nationwide in parallel to Pakatan’s vision in making housing more affordable. As announced in the recent Budget 2020, the RTO scheme will be made available in 2020 and is for properties priced up to RM500,000. Home buyers who purchase a home under RTO from 1 January 2020 to 31 December 2022 will get to enjoy a full stamp duty exemption on the instrument of transfer on the transfer instrument and loan agreement.
The terms of the stamp duty exemption are as follows:
1) SPA Date or Rental Agreement Date: 1 January 2020 – 31 December 2022
2) Purchase of 1 residential property (a house, condo unit, an apartment, a flat)
3) Malaysian citizen & first time home buyer
4) The financial institution is approved by BNM to provide financing for the RTO scheme
5) The housing developer is registered with the National Housing Department.
11. Engage a lawyer
Even if your developer is offering to cover the legal fees for the home you intend to purchase, it is recommended to get your own lawyer to draft and sign the SPA and loan agreements. A lawyer who represents two different parties in the same transaction cannot be impartial. You can then proceed to secure a bank loan after this step.
12. Make an offer & close the deal
For a secondary property, once you have made up your mind and you and the seller have agreed on a purchase price, you will need to sign a standard document known as the Letter of Offer (LOA) and pay the 2% earnest deposit. This document will contain the following details – names of seller and buyer, property address, agreed-upon price, deposit amount, any items such as fittings included in the sale. The LOA also will stipulate the date before which the SPA must be signed, usually, it is within 14 days.
Upon which, your lawyer will prepare the SPA and get both parties to sign them accordingly. You will then have to pay the remaining 7-8% of your down payment as well as your stamp duty fees.
Your lawyer will also draft out the loan agreement to be signed by both you and your bank, where the bank may ask you to take out an insurance policy.
Once your lawyer has completed all the necessary paperwork, you can then collect the keys to your new home from the seller. The property handover has to be within the number of days specified in the SPA.
For a primary property, one of the cost you’ll need to pay is the booking fee of 2% or 3%. This depends on how much is set by the developers.
After the booking fee is paid, you must then pay the 10% deposit as the first payment. If 2% or 3% was already paid, another 7% or 8% must be added depending on the amount of the booking fee paid. After these initial payments, the rest of the 90% must be paid according to the fees schedule (displayed at the back of the SPA).
Then, you will have to wait 2-4 years for the home or project to be completed before vacant possession and securing the keys to your home.
After which, you can pack up your stuff, move in and begin planning for a housewarming party!
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This article was written in collaboration with Allen Phua.