*This article was updated on 30 November 2020.
Here’s a checklist towards purchasing your first residential property. Also, Malaysian home buyers who purchase a property under the HOC 2020 (Home Ownership Campaign) and not exceeding RM1 million from June 2020 to May 2021 will receive a full stamp duty exemption!
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Sure you have always thought about buying a home 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.
1. Familiarise yourself with the Malaysian property market
You may be well informed about the Malaysian property market scene by your family and friends. But before jumping into uncharted waters, you should gain some firsthand knowledge of the property market. Ideally, you should understand the basics of residential property in Malaysia such as the various property types and different land tenures available, type of home loans and lending guidelines as well as the qualities of a good developer.
2. How much can you afford for a home?
As you familiarise yourself with the property market, the next thing you will want to do is calculate your property affordability level. Most financial experts will advise that your monthly instalments should not exceed one-third of your household income. Hence 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.
You will also want to get your finances in order. Ensure that you are up-to-date on your credit card repayments and your other loan repayments such as a car loan and study loan (PTPTN) if you have them. You will also need a minimum of 3 months salary slip if you are on a fixed pay, and a minimum of 6 months salary slip if you are on fixed plus commission pay. For a full list of the documents required, visit the guide for first-time homebuyer applicants in Malaysia.
You can also use our home loan eligibility tool, LoanCare to find out what is your maximum home loan eligibility, and compare your loan eligibility among up to 17 Malaysian banks.
3. Research the neighbourhoods you would like to live in
Now that you have an idea of how much you can afford, you can begin scouting for your preferred neighbourhood. There are the quiet and green suburb townships like Southville City, the uber pricey yet green upscale township of Desa ParkCity, or one of the many new and upcoming launches by Malaysia’s leading developers.
You will want to familiarise yourself with the neighbourhood, its accessibility, surrounding infrastructure, amenities, and pricing analysis. Due diligence is vital in ensuring you purchase the right home in the right neighbourhood that fits all your requirements.
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.
If you are keen on subsale homes, you will also want to check out the latest 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 subsale properties in all suburbs throughout Malaysia. By knowing the median property price per sq ft in a neighbourhood alongside the average unit size and the number of bedrooms, you will have stronger bargaining power when it comes to negotiating.
4. Begin your property search
The next step will be to being your property search. What shall it be? Condominium, apartment, terrace house, semi detached house or bungalow? You can use the iProperty.com.my filter to search for homes in the areas you are interested in, as well as adjust your budget range. You can even customise your search according to the number of bedrooms, built-up sizes and property types, be it new launches, sub-sale or auction properties.
5. (Optional) Need help? Hire a real estate agent
If you start to find the entire process tedious, time consuming and a major headache all around, you can opt to engage a real estate agent to help you out with your home purchasing journey. All you need to do is be forthcoming with your requirements such as your preferred location, type of home, unit size, loan tenure, land tenure and estimated budget.
For their services, you will only need to pay a moderate fee. 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 RM1,000 per property.
6. Do you have enough for the downpayment?
Once you have found your ideal home, you will next need to ensure that you have enough for the downpayment. Whether you are purchasing a brand new or subsale property, home buyers will typically need to fork out 10% of the home purchase price to serve as downpayment while the rest of the property price is financed via a bank loan. Hence if your target home costs RM400,000, you will have to put down RM40,000 as the 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.
Aside from that, you can also consider financing your home with your EPF..
7. Taking into account the other costs involved!
Many home buyers do not anticipate the additional fees involved when buying a property in Malaysia aside from the 10% downpayment. The rule of thumb is to set aside another 10% of the property purchase price to pay for the lawyer fees, stamp duties, Sales & Purchase Agreement (SPA) fees and valuation fees. If you are purchasing a property from a new development, some developers will absorb the legal and SPA fees, and MOT fees as well, but buyers will have to pay the rest themselves.
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 need to start sourcing for a good 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 home loans is the 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.
You will want to 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 home 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 securing a 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 7 July 2020, Bank Negara Malaysia reduced the Overnight Policy Rate (OPR) by another 25 basis points (bps) to 1.75% due to the Covid-19 pandemic. 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 government brought back the nation-wide HOC 2020 (Home Ownership Campaign) which features significant stamp duty exemptions on Instrument of Transfer and Instrument on Loan Agreement. The HOC revival serves as an effort to stimulate the property market and provide financial relief to home buyers following the Covid-19 outbreak.
Home buyers who purchase a new launch property in Malaysia under HOC 2020 from 1 June 2020 to 31 May 2021 will get to enjoy a full stamp duty exemption for homes priced between RM300,000 and RM1 million.
The terms of the stamp duty exemption are as follows:
1) Malaysian citizen – No limit to the number of purchases
2) Purchase of residential property – Does not include SOHO, SOVO, SOFO & serviced residences built for commercial use.
3) Residential properties in the primary market only (homes that have been launched or completed)
Budget 2021 Stamp Duty Exemption For First-Time Home Buyers
It was recently announced during the tabling of Budget 2021 on 6 November that full stamp duty exemptions on the memorandum of transfer documents (MOT) and loan agreements will be provided for first-time home buyers. This discount will apply for the purchase of a residential property from 1 January 2021 to 31 December 2025, for homes priced up to RM500,000.
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.
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