What can be done to help homebuyers from defaulting their first property?

HBA shares a few reminders for aspiring property purchasers and details how the government can further drive the homeownership agenda.

young-homebuyer-malaysia

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Buying a property is the single biggest financial commitment that the average Rakyat will make in their lifetime and as such, proper planning is required. As they say, the earlier the better, right?

However, acquiring a property does not end at signing the Sales and Purchase Agreement. Homeownership is often a lifetime commitment – aspiring homebuyers should already know that they must be able to service the monthly loan instalments and still be able to maintain a minimum standard of living before even thinking of buying a property.

One should also factor in current living expenses and also potential changes in lifestyle such as having children, before deciding to commit. You would thus think that the average consumer will have the common sense to not bite off more than they can chew and purchase an asset which could bleed them financially.

Sadly, this is not quite the case. According to Gary Chia, AuctionGuru.com.my’s Executive Director, the number of newly completed properties put up for auction rose by 15.4% in 2018 to 32,611 units, due to an increase in owners who could not afford to pay or defaulted on their monthly instalments once their units were ready.

Quick tips for first-time homebuyers

Smiling Asian Couple Planning Finances

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1) Prioritise your expenses and start saving immediately after you start working. This may involve forgoing non-essential expenses, latest electronic gadgets, fine dining or shopping sprees. Manage your money better with the 50-20-30 rule can help you get started. 

2) Buy your first car later. Rely on public transportation or use a hand-me-down car from other family members first, as having an existing car loan will greatly reduce the housing loan amount.

3) Don’t be like sheep! Avoid having the herd mentality and deciding to purchase your first property just because all your other friends and relatives are buying, remember that everyone has different financial backgrounds. There is no shame in renting until you are ready for the financial commitment.

4) Likewise, for newlyweds, do not be pressured into buying your first property and over-commit to a housing loan just for the sake of having the ‘full’ marriage package. You could just continue renting and have lesser financial pressure every month. Your happily ever after should not be spent unhappily in servicing your housing loan.

That said, in the long run, it would, of course, be better to legally own the property rather than to continue renting in perpetuity, especially in the golden years when you stop working. Hence, any monies saved during the renting period (or while living with your parents rent-free) should go to a fund for a future home purchase.

What can the government do to retain homeownership?

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The Ministry of Housing and Local Government (KPKT) have promised to put efforts into combating the homeownership issue via a more systematic provision of affordable homes. However, it is not enough just to provide homes for the low and middle-income group who are also mostly first-time buyers, who do not have much knowledge on the many aspects of homeownership.

The success of any public housing programme can be achieved by assisting the rakyat to not just acquire a home, but to also remain homeowners.

Buying and owning a house is a riskier proposition for households as compared with renting. Buyers take on enormous debts, sign multi-year loan agreements and become responsible for homeowners’ cost of their homes.

1) Potential buyers should not only be educated to be prepared to be a homeowner but also trained to take on the necessary responsibilities via a Homeownership Education Programme. The programme can be in the form of manuals to be handed out or through services like advice and information given out via telephone, workshops or even ‘face-to-face’ counselling.

These services should ideally be provided before a potential buyer signs the Sales and Purchase Agreement and the programme should include:

Pre-purchase education:

>Understanding the process of buying a house
>Evaluating household needs
>Understanding housing types
>Understanding the loan process
>Financial preparation

Post-purchase education

>Budgeting monthly expenses
>Making payments promptly
>Avoiding loan defaults
>Living within a community
>Social responsibility
>Property taxes, assessments
>Insurance, service charges, sinking fund
>Home maintenance
>Handling problems with the property

This recommendation is intended to encourage all potential first-time, low to -medium cost homebuyers to attend a homeownership education programme before they search for a home or sign a sale and purchase contract.

2) Provision of homeownership counselling services

Most Malaysians would have heard of AKPK [Agensi Kaunseling dan Pengurusan Kredit] or the Credit Counselling and Debt Management Agency. It is the go-to place for those who encounter personal finance issues. AKPK was established by Bank Negara Malaysia (BNM) as part of a Consumer Protection Framework in 2006 and the centre provides free, one-to-one financial counselling and practical advice on money management to help individuals control their spending and debt.

Similarly, an agency should be set up to assist those who have any home financing related issue or grievance. This could help mitigate the current high housing loan default rate, where many people are struggling to service their property’s monthly instalments.

Edited by Reena Kaur Bhatt

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