BY CAITLYN NG LI YUIN
liyuin@ocision.com

The recently concluded StarProperty.my forum addressed the challenges of how financial standing and location relate to the feasibility of obtaining a property.

IN life, there will come a few times when one will be faced with having to make major financial decisions. When first-time homebuyers (especially the younger generation) are asked about their concerns regarding purchasing a property, it is thus no surprise that many of them cite financing as one of the main challenges.

During a recent StarProperty.my forum held at Pullman Putrajaya Lakeside Hotel, a trio of professionals from the property industry were present to offer up their expert advice on how financial standing and location relate to the feasibility of obtaining properties.

There were many topics covered during tax and GST consultant Dr Choong Kwai Fatt’s talk, titled ‘How does a reduction in OPR affect the Malaysian property market’. He first explained that the overnight policy rate (OPR) was about the interest rate determine by Bank Negara Malaysia at which, a bank lends to or receives from, an investment from another bank.

As of now, the OPR is at 3%, but it may continue to drop in the months to come to 2.5%. With this, one finds that the commercial bank rate has dropped by 0.2%, whereas the base lending rate (BLR) has dropped by 0.2%. Choong also provided the audience with two examples of banks with the lowest BLR, Maybank at 6.65% and Public Bank at 6.72%.
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Among the impacts that this will have on the economic environment are that developers will have a lessened cost of doing business, as they have already done the adjustment in pricing; homebuyers will be able to borrow and purchase properties of a higher value by gearing in order to gain a higher capital appreciation in the future and investors will be able to see the share price index going up.

Choong went on to clarify that there are two categories of properties which can be purchased: residential and commercial. While commercial properties – hotel suites, retail and office units – may seem attractive, there is a lifespan to their appeal since there are many choices in the market.

With the fickle nature of humans, there is no guarantee that commercial properties will always have a steady demand. Thus, residential property is still the way to go as people will always need a roof over their heads, creating an endless demand and unlimited shelf life.

“When you buy a property, it does not matter whether you like it or not. Currently, it is a buyer market and what you should be considering is whether the property can be sold off or not in the future, unless you are buying for your own stay,” said Choong.

“First-time homebuyers are encouraged to buy condominium units that have three bedrooms and two car park lots, as these are the ones that will fetch a good rental price, but little capital appreciation. In addition, it is advisable to buy units in a condominium that does not integrate retail below since the increased foot traffic might pose security risks,” he added.

The next speaker was Ho Chin Soon Research CEO Ishmael Ho, with his talk titled ‘Growth and development of Putrajaya: Now and then’. While many people may perceive the city of Putrajaya as merely be federal administrative centre of Malaysia, it is actually one of the best integrated city that is currently enjoying tremendous growth and rapid development.

Ho showed attendees a chart plotting the GDP by state in order to determine the most productive state in Malaysia. This signifies that there are plenty of work opportunities and that the pay was better than most other states, thereby attracting more people to choose to make a living there.

“The areas of Selangor and KL were in the top two positions, with approximately RM227bil and RM152bil respectively in 2014. The growth percentage over the course of four years (2010 - 2014) for these two states was 27.78% and 34.79% respectively, which is much higher than other states.

To keep up with the growing demand for properties in those areas, developers had to come up with various properties that span a diverse range of prices in order to cater to people from all income brackets.

For example, according to NAPIC (National Property Information Centre), in Q1 2016, Kuala Lumpur had a total of 2,732 residential units transacted with 5.7% of those falling in the RM100,000 and below bracket, and 18.4% of those falling in the RM1mil and above bracket. On the other hand, Selangor had a total of 12,121 residential units transacted with 14.5% of those falling in the RM100,000 and below bracket, and 7% of those falling in the RM1mil and above bracket.

In comparison, Putrajaya had a total of 42 residential units transacted with 40.5% of those falling in the RM100,001 – RM250,000 bracket, and 40.5% of those falling in the RM1mil and above bracket. Putrajaya is proving to be a city to look out for, as it is located next to one of the districts in peninsular Malaysia (Sepang) that had a population growth rate of more than 3% per annum from 2000 to 2010.

“This just goes to show that the population is moving down south very strongly. Ho Chin Soon Research has created a map with a circle showing the first tier 20km of Greater KL. Within this circle, which Putrajaya is also located, the demand for houses can be found,” he enthused.

The final speaker was Loanstreet Sdn Bhd head of business development Leo Chong, with his talk titled ‘How can mass market leverage your profile in mortgage’. Many first-time homebuyers are intimidated by the amount of factors to be taken into consideration before they even start to apply.

With banks’ rejection rates fluctuating on a yearly basis – from approximately 25% in 2012 to approximately 50% in 2015 – attendees were educated on the proper preparations to make before submitting their loan requests. They were also shown the standards that banks have in order to evaluate every potential customer’s financial profile besides the income.

First off, for Malaysian citizens, they are eligible to get up to a 90% loan from the bank for their first two properties, while a third property is only eligible for a 70% loan. Some of the mandatory documents required by the banks include a copy of the IC (identification card), payslips and latest EPF statement.

“The debt service ratio (DSR) is also important to consider, where after the calculation of all the commitments that one has, if the DSR is not more than 70% then almost all the banks will be able to approve the loan application,” said Chong.

Some of the factors which would determine an individual’s loan eligibility include the DSR, risk profile, value of the property, the maximum loan-to-value (LTV) ratio, age, presence of joint applicant and past relationships with banks if any.

In order to maintain a good credit scoring, an individual should practise these good habits: utilising one’s credit card not more than 70%; prompt payment behaviour; not have many unsecured loans such as credit cards and personal loans; have a clean record in CTOS; and maintaining a stable employment status that gives income consistency.

“The younger generation needs to make sure that they are well-prepared before they proceed to apply for a home loan. Make sure that you have worked for at least one year and possess a degree certification.

“If you do not have much savings yet, don’t worry as that is not so important, but you do need to provide proof that you have a stable monthly income. In addition, the property that you are considering needs to fall within the right price range.

“As an example of a successful applicant, if a first-time homebuyer was earning RM3,500 per month, he can comfortably afford a property that costs RM300,000 and below. This means that he only needs to fork out slightly more than RM1,000 per month in repayments.

“Banks have a guideline to follow, and if the youths were to follow the advice stated, their DSR would be not more than 50%, which means that they will have a good chance of getting a loan,” he reiterated.

 

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