If you are planning to buy a house in Malaysia during the COVID-19 pandemic, there are a number of important factors you have to consider before making your decision. Here we've listed down 6 tips for you to prepare in advance, read more to find out.
Buying a house is a big investment - it can be one of the most complicated and stressful, yet rewarding financial decisions to make in life.
There are dozens of - if not more - factors to consider before sealing the deal, and undeniably, it can be overwhelming, particularly for first time buyers. And unfortunately, many of us are not taught how to navigate through the process of property ownership or property investment from young. Luckily, there are tons of information online to help homeseekers with their search.
Recently, CompareHero.my spoke to several experts and home seekers to examine whether purchasing a new property amid economic uncertainties is the right decision. The answer is yes but only if you have set your life and financial goals, own sufficient savings, and are aware of your target price. For a full in-depth analysis on what experts had to say about buying property in Malaysia post COVID-19, click here.
Before you commit to such a big ticket item, we’ve compiled a list of things you should do before getting property especially amid COVID-19. The list comprises everything from setting financial goals to unpacking incentives in the short-term National Economic Recovery Plan (PENJANA).
1. First things first, set proper financial goals
Before you decide on investing in property, you must first assess your financial standing to build up an honest picture of where you stand in monetary terms. Can you afford a house?
Set short-term, mid-term and long-term financial goals to get a better understanding of what you hope to achieve in the next few days, months or even years. Without financial goals, there’s nothing concrete to work towards, and may trigger negative habits like overspending or impulsive buying. Or worse, you stack up excessive debt due to insufficient funds for your home installment, bills, loans etc. Nobody wants to retire in debt.
These goals should be specific and have a timeline. Prioritize according to what’s urgent and important, and chart your progress as you go. If you get sidetracked, revisit and readjust your plans if necessary. Lastly, celebrate your small or big financial accomplishments!
A widely used method we found online is the SMART goal, which stands for Specific, Measurable, Achievable, Realistic, and Time-bound.
Example of a simple SMART financial plan:
> I would like to save RM100 every week in the month of June
> Identify the mechanics
> Save RM20 every week
> Take action
> Celebrate your achievement
Download this helpful SMART goal worksheet by SmartAboutMoney as reference.
A financial worksheet helps you sort out financial goals better
2. So you want a house, but what is it for?
Time to get a new house? Maybe your current house feels a bit too cramped with a new addition joining the family soon.
After setting clear financial goals for yourself, then move on to setting clear goals for your property investment.
Think of what investing in property means, in both financial and personal terms, for you. Some questions to ask yourself: are you solely looking for a place to stay, or are you hoping to get returns from your investment? What is the purpose of this investment? What price range is within your budget?
When it comes to property investment, there’s a misconception that the rules are to just buy and wait until it multiples in value, then sell it off to earn that extra cash - but it’s not really that simple. And not all property values that increase over time will make you a profit.
There are generally two different methods to earn profit from property, one being cash-on-cash investments and the other being return on investment (ROI). Not sure which method works for you? Calculate the returns for both scenarios using estimated property prices, then decide. We found some useful formulas on PropertyGuru to help with your planning.
“I always tell my clients, make sure that there’s a demand for the house if you’re not keen on staying there,” Jin Ooi, a team leader in real estate at Kith & Kin told CompareHero.my. “You really need to do a good amount of research and understand your areas of interest.”
If you’re buying for your own stay, the most important factor is that you love the environment it’s located in for the long-term. “Buying a house for yourself is more of an emotional purchase,” Jin added.
What’s your other option if you need a place to stay but can’t afford to buy your own house? Rent! We analyze the advantages and disadvantages to renting versus buying.
Is it cheaper to buy or to rent? Which is better?
There are many advantages to renting too
There is a misperception that buying is automatically the better choice if one can afford it, because you’re better off paying the bank than your landlord, and also because property is an asset that will grow your personal wealth over time.
But it’s equally important to consider the opportunity cost from renting. List down all the money needed if you were to buy a house: down payment, mortgage payments, valuation fees, legal cost, stamp duty, mortgage reducing term insurance, quit rent, property assessment tax, renovation costs, and maintenance fees. That’s a lot! For some, that money is better off into investments. Of course, the flipside for renters is that they could miss out on home equity when the value of a property increases.
Also consider external factors that affect overall cost such as appreciation rate, inflation rate and duration of stay when deciding which is the more cost effective choice.
To help compute these factors, check out this very useful Buy vs Rent calculator we found on EdgeProp that will show you how many years it takes to breakeven - where cost of buying equals cost of renting.
EdgeProp says if you stay in your home past the breakeven period, consider buying, but if you feel you’ll move sooner than that, renting might be a better option.
Next, do you have sufficient savings and an emergency fund after investing in property? If all your cash, including savings, is tied into your home, you’ll risk having to live paycheck after paycheck just to make ends meet, and this may get worse when you experience emergencies such as a car accident or health scare.
Don’t commit to a monthly mortgage if you know you can’t afford it, said both Jin and Dr Desmond Chong Kok Fei, deputy president of Malaysian Financial Planning Councils. Taking on a home loan without having enough financial muscle could affect your other financial obligations. According to Investopedia, your mortgage should not exceed 28% of your annual gross income.
Examine a house from all different aspects, not just the parts that are visible to the eye. Think about how it makes you feel?
Other factors to consider after purchasing a home are the changes in your mobility and lifestyle. “Once you own a house, your whole lifestyle will change. You now have a commitment, which you’ll have to pay and it will affect your cash flow. Then you’ll also have to take care of that house, and maintenance is a big cost,” Chong told CompareHero.my.
If you don’t like being stuck at one place for a long period of time or are considering changing jobs or moving to a different area within the near future, it would be a more cost-effective choice to rent - unless you can get a tenant to come in and pay the rent for you.
And unlike other investments, property value and returns require more time to grow, and selling too soon comes with the risk of it not growing in value. Homeowners are also accountable and responsible for any repair issues that occur in their homes, but as a tenant, your landlord will be able to handle it instead.
“For me, it’s better to buy an investment if you can afford it. But it really depends on the scenario and situation,” Jin said.
“I had a client who decided to rent a RM10 million bungalow after we looked at the interest rates and earnings and realized it was cheaper to pay RM20,000 for rental than pay RM45,000 in monthly loan mortgage,” he added. “He was able to enjoy the experience for something that is worth two times more. For his case, he was still able to stay at the house and didn’t have to worry about any loan commitments.”
3. Don’t dive deep into anything without a strategy!
Now that you’re somewhat sure of getting a property, it’s time to devise a plan to get there because all good businesses start out with a bulletproof plan. A solid plan is simple and can easily be committed to memory. It shouldn't be complicated or unrealistic.
Here’s a simple plan you can try out:
- Figure out how much money you need to invest, or will continuously need for this property. Remember that cash is king, so make sure your cash flow is solid. The Malaysian credo, ‘No Money No Talk’ applies perfectly to this scenario. Before committing to any form of big-ticket investment, Jin said one should have done their budgeting to ensure they have sufficient cash to support such purchases.
- Iron out all the nitty gritty details. This includes things like researching home loans, types of homes, gathering down payment, checking your credit score, assessing your income and other financial obligations etc. “Get a banker to help you assess your loans,” Jin said. “This step is important because it examines your financial eligibility. If you can’t meet your down payment, then it’s best to save the money.”
“To know how much loan you need from a bank, you can check your margin of finance which follows the debt-service ratio formula,” Chong said. “Think about your capacity and capability to pay because you could have a really good debt-service ratio, but are facing other issues due to COVID-19 like a pay cut for example, then that could affect your repayment,” he said.
Related: How do I calculate my Debt Service Ratio?
By the way, having a good credit score is crucial when you need some help from banks or lenders for that extra moolah to buy a home. On top of having more options to choose from as more banks and lenders will prefer dealing with you, you’ll also get to leverage and negotiate for lower interest rates on a credit card or a loan. If you are curious about types of credit cards or loans out there, check out the extensive list on our website.
- Don’t spend too much on the installment. This is especially true if you have other financial obligations piling up. “Know your budget and stick to it. If your budget doesn’t allow you to get a new property then put it on hold and rent first. You don’t always have to buy if you can’t, said homeseeker and financial manager Eric Yong, 28, who spoke to CompareHero.
- Exhaust all other financial and non-financial factors. Factors like property location and type of property are especially important if you are looking for a property to reside in permanently.
Jot down all the requirements and resources you need to achieve the plans you’ve made. Have your family and friends give you feedback to see how you can improve on your plans.
Indecisiveness might hamper your plans to secure a property that you saw on sale
4. Be informed and do a reasonable amount of research
Go full on steroids when it comes to researching on properties. Read up on types of houses, the locations, how it fares in the market, information on the developers, etc.
Analyze the different developers and compare their product offerings and locations, said Chong. Ask yourself, “which offers the better deal, and why?”
Investing in a new property is similar to getting a new partner, you want to make sure you find out every possible detail there is to know about it before deciding whether it’s worth the investment, risk and effort.
Besiding getting information from newspapers and property websites, Jin also advised on engaging with a real estate agent who operates in your area of interest. “They are always in the market, so they know the local scene very well, and can give you hands-on analysis of the houses and the area you’re interested in. It will save you a lot of time,” he said.
For homeseeker and digital communications specialist Trini Ng, 31, Muday.my is her go-to website when it comes to property hunting. “I get to know the types of price ranges that are out there, and can plan my financial commitments,” she told CompareHero.my. “I don’t physically go around looking at houses, but I’ll consider going when I’m 90% sure.”
It’s time to start saving if you have aspirations of getting a house in the near future
Are you a first time buyer? There’s a list of various government initiatives to help first-time home buyers turn the dream of owning their own home into a reality. Here are a few government schemes to help first-time homeseekers start with their research:
A) The 1Malaysia People's Housing Programme (PR1MA)
Interested applicants must be Malaysian citizens aged 21 or above with an individual or combined income (husband and wife) of between RM2,500–RM15,000 to be eligible to apply and own PR1MA homes. Additionally, applicants or their spouses must not own more than one property. To apply, you first need to register for an account with PR1MA on their website and then cast your ballot; if you’re successful you can then select your preferred financing option. PR1MA home owners are not allowed to sell their units within 5 years.
B) MYHOME scheme
This scheme provides a subsidy of RM30,000 for first time homeowners to buy a low or medium cost property. Applicants must be Malaysian citizens, 18 years old or above, be first time homebuyers with a salary of between RM3,000–RM6,000. Apply for the scheme online through the MyHome scheme website or you can also get the form at the Kementerian Perumahan dan Kerajaan Tempatan (KPKT) office in Putrajaya. The table below illustrates how the subsidization works:
MyHome1 (RM3,000-RM4,000 income)
|Market Price/Selling Price (RM)||Actual Price (Paid by Purchaser RM)||Minimum Floor Area (sqf)||Monthly Household income (RM)|
|MyHome1 Kuala Lumpur||80,000-150,000||50,000-120,000||800||3,000-4,000|
|MyHome1 Sabah & Sarawak||90,000-120,000||60,000-90,000||800||3,000-4,000|
MyHome (RM4,001-RM6,000 income)
|Market Price/Selling Price (RM)||Actual Price (Paid by Purchaser RM)||Minimum Floor Area (sqf)||Monthly Household income (RM)|
|MyHome2 Kuala Lumpur||150,001-300,000||120,001-270,000||850||4,001- 6,000|
|MyHome2 Sabah & Sarawak||120,001-200,000||90,001-220,000||850||4,001- 6,000|
C) My First Home Scheme
This scheme assists young adults who are salaried workers or self employed, with a gross income not exceeding RM5,000 a month or not more than RM10,000 (for joint applicants).
The financing tenure (amount of time you're given to repay the home) must not exceed 35 years but is subject to the applicant’s age; applicants should not be over 70 years of age at the end of the financing tenure.
Additionally, the property value you’re planning to purchase needs to be between RM100,000–RM500,000. The scheme allows young adults to get up to 110% financing which means the lender is willing to cover the entirety of the mortgage without the initial 10% down payment. Applicants must choose from residential property for their own occupation (either under construction or a completed unit) from the primary or secondary market.
The scheme is for those working in the private sector and applications can be done at any participating banks. For a list of participating banks, check here.
D) BSN MyHome (Youth Housing Scheme)
This special scheme is for Malaysians aged between 21-45 years old with a household income not exceeding RM10,000 per month.
BSN bank will provide a maximum 100% financing for properties within the price range of RM100,000-RM500,000 with a financing tenure up to 35 years. Applicants must be a BSN GIRO or GIROI account holder. Additionally, the government will also give 100% stamp duty exemption for the first RM300,000 on purchase (for property price up to RM500,000).
The government will also provide RM200 monthly aid for the first 2 years to ease the financial burden of buyers. But the scheme is only on a ‘first come first served’ basis as it is limited to 20,000 buyers or for 2 years, whichever comes first.
E) Rumahku Selangorku
Eligible applicants must be Malaysian citizens over 18 years of age who are residents of Selangor with a household income between RM3,000-RM10,000, and are looking for their first home. Only one applicant is allowed to apply per household.
Properties available range from low cost to medium cost not exceeding RM250,000, making it ideal for entry-level homeowners as well as young working adults who are looking to own a house in Selangor. Applications can be made online at their website.
5. Take advantage of the COVID-19 PENJANA stimulus package
The short-term National Economic Recovery Plan (PENJANA) includes various incentives to help spur the growth of the property market, and provide financial relief to home buyers.
The government is giving out tax exemptions for the purchase of properties through three different components:
Reintroduction of Home Ownership Campaign (HOC)
First introduced in 2019, the initiative aimed to support homeseekers secure houses, as well as encourage the sales of unsold properties in Malaysia’s housing market. Now it’s back till 2021, with more financial incentives to entice potential property buyers.
- Stamp duty exemption on the instruments of transfer and loan agreement for the purchase of residential homes priced between RM300,000 to RM2.5 million (but subject to at least 10% discounts by the developer).
- The exemption on the instrument of transfer is limited to the first RM1 million of the home price, while full stamp duty exemption is given to loan agreements effective for Sales and Purchase Agreements signed between June 1, 2020 to May 31, 2021.
Real Property Gains Tax exemption
- For disposal of residential homes from June 1, 2020 to December 31, 2021 (But limited to the disposal of three units of residential homes per individual).
Lastly, the current 70% margin of financing limit applicable for third housing loans onwards for property valued at RM600,000 and above, will be uplifted during the period of the HOC but this is subject to internal risk management practices.
Premendran Pathmanathan, general manager of REA Group Asia, which owns and operates iProperty, told BFM Radio that the PENJANA property initiative will help motivate more buyers to purchase properties in the near future.
“The PENJANA is a timely initiative to help spur up the economy. It will motivate more people to move forward to purchase properties. If you look at the HOC-related items, there are a lot of perks for buyers,” he said. “This is going to be fantastic for developers. Recently I read an article where Mah Sing mentioned that in the last HOC (in 2019), about 60% of their stock was sold off.”
The benefits, however, appear to favour the primary market more than the subsale market, which according to Pathmanathan, represents about 70%-80% of the Malaysian market.
“We don’t see much benefits for buyers when it comes to subsale, maybe it’s the government's way of clearing off oversupply of stock so that’s why there are more perks for the primary market,” he said. “Moving forward, I hope they’ll (the government) consider buyers for subsale markets as well,”
6. Don’t sit on your plans but… don’t rush into it either
After coming up with a plan and identifying your ideal property, it’s time to act quickly and get the ball rolling because you’ll never know how long a property will remain in the market.
“Of course buying property is not a cheap investment, and it will take some time to decide, but once the planning is done and dusted, and all factors have been considered etc., it’s important to act fast,” Jin said. “If the property is that good, someone else will be keen on it as well.”
“I’m not so sure”
“The plan isn’t extensive enough”
“I might like that other property better”
Truth be told, you can plan until the cows come home, but you won’t earn a single sen from all the labour that goes into planning if you don’t get it moving.
At this stage, you should be applying for a loan, securing a banker and a lawyer etc. to help execute your plans, Chong said.
But… take it easy as well. Don’t splurge unnecessarily either, especially in today’s economy, said Jin. Though it’s important to act swiftly, it’s equally vital to make informed choices, one that considers all options and factors.
“Don’t be too aggressive in this market, unless you're super rich,” Jin said. “If you’re just an ordinary person, earning average income or cukup makan, it’s better to be conservative. Remember, just because your friend is doing it, doesn’t mean you have to... Always ask why? Why is something considered a good investment?”
7. Work with a trusted real estate agent or company
A real estate agent could make or break a deal. Invest properly!
Both Jin and Yong emphasized the importance of getting a trusted agent or specialist in the area to help analyze the local property scene when home searching.
“I think Google is generally helpful in this regard, it can help you weed out credible companies and agents,” said Yong.
“I would also get referrals from friends and family because they want the best for you. Maybe try to meet up with the agent, and assess them based on their service. In my experience, good agents will always focus on their service rather than trying to sell you a home,” he added.
So, are you ready to buy a house?
Truth be told, no time is truly the right time. If you feel overwhelmed, break your plan down into smaller realistic goals that you can work on within the year. And most importantly, give yourself deadlines to ensure that you stay on track and are progressing as you envisioned.
Remember that your capability to secure a new home depends on your financial goals, your financial standing, the affordability, your motivation and the underlying circumstances.
We wish you all the best in your property hunting journey!