We learned about Housing Watch (www.housingwatch.my) by Bank Negara Malaysia (BNM) in Part 1 of this exclusive interview, and here, we pick up from where we left off, with some tips for youngsters looking to buy their first home, why renting has its benefits, reasons why loan applications are rejected, what the central bank is doing to ensure affordable housing for the rakyat, and also some advice for Estate123.com readers when it comes to purchasing a property in Malaysia.
Some people prefer to rent instead of buying their own property, despite being able to afford it. Will the rental market become more prominent as more people rent instead of buying?
Given that renting has its own advantages, some people may prefer to rent instead of buying their own property. Some of the main benefits of renting are as follows:
Rental rates are generally lower than the monthly mortgage repayments charged by financial institutions (for a similar priced property).
Entry costs to rent are also much lower compared to mortgage loans. Renters do not need to incur high legal fees typically associated with the loan and sales agreement, loan processing fees and property insurance (MRTA/MRTT).
Long-term cost of renting is also lower compared to the costs of owning a property as renters would not be responsible to pay for property assessment tax, quit rent, fire insurance and maintenance charges.
Renting allows people to be more mobile as it enables renters to move to other properties easily should circumstances change (for e.g. starting a family, change of employment, etc.).
Given the potential benefits from renting, BNM is collaborating with the relevant authorities to enhance the necessary infrastructure to promote renting as a viable option to home ownership such as the introduction of the Residential Tenancy Act, Rental Tribunal and strengthened arrangements for the protection of renters’ deposits.
According to ABM (Association of Banks Malaysia), the housing loan approval rate is actually quite high in Malaysia – 73%. What are the main reasons housing loan applications are rejected?
Based on feedback from financial institutions, the main reasons for housing loan rejection are due to applicants having:
very little residual income after paying off their living expenditures and existing financial obligations (such as car or personal loan). In this regard, such borrowers may not be able to set aside the required amount from their income to service the monthly mortgage repayments;
inability to provide proof of income. This can include alternative documents which are accepted by most banks such as bank statements, unit trust account statements or other documents to indicate other sources of income; and/or
poor credit record or financial indiscipline.
Will the Housing Watch website be updated with more information on a regular basis?
The contents of the website will continue to be enhanced and expanded. For example, information on unsold properties was recently included given the interest generated from the release of BNM’s Quarterly Bulletin in November 2017. As some of the information on the website is sourced from other agencies, the update will be undertaken when such information is made available to BNM.
Will BNM consider looking into Fintech to create a platform for banks to offer their affordable home loans in the website as well?
The primary functionality of the website is to provide current information to interested parties and aid the public in making informed decisions. It is not intended to facilitate transactional capabilities. Banks currently do offer mortgage loan solutions on product aggregator/ comparator websites that exist in the market.
“Affordable housing” has been the keyword for a while now, but what’s affordable to developers may not necessarily be deemed affordable to buyers. Will BNM be able to play a role in making sure that developers are building truly affordable homes?
One measure of housing “affordability” which is widely used is the Housing Cost Burden (HCB) method. The HCB measures the proportion of household income spent on housing. Total housing expenditure that accounts for less than 30% of household net income is considered affordable. Housing expenditure includes mortgage or rental payments, home insurance, ancillary services and charges, the cost of maintenance and repairs, as well as taxes and utilities. In addition, recent studies further extend the measure to incorporate transit accessibility costs to provide a more comprehensive assessment of factors affecting housing affordability.
BNM publishes information on the affordability measure and affordability levels for various income groups on the Housing Watch website. This is aimed at facilitating evidence-based policies and strategies by both the public and private sectors, including property developers. For example, empirical evidence shows that the number of unsold residential properties as at 1Q 2017, in which more than 80% of the units are priced above RM250,000, has reached a decade high. It is envisioned that making such information more transparent and accessible through the Housing Watch will encourage more effective coordination between stakeholders and allow various parties to take more targeted actions to address this issue.
What advice would you share with our Estate123.com readers, especially young adults who are looking to purchase their first home?
One of the most important considerations for those who are looking to purchase their first home is to make sure that they buy a home that they can afford. Essentially, this means that they should assess whether their ability to service the mortgage loan throughout the loan tenure is within their financial means prior to purchasing the home. Apart from the housing loan, other costs of homeownership such as legal fees, assessment fees, quit rent, fire insurance, management service fees, utilities bills and costs of maintenance and repairs should also be taken into consideration.
As a general rule of thumb, total housing expenditures including loan obligation should ideally not exceed 30% of their net income to ensure that the borrowers have sufficient financial buffers for living expenditures, other financial obligations and unanticipated financial commitments. Tools are available on the Housing Watch website to assist individuals in assessing their affordability to take on a home loan. Online mortgage calculators are also available on most of the financial institutions’ websites to help estimate the anticipated repayments upon taking a home loan for the purpose of cash flow planning.
For those who are ready and can afford to purchase a home, careful research should be conducted on the properties and home financing products that best suit their needs. Potential borrowers are advised to understand the features of housing loan products through the Product Disclosure Sheet (PDS) which contains important information such as the effective lending rate, monthly instalment, total repayment amount, lock-in-period, early settlement penalty, as well as fees and charges. If the housing loan tenure extends into retirement age, borrowers should have a plan on how to service the loans after they retire. For this purpose, Agensi Kaunseling dan Pengurusan Kredit (AKPK) provides credit counselling services and financial education that are available to potential homebuyers free of charge to assist in their financial planning. Further information is available on www.akpk.org.my/financial-counselling.
Do you have any other questions about Housing Watch or property ownership in Malaysia? Remember to take a look at Part 1 of this Estate123.com-exclusive Q&A with the folks at Bank Negara Malaysia, or drop us a question in the comments below! 😉