So, you have been working for a year now and you have gotten yourself in a comfortable position where you draw RM3,000 a month in salary. You have recently taken a hire purchase loan for a small car to get you to work and you are currently renting a house at a decent rate. At this moment in time, you are considering if your next step in life should be to purchase a home. You feel ready for this commitment... but are you really?
I don’t mean to burst your bubble, but maybe this article may help you understand the property market a little better.
Assuming you are taking home a salary of RM3,000 a month (after deductions), and a car loan of RM700 a month is your only fixed expense (let’s forget the rental aspect because if you purchase a house, you no longer need to pay rent), you would be left with RM2300 to play with.
A decent house purchase at this point in time, somewhere that is relatively close to the city centre would cost between RM300,000 (if you are lucky) to RM800,000 and upwards for more exclusive property.
Now, again assuming that you are lucky enough to find that house with a RM300,000 price tag, you would need RM30,000 as down payment (if you are able to secure a 90% loan).
Your additional fees such as MOT and stamp duties would probably cost you another RM10,000 (roughly). Now, your loan amount that you would be taking would amount to RM270,000 (That is selling price minus down payment).
For a loan of this amount, with the current BLR and stretched across a maximum 35-year loan tenure, you may be paying back approximately RM1,500 per month.
Assuming you are able to come up with that RM30,000 down payment and RM10,000 fees, could you really afford RM1,500 a month? That is 50% of your take home salary. Think carefully.
RM1,500 (housing loan)
This leaves you with RM800 at the end of every month. Some may feel that RM800 is enough as expenses for a single entity, but what about all the hidden costs that come with home purchase?
Maintenance / Security fees
Renovations / interior furnishing
Yes, you would be burdened at the end of the day if you do consider purchasing this house. So, does that mean that someone earning RM3,000 per month would never be able to own a home? No, that isn’t what I am trying to say. Instead, the smartest thing for anyone in this situation to do would be:
1. Wait Till the Time Is Right
Hang on to your horses. There is nothing wrong with renting until you have saved up enough to compensate at least RM1,000 a month (RM12,000 in total) to help you with the extras mentioned above. Once you have saved up enough, you can be rest assured that you will not (or will rarely be) burdened with a hefty bill at the end of any month for the rest of the year.
2. Purchase a Government-Initiated Property
The Government has over the years introduced many initiatives that could assist first-time-home-buyers. With various JVs with property developers, there are many Rumah WIP, Rumah Selangorku and other affordable housing schemes that fall way below the RM300,000 price tag. Some even come with zero down payment and no legal fees and stamp duty charges.
The rent-to-own or RTO scheme isn’t something new to our Malaysian property shore. With RTO, you may pay rental (slightly higher than market rates) with the option to purchase the house later in life.
The idea behind this initiative is to force savings for you (as part of the rental will be kept in a savings) to be utilized by you later on as down payment when you are ready for purchase. Many a time, people do not understand the property buy in game and end up biting more than they can chew. This always results in disappointment at the end of the day. Do not rush into home purchase and struggle to make payments every month. Home ownership should be a happy and proud moment in everyone’s life, so make it count by waiting for the right moment.