Wednesday, November 24, 2010

Time To Buy A House Without Downpayment?

In the recent 2011 budget as tabled by the prime minister, the public (applicable to first time house buyers only) will be able to purchase houses valued at RM220,000 and below without putting up downpayment for it and will be able to obtain a 100% housing loan for the full purchase price.

Another condition to be met is that the household income must be less than RM3,000 or less. I presume that whoever is (be it individual or joint applicants) applying for the housing loan must not be commanding a total gross income of more than RM3,000 per month.

Let's do some calculations here with the above assumptions.

The current base lending rate is 6.3% ("BLR"). Some banks are currently fighting each other for customers by offering good housing loan packages where some offered BLR minus 2.2% (or even more) with zero entry cost (with no other cost involved). Say:-

*Housing loan of RM100,000 at BLR minus 2.2% for 20 yrs; monthly payment of RM612
*Housing loan of RM160,000 at BLR minus 2.2% for 20 yrs; monthly payment of RM979
*Housing loan of RM220,000 at BLR minus 2.2% for 20 yrs; monthly payment of RM1,346

There could be a few obstacles along the way.

You must bear in mind that a bank may only grant you the housing loan provided that your total loan with any other banks do not exceed 30% - 40% of your monthly gross income. So, at an income level of RM3,000 you may not even qualify for a house that cost RM220,000 as the monthly payment would have exceeded the 40% threshold level unless the bank sees you fit to take up the housing loan. You may have to extend the loan tenure instead. Yeah, be a slave to the bank for a longer period.

Not forgetting that a salary of RM3,000 may have a nett take home pay of RM2,500 only after deducting your EPF, SOCSO and taxes. I have blogged about "Salary of RM3,000 Is Considered Low Income" and to survive on RM3,000 is not easy unless you sacrifice lots of stuff.

What do you have to sacrifice or what are the stuff that you may not be able to enjoy if you take up either one of the abovesaid housing loan calculation? You may just have to read this blogpost of mine that is quite factual in a comical sense- "How to Survive With Your Salary?"

Now, if you are having a nett take home pay of RM2,500 and your housing loan monthly payment is RM1,346, it means to say that you have a balance of RM1,154 to pay for the remaining expenses of yours. What about savings for your any emergency cases?

Therefore, the idea as proposed in the budget is not beneficial to the public at all. At the surface, it sounded so nice "No downpayment for houses costing RM220,000 and below". After computing the actual figures, those fellas who take up such loans will just have to scrape through in their life. Of course, the above are based on assumptions and you may suffer in the initial first few years upon obtaining that housing loan. The question is "Can you manage?".

The government is just proposing something which you may have to weigh it for yourself in the end. If you were not careful in your financial planning, this budget proposal is actually going to cause bankruptcy or financial burden to many people.
Tags: Bankruptcy, Financial Burden, Housing Loan, Base Lending Rate

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6 Comments:

Anonymous Cazzycazz said...

Put the affordability issue aside, RM220K for a hse in Klang valley is quite impossible. An apartment of 800sft in Subang has reached 200K already by now. Even a small apartment like mine is now selling at 180K. It's so small tht its not ideal for a family of 4. Though my property has appreciated, I ain't thrill as I could not afford to upgrade due to the sky high property price.

It came out in the news lately tht housing minister announced that property appreciation in the klang valley for the past 5 yrs has reached 40% - 50% already. It's obvious that they Gov don't know how to count & failed their math perhaps?

Btw, HELLO & long time no chat ^_____^

24 November, 2010 01:47  
Blogger Johnny Ong said...

cazzy - its no joke that property prices have gone up tremendously affecting many first timers and those intending to upgrade.

my house itself has risen by more than 50% since i bought it in may 2008

it looks like people may just have to buy further and further away from the kl city centre

25 November, 2010 03:43  
Blogger Ted said...

Same goes for Kota Kinabalu. 220k for a house here is not possible unless you are thinking further away and Sabah has one of the highest poverty rates so I doubt this plan was made with the intention to really help anyone.

25 November, 2010 10:44  
Blogger lina said...

Even a low cost house that is being auctioned can cost up to 100K in KL.

Why is the need to push people who may not be able to afford paying the high instalment to own houses anyway? They might end up saddled with tons of debt with banks.

25 November, 2010 13:31  
Blogger Twilight said...

Oh yours went up by 50%?

My Idaman Condo is now tagged at RM280K from its original RM148K. I think one needs luck and good timing when purchasing properties. Thanks for your calculations.

25 November, 2010 16:40  
Blogger VICKYFF said...

Nice article sa, Kita telah dibohongi oleh kampanye politik yang mengatakan pengangguran dan kemiskinan telah berkurang, hal ini bukti nyata bahwa masih tinggi nya kemiskinan bahkan di ibukota jakarta sekalipun, sebagai gubernur fauzi bowo tidak terlihat begitu baik kontribusinya sebagai pemimpin dalam hal program2 pemerintah nya bahkan pelaksanaan nya, yang saya lihat hanya penampakan wajah beliau di beberapa billboard di jalan2 utama jakarta. sungguh menyedihkan, rakyat diharapkan dapat memilih pemimpin yang dapat membawa perubahan untuk jakarta, kita butuh karakter seperti ali sadikin dan sutiyoso sebagai gubernur jakarta

Scarf Scarf

26 November, 2010 17:29  

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