Bandaraya Apartments: A Solution To Homeownership?

Bandaraya Apartments: A Solution To Homeownership?

Just last week, a survey revealed more than half of Malaysians want to own a home within the next six months.

In a poll, Real Estate and Housing Developers’ Association Malaysia (Rehda) found that 56% were looking to own a home within the next six months, primarily within the KLCC area and Kuala Lumpur city centre.

This despite the rising cost of living and soaring property prices. According to Rehda president F. D. Iskandar, such preferences are “unrealistic” and rightly so – Kuala Lumpur still the most expensive state for property.

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However, the Malaysian government has also put forward an initiative to help city folk land their first property.

Dubbed City Apartments or Bandaraya Apartments, the project is geared towards helping Malaysians buy their first home through a scheme which requires a form of forced savings.

While details are still scant, we take a look at what’s available to see if this could help someone get a foot on the property ladder.

What is it all about?

City Apartments or Bandaraya Apartments is a housing project targeting city folk unable to afford their first homes.

The first of its kind will be built in Sungai Udang, Segambut, and those earning RM10,000 and below who are selected will be given a chance to rent three-bedroom apartments from RM800 a month for a maximum five years.

From the RM800 monthly rental, RM300 will be set aside every month as a form of “forced savings” which would be returned to the tenant at the end of his rental period.

Once the rental period is over, the tenant would have to vacate the apartment to make way for a newer tenant to rent it.

According to Prime Minister Datuk Seri Najib Razak, after five years, a tenant would have an accumulated forced savings of RM18,000 which the tenant can “use as deposit to buy his own home.”

Kuala Lumpur City Hall (DBKL) will develop the apartments, situated about 15 minutes from the city centre.

A total of 1,251 apartments will be built, each 807 sq ft.

Market reality

Let’s put house prices in context. The national average house price was RM334,736 in Q3 2016.

House prices in capital Kuala Lumpur averaged around RM772,126 in the same quarter despite an overall sluggish property market.

On paper, RM18,000 will not get you anywhere near a decent property in or around the city, even with 90% loan financing.

But there’s affordable housing. For example, PR1MA, one of the more popular schemes, offers financing up to 110%.  Below are federal and state initiatives available for middle-income earners:

1Malaysia People's Housing Programme (PR1MA)
Price rangeRM100,000-RM400,000
Target income groupRM2,500 – RM10,000
Selection methodBallot
Source:http://www.pr1ma.my
Private Affordable Ownership Housing Scheme (MyHome)
Price rangePeninsular
MyHome1: RM50,000 – RM90,000
MyHome2: RM90,001 – RM170,000

Sabah & Sarawak
MyHome1: RM60,000 – RM90,000
MyHome2: RM90,001 – RM220,000
Target income groupMyHome1: RM3,000 – RM4,000
MyHome2: RM4,001 – RM6,000
Selection methodScreening process
Source:http://www.myhome.kpkt.gov.my/home
1Malaysia Civil Servants' Housing Project (PPA1M)
Price rangeRM150,000 – RM300,000
Target income groupUnder 10,000
Selection methodBallot
Source:http://www.ppa1m.gov.my
Federal Territories Affordable Homes Programme (Rumawip)*
Price rangeRM52,000 – RM300,000
Target income groupUnder 15,000
Selection methodBallot
Sourcehttps://rumawip.kwp.gov.my
Rumah Selangorku
Price rangeRM42,000 – RM250,000
Target income groupRM3,000 – RM10,000
Selection methodScreening process
Sourcehttps://rumawip.kwp.gov.my
Public's Dream Home Programme (RIR)
Price rangeUnder RM350,000
Target income groupMonthly household income - RM10,000
Monthly personal income - RM7,500
Selection methodScreening process
Sourcehttps://spnbidaman.com.my

But before you jump for joy, note that affordable housing schemes usually employ a screening process or ballot system – so there’s no guarantee you’ll be chosen.

Also, properties around the Klang Valley, at least in the case of PR1MA, are usually offered above RM200,000.

For example, checks on the PR1MA website for properties open for application showed that the entry price for project in Brickfields, a strategic address in Kuala Lumpur, is RM284,000. An apartment in Kajang Utama starts from RM315,000 while a terrace house in Port Dickson starts from RM270,000.

So how do you go about this…

Let’s say you are an ambitious 30-year-old whose five-year rental tenure at City Apartments have come full circle.

You want your next purchase to be a home and the good part is you have been chosen for a home costing RM378,000. The savings you get from the City Apartments forced savings won’t cut it and if you don’t have any other savings, you can consider withdrawing from your EPF Account 2.

This is roughly how much you will have in your EPF at the age of 30 if your starting pay is RM2,750 with an average annual increment of 5%:

EPF savings at 30 years old
Acc 1: RM46,1000Acc 2: RM19,800

Here’s how it works:

Property priceRM378,000
Down payment (Forced savings + EPF Account 2)RM37,800 (RM18,000 + RM19,800)
Loan amountRM340,200
Interest rate4.62% per annum
Tenure30 years
Estimated monthly repaymentRM1,748.08

Could your Account 2 recover after paying for your home, you ask? Well, potentially yes. Here’s how much you can potentially save up by the time you retire at 60 if you consistently receive a 5% increment every year:

EPF summary
Expected total savings: RM4,655,400Acc 1: RM3,870,100

Acc 2: RM785,300

A solution to the problem?

It depends on how you look at it. Reality is property prices are rising faster than salaries and despite a slump in the market, affordability is way out of the question for many.

So, expectations will have to be adjusted as well as preferences. Affordable housing is one way to get on the property market.

The other way is to look for properties that match your income. We have compiled a list of properties in the Klang Valley for a household earning around RM5,000 a month, and though these might not be hot addresses, they still confer some of the benefits of owning a home.

The City Apartments scheme is one way to ensure you have some form of savings at the end of your tenure. Sure, the savings may not be grand, but it does give you some cash in hand which you could use as down payment.

However, as the details are not announced yet, we are unsure if the forced savings will be earning any interest in the five years. The above examples are assuming that the savings does not come with any interest.

If that is true, then it will definitely be much better for you to save the RM300 in an interest-earning account or investment.

 Without interestWith interest (3% p.a.)
Monthly savingsRM300RM300
Savings period5 years5 years
Total savingsRM18,000RM19,790.98

If you put your savings in a fixed deposit account, you could be earning about RM1,790.98 at the end of five years. If you have the financial discipline, it would make sense to save in a higher interest account or investment. However, for those who do not have that discipline, the City Apartments scheme might be a good solution.

Of course, prudent financial management is still required. If you are serious, you could easily top up your savings by separately setting aside money every month either by changing your lifestyle, paying down your debt or even taking up a part-time job.

And if you land a house, it goes without saying that good stewardship is required when it comes to paying your loan promptly.

Missing out on a payment is costly and that rule applies even for an affordable home as you are ultimately dealing with the bank.

*Image used for illustration purposes only.

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