Are You Financially Ready To Buy A House In Malaysia?

Are You Financially Ready To Buy A House In Malaysia?

Update on stamp duty and RPGT exemptions
Several short term economic recovery initiatives have been introduced by the government to provide incentives for the property market in response to the Covid-19 pandemic.

PENJANA Economic Recovery Plan
Under the Home Ownership Campaign (HOC)
– Stamp duty exemption on the transfer of property and loan agreement for homes priced between RM300,000 to RM2.5 million from June 1, 2020 to May 31, 2021.
– Real property gains tax (RPGT) exemption for Malaysians disposing up to three properties from June 1, 2020 to December 31, 2021.

Budget 2021
To promote home ownership for first-time buyers
– Stamp duty exemption on instruments of transfer and loan agreement for first time home buyers is extended until 31 December 2025.
– Limit of duty stamp for first residential home is also increased up to RM500,000, effective from 1 January 2021 to 31 December 2025.

Owning a home you can truly call your own represents the ultimate dream for just about anyone. But with escalating real estate prices and lengthy loan repayment periods that span 30 years or more, buying and financing a home is not just a matter of saying “I like it” and signing on the dotted line. It is something that should be done with a great deal of sense and prudence.

For all aspiring Malaysians who are actively considering buying a home by taking a loan, here are three things to determine if you’re financially ready to undertake this life-changing endeavour:

1) Do you have enough for the upfront costs?

In Malaysia, most banks offer up to 90% of the property’s price (margin of financing) for your first two residential properties. If you receive that 90%, you need to prepare a 10% down payment to cover the rest of the property’s price.

Say you’re targeting to buy a condo in Cheras that’s going for RM400,000. You must have a minimum of RM40,000 for the down payment, be it from your savings or money from your parents or siblings.

2) Do you have extra cash for miscellaneous fees and charges?

First-time home buyers may not know it, but buying and financing a home takes more than just the deposit and the loan. It also involves miscellaneous fees and charges that include:

  1. Stamp duty for the transfer of ownership title (also known as a memorandum of transfer or MOT) = 1% for the first RM100,000; 2% on the next RM400,000, and 3% on the subsequent amount
  2. Sale & Purchase Agreement (SPA) legal fees = 1% for first RM500,000, 0.8% for the next RM500,000 and 0.5% to 0.7% for subsequent amount
  3. Stamping for SPA = Less than RM100
  4. SPA legal disbursement fee = A few hundred ringgit
  5. Loan agreement legal fees = 1% for first RM500,000 (of loan amount), 0.8% for the next RM500,000 and 0.5% to 0.7% for subsequent amount
  6. Stamp duty for loan agreement = 0.5% of loan amount
  7. Loan Facility Agreement legal disbursement fee = A few hundred ringgit
  8. Fee for transfer of ownership title = A few hundred ringgit
  9. Government tax on legal agreements = 6% of total lawyer fees
  10. Bank processing fee for loan = RM50 to RM200

*Note: The percentages are based on recommended numbers and industry averages. Actual figures may differ.

Here’s what your major initial costs could look like:

Purchase priceDown payment (10%)SPA legal feesStamp duty on MOTLoan agreement legal feesStamp duty for loan agreementTotal

3) Can you afford to pay the monthly instalment?

Unless you have the financial muscle to buy a property with cash upfront, you’ll need to secure a loan from a bank or a financial institution to help pay for your home.

Based on the current market rate of 4.5% p.a. interest for a standard home loan and a 10% down payment, here’s how much you pay in monthly instalments:

Monthly instalment payable home loan (4.5% interest rate, 35-year tenure)

Purchase priceDown payment (10%)Monthly instalment

You can also use iMoney’s home loan calculator to automatically estimate your monthly instalments.

As most financial experts recommend that you allocate no more than one-third of your total income to pay off your home loan, this means you or your household should have an income of at least RM6,390 per month to afford an RM500,000 home.

Take note that Malaysian banks generally allow you to hold loans (including car loans, personal loans etc.) of up to 70% of your income if you have a relatively good credit score, so you can always choose to increase your monthly instalment and shorten your loan term. But make sure you’ve done the math and understood the financial implications before you commit!

Affordable housing schemes in Malaysia

Saving up tens of thousands of dollars to buy a home is no small feat. If you need help, look into the following schemes:

1. My First Home Scheme / Skim Rumah Pertamaku

This scheme allows homebuyers to obtain 100% financing from financial institutions, enabling them to own a home without having to pay a 10% down payment.

Eligibility: For properties between RM100,000 and RM400,000; homebuyer must be 35 years old and below with an income not exceeding RM5,000 a month.

2. MyHome

This scheme offers subsidies of up to RM30,000 per home.

Eligibility: For properties between RM80,000 and RM300,000; homebuyer must be a first-time buyer with a household income between RM3,000 and RM6,000

3. BSN MyHome (Youth Housing Scheme)

This scheme is designed to help youths own their first home. Under the scheme, there is a 100% of stamp duty exemption on the transfer of ownership and facility documents for property price up to RM300,000. The government will also help homeowners manage their monthly instalments by providing RM200 a month for the first two years.

Eligibility: For properties between RM100,000 and RM500,000; homebuyer must be a first-time buyer with a household income not exceeding RM10,000 a month

4. Rumah Selangorku

This scheme aims to provide affordable homes to middle-income earners in the state of Selangor.

Eligibility: For properties between RM42,000 and RM250,000; homebuyer does not already have a property in Selangor, and has a household income not exceeding RM10,000 a month

5. Residensi Wilayah

This scheme aims to provide affordable homes to middle-income earners who work and stay in Wilayah Persekutuan.

Eligibility: For properties between RM52,000 and RM300,000; homebuyer must be staying and working in Wilayah Persekutuan and have a monthly income below RM10,000

What if I don’t qualify for these housing schemes?

All hope is not lost.

For a start, you may consider looking around for properties with free SPA and loan facility agreements to save thousands of Ringgit in legal fees. This should be relatively simple as most new property projects commonly absorb the costs of legal agreements for home buyers.

To cut down on the initial payment needed to buy a home, actively shop around for properties with low initial down payments. Many developers now offer competitive early bird or “easy entry” sales packages which include rebates of between 2% to even 10% of the property price.

Ultimately, buying a home is a serious life decision that shouldn’t be taken lightly. Though owning a home in a posh area is always nice, one should always consider one’s financial position when it comes to buying property, so you don’t end up being overly burdened for the next few decades. Hopefully, this article will serve as a general guide for all Malaysians who are thinking about buying a home now.

With our mortgage calculator, you can easily calculate your loan’s interests and your monthly repayment!

This article was first published on February 27, 2013 and has been updated for freshness, accuracy and comprehensiveness.

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