If you ask anyone new to the world of property why they have yet to buy their first home, most will say that the prices of property have exceeded their affordability. However, there are some who might tell you that they are holding out and saving to buy their dream home.
The question is, should you hold off buying a home until you can afford your “forever” home? As the property market in Malaysian booms and prices continue to soar, many property buyers find themselves having to downsize their home dreams from a two-storey linked house to a two-bedroom condominium.
If you’re a prospective first-time homebuyer, you face the first of many tough decisions: Do you buy a starter home now or save up until you can afford your forever home?
Everyone will have different ideas of what constitutes a starter home or a forever home. One person’s starter home may be a house another family is happy to own indefinitely.
But in general, a starter home is something you’d be happy living in for at least five years even if you know you’ll outgrow it. Or perhaps something that is perfect for a single individual. On the other hand, a forever home, is one that you could potentially see yourself living in for the rest of your life, when you start a family.
What it comes down to, of course, is money.
Home-buying behaviours have fluctuated as much as interest rates in recent years. First-time homebuyers are now shopping for homes that fit their budget instead of their preference. Regardless of whether you choose to go for a starter home now or wait for your forever home, there are pros and cons to consider.
Get a starter home first
There are benefits to buying a starter home now rather than waiting for years to buy a forever home. First of all, the current Base Lending Rate (BLR) of 6.6% (as of January 2014) is the lowest in the last 10 years. Experts and economists have opined that this rate will go up some time this year.
If you think a good mortgage rate is not a good enough reason to compromise on your first home, think again. The rate at which you borrow will impact your monthly payment and how much you’ll pay in interest over the life of the loan.
You can easily check your monthly payments against current interest rates offered by banks using iMoney’s home loan calculator. This will give you a better idea of how interest rates can affect your finances.
Another consideration to take into account is appreciation of the property. Buying a starter home now, may help expedite your goal of getting a more expensive forever home.
Ideally you want to buy a property that will appreciate (or at least hold its value) so when you sell it a few years down the road you have equity to put into your forever home. This may not always be the case but happens more often than not in the local property market.
Things to avoid if you are buying
The biggest disadvantage of buying a starter home first is buying one that does not appreciate in value or has difficulty being rented out. To minimise the chances of this happening, do as much research as possible on the type and location of the property.
Not many 30-somethings — let alone 20-somethings — can afford their dream home in this day and age. As home prices and cost of living rise, salary has barely budged. Today, a dual-income household may not be able to comfortably afford any home in the urban areas of Klang Valley.
Waiting for a forever home may just turn out to be a forever wait as property prices do not seem to be coming down anytime soon. A property that’s not affordable now will most likely be even less affordable in the future, if the salary hikes remain at the same rate.
Aiming for the middle ground
So, how do you go about deciding on your first home? To make the decision slightly easier, consider the price difference between a potential starter home and your dream home.
If the difference can be saved up in a year, you may want to consider waiting. But if the difference between your RM250,000 one-bedroom condo and your RM600,000 dream double-storey terrace house takes more than five years to save up, you may want to aim for a middle ground.
If that means you are not able to afford a huge landed property in the best neighbourhood right now, you can consider a medium-sized condominium or even look for a property further away from the city centre that is within your price range.
By relaxing your criteria, you may be able to find something that suits your needs for the foreseeable future until you can afford that forever home. Sometimes, it may take more than two houses to finally own your forever home.