A note of caution on housing loans

Buying a home can lead to bankruptcy if you are not prepared

25% of the defaulters are said to be on car and housing loans. At an average of 14,000 new cases per year, 3,500 will be losing their cars or houses. If you have noticed, the number of properties advertised for auction in the local papers is rising as well.

According to the Glossary provided in the Bank Negara’s website, non-performing loans refer to the outstanding amount of loans (principle and interest) classified as non-performing when principle or interest is six months or more in arrears.

A rough estimate on the number of purchasers according to the property type and the non-performing loans amount in the Mar 2007 is 114,500.

Can you even afford a house right now?

Assuming you can afford a house, how much can you afford? These are important questions that many people do not research, focusing on what their mortgage payments will be, ignoring other monthly payments. This oversight puts many people down the wrong path to bad debt.

For example, your monthly expenditures will be more than just the housing loan, there will also be all kinds of insurance, utilities & phone bills, contributions to maintenance fund, medical bill, groceries, unexpected household/auto repairs, lunch money, and many other obligations. They must all be accounted for in your budget spreadsheet. For many of us the purchase of our house or investment property is the largest financial commitment we will ever make. This makes arranging the most suitable housing loan just as important.

Make sure you know all the costs of entering into the loan and purchasing the property. These costs include conveyancing costs, application fees, valuation and legal fees, mortgage insurance (if necessary) and sometimes extra life insurance premiums.

Some lenders will tell you the advantages of whatever housing loans they are trying to squeeze you into, but rarely will they tell you the disadvantages. Be ready when it happens and things will go your way.

According to an article in a business magazine, the banking system is flushed with RM140 billion liquidity. This explains the increasingly aggressive sales promotions undertaken by financial institutions for the housing industry. Even credit card holders’ recruitment has taken to the shopping malls, hypermarket concourses and popular food stalls.

Whilst we will leave it to our economic gurus to analyse as to whether these are good indicators or not, one thing is for sure; the securing of a housing loan is now a less intimidating effort.

Always look at the total deal, not some dangling carrots in front of your face. Compare the entire housing loan cost of several different lenders to determine which type is best for you.

We would like to discuss some of the lenders’ offers that may not be as attractive as they appear. We will start with the special low interest offered for the first year. Such an offer is usually given during a sales campaign and it usually carries a fixed calendar period with a run-out date.

‘Honeymoon’ start

Thus, even if a house buyer commenced his application process immediately upon the launching of the campaign, by the time the loan is approved and disbursements commenced, the period remaining to enjoy this special low interest rate will certainly be much less than one year.

If he were to start the application process a few months after the start of the campaign, it is likely that he will enjoy the special low rate for only a very short period.

Another point for thought is that due to our unique system of progressive payments to the developers, the mean average of the amount disbursed by the banks during the “first year low interest offer,” is really lower than the loan amount.

Thus any saving on interests is really much less than it seems. And these have all been figured out already by those marketing experts in the banks. A more sincere approach would be to offer the special low interest rate to apply during the progressive payment period and to continue to run for one year after the date when the loan is fully disbursed. Only then can such offers bear some element of sincerity. We believe that anything short of that makes the offer a sales gimmick.

There are other clauses that put house buyers in disadvantaged situations. Some lenders include clauses in the Loan Agreements that give them the absolute rights to alter both the Base Lending Rates and/or the margin of interests.

Doesn’t this in effect nullify their typical attractive sales brochures offer of “BLR plus X % for following years”?

One cannot make a special low interest offer in the sales campaign and then contractually (through the Loan Agreement) creates a clause to allow that special offer interest rate to be invalidated. That would make the special offer a sales gimmick.

Make sure you know all the costs of early discharge of the loan.

One other clause to look out for is on the redemption of the loan. A house buyer may wish to sell the house or perhaps have made enough money and wishes to fully settle the loan for whatever reasons.

This is where the conditions for full settlement differ from one institution to another. Think long term. Do not be in a disadvantaged position when the day comes and you wish to redeem the loan.

When one takes a loan, one spends a much longer period servicing the loan beyond the first year or even the second and the third year. So do not be taken in by the very attractive offers during the honeymoon year/s of the tenure of your loan.

Remember, the remaining of the 25 years is more important. Do not go for short-term gains only to lose out heavily on the long remaining years.

We would advise house buyers to look beyond the first year of so-called low interest when shopping for housing loans. With the stiff competition going on among the various lenders today, one should seriously take some trouble to shop around and to scrutinise each and every offer before commencing the application process. Talk to your banker, lawyer friends or seek advice at National House Buyers Association.

We wish to stress that once the application process starts, it is unlikely that one will have time for any change of mind. By the time the formal letter of offer is received and if one does not agree with any of the conditions within, there is usually no more time to reapply to another financier without incurring the late payment penalty to the developer.

One really has to scrutinise the fine prints before making a decision as to which financial institution to apply to for a loan. Housing developers usually start charging interests as soon as the date for payment is reached (with perhaps a 2 weeks’ grace at best). Hence if by then one still has not secured a loan and the banks are not ready to start disbursement, one starts to incur interests for nothing.

So scout around and study each and every scheme carefully before you even apply. There are subtle but material difference between the various schemes and offers among the lenders.

Talk to the lenders concerned. Seek your banker, accountant, financial planners and lawyer friends’ opinions. Do not be taken in by the short term attractions. Think long term. Look beyond the first 3 years.

Think about the clauses and the interest rates during the remaining long 25 years that you will be grappling with that loan.

Where to go for help

If you have a problem managing your finances and wants badly to keep your home, the Bank Negara provides counseling and advice on financial management as well as a Debt Management Programme and Financial Education through the Credit Counseling and Debt Management Agency.

Credit Counseling and Debt Management Agency

Kuala Lumpur Headquarters

Level 8, Maju Junction Mall

1001, Jalan Sultan Ismail

50250 Kuala Lumpur

Toll Free Number : 1800 88 2575

General Line : 03-2698 8575

Fax Number : 03-2698 1575

Email to : enquiry @ akpk.org.my

Website: http://www.akpk.org.my/

Most of the complaints receives from house buyers are on late payment interest, due to end-financiers disbursing loans late or banks slow in approving loans and communication problems. For disputes with banks who are members of the Financial Mediation Bureau, which is an independent body, contact them at this address:

The Financial Mediation Bureau

Level 25 Dataran Kewangan Darul Takaful

No. 4, Jalan Sultan Sulaiman

50000 Kuala Lumpur.

Telephone : 03-22722811

Fax : 03-22745752

Website: http://www.fmb.org.my/

5 Tips On Selecting The Right Developer

I don't know about your country, but in mine, Malaysia, when you're looking to buy property of any type, one of the important criteria you would want to look into is - the developer.

The project is important, but you would agree that the developer plays even a bigger role; in ensuring that you're getting the best property deal in Malaysia.
So, you might want to read on to find out, who would be your ideal developer...

Well, basically, these are the criteria to look for:

1. Reputation and Reliability

Need I say more? You know this already, don't you? But...

The most important thing is: How do you find out reputation and reliability of a developer, right?

Simple, just ask around residences or owners of previous property projects by your targeted developer! You should be able to get some hints from these neighborhoods.

While you're there, open you eyes; BIG and WIDE! Observe their workmanship. Would you be happy with the quality of work that you see right before your eyes?

You can also check who their financiers are. Do they owe their contractors, vendors and suppliers? You wouldn't want to be involve with a bad pay master, would you?

One more thing...

Find out if this is their first project? If they are not from a developer background, you should think again...

2. They should be registered under REHDA

REHDA, or the Real Estate and Housing Developer Association, is the association that keep track of a developer's records.

Reputable property developers in Malaysia are members of REHDA... and if it is not registered... well, you know what to do, right?

3. Timeliness in Delivery and Quality

While checking out the previous projects by the developer, find out about their timeliness. Are they delaying project consistently? What is their compensation for the delay? Is the compensation fair and following the legal requirements?

4. Credibility, Management Effectiveness, After Sales Services.

These are the normal things to check. A MUST!

When you’re uncovering the background of the developer of property projects in Malaysia, find out about their credibility, their management teams and effectiveness, and what is the quality level of their services?

And now... the most outrageous criteria!

5. License!

Huh? Property developers in Malaysia MUST have a license, don't they?

Alright, before I go about embarrassing my lovely state... let me explain:

You see, there are certain licensing requirements for properties in Malaysia. And not all property projects are necessarily regulated. Thus, there's no pre-requisite to have a valid license for certain project types.

Property projects that requires a valid license in Malaysia are any buildings that are intended for human habitation, partly or wholly. Examples, low and medium cost apartments, condominiums, terrace houses etc.

But then again, The Minister may by notification published in the Gazette, exempt any housing developer from any or all of the provisions of the Housing Development (Control & Licensing) Act, 1966.

So, these 'exempted' developers may not need any license as well!

Now, you probably would be asking: What else does not require a valid license?

Here's the loopholes...

If the developer is building less than four units; or the units are only sold after full Certificate of Fitness for Occupation has been issued. No license is required.
Besides that, any approved commercial development, no valid license are required.

Examples, service apartments, commercial buildings, shop lots, shop offices, bungalow plots and/or land, orchard land and/or agricultural land, industrial and/or factory lots, and other types of properties not specified as ‘Housing Accommodation’ under the Housing Act.

The Changing Landscape Of Penang

Penang is on the verge of a property boom that will drive the state's growth into a vibrant regional hub for north Peninsular Malaysia.

Coupled with the entrance of major Klang Valley-based developers like SP Setia Bhd, E&O Property Development Bhd, Mah Sing Group Bhd, IJM Properties Sdn Bhd and Sunway City Bhd, it will further spur and change Penang's property landscape where the locals will enjoy better designs and concepts.

Although the state's economy is largely driven by the electronics and hospitality industries, the property sector is emerging as an important activity with many new projects underway or are on the drawing board.

The impending roll out of infrastructure projects under the Ninth Malaysia Plan (9MP) will be a boon to the real estate sector as new areas are open up for development.

The state has been allocated a RM6.6bil development budget for various projects, including the second Penang Bridge, Penang Outer Ring Road (PORR) and monorail project.

If the projects are conceived and implemented as a holistic infrastructure master plan to upgrade the state's road and transportation connectivity will be a big spin off to the state's economy.

The improved transportation network from various infrastructure projects would open up new frontiers of development that were formerly inaccessible, such as Batu Kawan and Balik Pulau.

Places near the site of the second Penang Bridge are also coming alive with renewed interest from developers. More developed areas in the southern part such as Sungai Ara and Bayan Lepas will continue to attract keen interest due to its proximity to the airport and free trade industrial zones.

The 9MP projects would benchmark Penang to be on par with some of the world's more modern cities.

A number of factors have contributed to Penang's “hot” property status - strong property demand and prices, high urbanisation rate and a household income that is above national average.

Of the population of 1.6 million people, nearly a third are between 25 to 44 years old - a good catchment market for property.

Penang's “nostalgic charm” had endeared it to the people, including foreigners and Penangites who resided outside the state.

Its island state appeal makes Penang a natural tourist attraction and it is no wonder that the state tops the list in attracting participants of Malaysia, My Second Home (MM2H) programme.

The exemption from real property gains tax and relaxation of Foreign Investment Committee guidelines for foreign buyers have promoted greater foreign buying interest for properties in the state.

Despite the many pluses, Penang is still a relatively untapped market with room for more innovative and better design projects as products offered have not caught up with changing market trends.

There are immense opportunities in both the residential and commercial property sectors with an acute need for better design products that will promote a better quality of life among the people.

Until a few years ago, most of the housing projects are the usual barrack-style houses or high-rise apartments with basic amenities.

Except for some new project launches, there is a lack of creative lifestyle products such as gated communities and resort-style developments.

In the commercial sector, there is also a need for better-planned office buildings, shopping complexes and food and beverage facilities.

Reflecting their growing affluence and changing lifestyle, Penang folks are now keen to upgrade to better planned and designed projects that offer them good security, amenities and environment.

Having the right address has become a measure of one's status and achievement in life and so good projects in the right location will do well for developers.

Penang Land Prices Not Likely To Dip

The Penang island's land prices are unlikely to drop, even if another economic slowdown happens.

For the past 10 years, Penang’s land value has been increasing.

It was a misconception to say that there was not much land left in the state.

With NCER, Penang can be a microelectronic hub of excellence, logistics hub in the northern region and has potential for an oil industry spin-off.

Penang’s strengths were its friendly locals, strong engineering workforce and vibrant nightlife.

However, the state’s weaknesses were its over dependence on the electronics and manufacturing sector, limited direct flight destinations, lack of top jobs for other sectors and slow pace in property development.

But the state’s declining population growth due to intra-state migration would hamper its development rate.

Penang Island Draws Luxury Home Builders

THE most expensive landed residential properties on the Penang island today are located in Tanjung Bungah, Tanjung Tokong and Batu Ferringhi in the North-East district, and Sungai Ara in the South-West district.

These properties are three-storey terraced, three-storey semi-detached and three-storey bungalows, which are priced between RM800,000 and RM3mil.

The builders are reputable developers from Kuala Lumpur and Penang.

Generally, the value of landed residential properties in these areas have appreciated by about 10% yearly since the dawn of the new millenium.

Due to high land cost and rising building material prices, it was no longer profitable for developers to build double-storey houses.

About two years ago, developers here started to build three-storey homes with larger built-up areas and higher selling prices.

Presently in the market, the selling price for a three-storey terraced starts from about RM800,000, while for a three-storey semi-detached house ranges from RM1.3mil to RM1.8mil, depending on the size.

The three-storey bungalow unit is priced between RM1.8mil and RM3mil.

In Tanjung Bungah, Chong Co Group, a reputable developer with good track record, is developing the Hill View Garden, comprising about 200 units of three-storey terraced and three-storey semi-detached houses on a 20-acre site.

These properties, priced between RM800,000 and RM1.8mil, are over 80% sold.

They are selling well because of their large built-up areas that can cater to the needs of families living with their grandparents.

The Hill View Garden three-storey homes have built-up areas ranging from 3,300 to 5,000 sq ft, depending on the type that come with four to five bedrooms, and porches large enough to accommodate three cars.

In Batu Ferringhi, similar types of three-storey landed residential properties were being developed.

Blossom Time Sdn Bhd is launching in mid-2008 some 129 units of three-storey landed residential properties comprising semi-detached and bungalow homes, which are part of a RM400mil development called Ferringhi Park.

Again, the emphasis is on the large built-up areas of the units, which come with five to seven rooms, depending on whether it is a semi-detached or a bungalow unit.

The semi-detached units are priced at RM1.2mil, and the bungalows at RM1.8mil.

The semi-detached units have built-up areas of 3,995sq ft, while the bungalows 4,300sq ft.

The first batch of 57 three-storey semi-detached and bungalow houses, launched last year, were over 80% sold.