Effect of Shorter Home Loan Period

The last few years have seen young professionals struggle to own property. Now with rising house prices and a shorter home loan repayment period, some say it has become an impossible struggle.

WANTING and actually being able to afford your own place are two very different things.

Chua pondering the possibility of ever owning his first apartment in Penang.

With the oversupply of high-end condominiums shadowing the property market, fresh graduates and young professionals may have to either send out an SOS to their parents for cash or live at home because having “my own space” just got a little tougher.

Fresh graduate K.T.S. Chua, 23, who recently took out a RM30,000 personal loan to start a hotdog business, is relieved at narrowly missing the July new personal loan cap ruling but the shorter home loan repayment period has dampened the budding entrepreneur’s plan for a bachelor pad.

He currently lives at home with his parents and two brothers.

“I was looking to get a place of my own; unfortunately, the new ruling will gravely affect my plans to purchase a home. Without the new cap, it is already so hard for me to buy property and I will have to put it on hold.

“Needless to say, I am really concerned about the higher monthly repayments and qualifying for the housing loan,” he sighs.

Most of his friends who have just started working are “fuming” over the new ruling, the Penangite shares.

Unless you are from a rich family, plans of owning a home will have to be put on the back burner, they feel.

“Those from wealthy families can ask their parents to support them in purchasing a house. But I think it’s safe to say that many more fresh graduates will be staying with their parents until they are more stable and able to move out on their own,” he says.

At the end of the day, he cites high property prices as the biggest problem, not the new ruling.

He laments how property prices keep increasing but the salaries of the fresh graduates and even those who have been working for years have not.

Lecturer Cheryl Withaneachi, 30, agrees.

The Teluk Intan lass, who currently lives in Petaling Jaya, says the new ruling makes it difficult even for professionals to consider buying a house.

On top of rising house prices, the situation becomes practically impossible, as though housing is only meant for the urban rich these days, she grumbles.

She says that with higher repayments, it would be more practical for her to continue renting despite having “seriously considered” putting the monthly rental towards purchasing a house.

Cheryl started working almost eight years ago and is currently renting a house for RM1,500 – not inclusive of utilities which, she says, is pretty high.

“Many of my friends who are around my age cannot afford a house and this is not only due to the ruling of late but the exorbitant house and apartment prices.

“I dread to think how fresh graduates or those who do not earn very much cope,” she says, adding that fresh graduates who are based in the same location as their parents will definitely opt to stay in the family home due to the increasing living costs of transportation and housing.

“The rest of us who are not from the city have no choice but to struggle.

“The only way to buy a house is if it is jointly bought. So if you are married, the combined funds allow for more flexibility to purchase your first home but in my case (being single), it is a whole different ball game,” she says, before calling on the government to look into house prices, instead of car prices, as a person can live without the latter.

“Paying through our nose for accommodation without actually owning the property is painful,” she adds.

Single mother Fatimah Zakaria, 34, is also feeling the heat,

The frustrated civil servant, who currently lives with her adorable six-year-old daughter in Shah Alam, has been scouting around for a place in Selangor for some time now but it keeps getting harder due to high prices “that just keep rising”.

“And we are not talking about the bank’s interest rates yet,” she stresses.

“With increasingly expensive properties, fluctuating interest rates from banks plus the reduction of loan years, I doubt anyone can actually afford any sort of property.

“I see many young married couples struggling to pay their instalments while trying to maintain a decent lifestyle. If they are having a hard time paying the banks, what about us single mothers?”

With utility bills, food, oil, car loan and a never-ending list of other household expenses to be paid for on a single income, Fatimah does not see how she can ever realise her dream of owning a home.

Previously, property buyers could take loans for up to 45 years, while personal loans could be paid back over a period of up to 25 years.

Under the new Bank Negara Malaysia rules, property loans are capped at 35 years while personal loans are limited to 10 years to help reduce household debt in the country.

The central bank is acting because Malaysia’s household-debt-to-Gross Domestic Product (GDP) ratio at 83% is the highest in emerging Asia.

The stricter lending guidelines also saw Bank Negara prohibiting the offering of pre-approved personal financing products.

These new measures to tackle household debt will also be extended to all financial institutions and credit cooperatives regulated by Bank Negara, the Malaysia Co-operative Societies Commission, Malaysia Building Society Bhd and Aeon Credit Service (M) Bhd.

All these institutions will also need to follow responsible lending limits.

New borrowers, especially those with lower incomes, can only take on debt amounting to 60% of their monthly take home pay.

The new limits will not however affect loan applications made before July 5.

National Housebuyers Association (HBA) honorary secretary-general Chang Kim Loong says house buyers who need loan tenures that are longer than 35 years are buying something that is far beyond their current income levels.

“In fact, most banks only give housing loans up to 30 years. Previously, only selected banks gave loans of up to 45 years (second-generation loans).

“HBA is against the second-generation loans as the second generation is born into debt,” he says, stressing that house buyers should always get something that is within their means.

To be deemed “affordable”, a study by Harvard University and the World Bank lists three main criteria: any single loan repayment should not exceed a third of the borrower’s income; all combined loan repayments should not exceed half of the borrower’s income; and the price of the house ideally should be three times the borrower’s annual household income, he shares.

“For example, if both the borrower and the spouse each earns RM5,000, a month, the household income is RM10,000 a month or RM120,000 a year.

“The value of the house that the household should be looking at purchasing should at most be RM360,000,” he explains.

He predicts that fresh graduates will have to continue staying with their parents until both the parents and the child (borrower) have saved enough money for a larger down payment or for the parents to withdraw their own EPF funds to help.

“For a housing loan of RM450,000 (average condo price of RM500,000 less 10% downpayment) for 30 years, the monthly repayment is already RM2,175 which is 72% of the fresh graduate’s income,” he calculates.

Chang also calls for a revision of the Perumahan Rakyat 1Malaysia (PR1MA) prices, which the HBA believes are just too expensive. The HBA had suggested a price of between RM150,000 and RM300,000.

“PR1MA has just raised the ceiling price of their properties to RM450,000 and the maximum household income eligibility to RM7,500.

“It would not be unusual for banks to reject PR1MA applicants for housing loans as many of them would be buying far beyond their income eligibility,” he argues.

Malaysian Employers Federation (MEF) executive director Shamsuddin Bardan tells young employees to “take your time”.

“Don’t rush to commit to a long-term financial obligation.

“Perhaps you may need to wait a little longer before making arrangements to get your first place.

“Instead of rushing to buy a home, wait until you are able to earn a higher salary so that the downpayment and monthly payments become more affordable,” he advises.

While calling for a review of the housing loan cap, he, however, lauds the new personal loan limit as a way to teach the younger generation to spend within their means.

Industry players believe the new Bank Negara measures would have a limited impact on the property market because the older generation of Malaysians had already bought into the property cycle.

They say the latest caps would mainly affect the younger generation.

According to the Global Property Guide (www.globalpropertyguide.com) – a site for residential property investors – the Malaysian housing market remains strong, though house price rises are slowing mainly due to stricter lending guidelines.

Quoting the Valuation and Property Services Department (JPPH), it reported last year that house prices in the country had continued to rise, albeit at a slower pace.

Average house prices are RM497,535 in Kuala Lumpur, followed by Sabah and Selangor, with average prices of RM382,414 and RM372,499 respectively.

Meanwhile, CIMB Research, in a report, says supply growth in residential properties in Malaysia in 2012 was only 1.6%, the lowest in 10 years.

“We believe the cause of strong price increases in recent years is mainly due to supply constraints as opposed to excessive demand.

“In fact, any move by the authorities to curb speculation may have the unintended effect of slowing down supply growth, which would in turn exacerbate price increases over the longer term,” the research house says.

The HBA hopes that the new Bank Negara measures will reduce some speculation in the property market which may result in lower property prices.

Chang, however, thinks much more needs to be done to reduce speculation in the property market, such as bringing back the Real Property Gains Tax, imposing higher stamp duty for buyers of multiple properties and a further reduction of Loan to Value ratio. – The Star

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