New loan cap makes it tough for first timers to own properties

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

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

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.

Souce: StarProperty.my

  1. To
    July 16th, 2013 at 07:49 | #1

    Primary market getting smaller. Secondary market no chance at all..

  2. Luck
    July 16th, 2013 at 08:06 | #2

    Subsale market getting smaller..Must really think properly on your investment. Must have key advantage or else no ppl going to buy..

  3. ST Khor
    July 16th, 2013 at 09:37 | #3

    These vicious cycle will never end. As the above article have pointed out that if you sealed one gap, another gap will self manifest. What we need is a double-prong full proof plan that could curb the ever presence of property investor as well as bequeath those first-time house buyers with affordable yet not burdening housing package.

  4. islander_ori
    July 16th, 2013 at 09:57 | #4

    Luck :Subsale market getting smaller..Must really think properly on your investment. Must have key advantage or else no ppl going to buy..

    Subsale market getting smaller because of less affordable buyer?
    Do you think the rental will rise?

  5. Luck
    July 16th, 2013 at 10:45 | #5


    As what the article mentioned:
    “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.”

    Yeah, when sale drops from these groups of people, rental will increase from these group of people too. unless they kept staying with family…

  6. condomana
    July 16th, 2013 at 12:45 | #6

    State and federal gov have to work hand in hand in order to address the problem of affordable housing. But first, they will have to acknowledge the problem. Without official acknowledgement, I don’t think concrete measures will be or can be implemented. BNM has so far indicated their acknowledgement of the issue, from the angle of financial stability. Fed gov has also openly acknowledging the issue. BUT, we have not heard anything from the Penang state gov yet. They are surprisingly quiet about this issue (pls correct me if I am wrong).

    The reason I said state and federal gov have to work hand in hand is because Msia is a big country with drastic difference in property supply/demand/pricing situation in different states. BNM can’t increase overall interest rates just to address property speculation issue as interest rates affects businesses and exchange rates too. Federal can’t implement a blanket policy that affects all states as housing in Kulim (Kedah) remains very affordable and healthy, while housing in Penang is not making affordable sense. So when it comes to a localize issue, state gov will have to take action, for the well being of the locals.

  7. Monkeyman
    July 16th, 2013 at 14:04 | #7

    Haha.. good luck to those who bought condo recently near FTZ which plan to earn money from future engineer kia..

  8. Kenny
    July 16th, 2013 at 19:26 | #8

    Must think carefully before doing investment… Subsale will be good if a property have a attractive advantage compare to other property. Location again is the most important things to be consider.

  9. citizen
    July 16th, 2013 at 22:06 | #9

    WHEN will the authorities including bmm going to take serious actions against the speculators and greedy unscrupulous developers rampantly perpetrating unjustified price increases through manipulations & unethical practices … ???

    or will be as usual … just play deaf & dumb … & continue pocketing the salary paid by taxpayers hard-earned money without carrying out its responsibities towards the people …
    (Gaji Buta) !!

  10. Yap
    July 16th, 2013 at 23:07 | #10

    Why people can’t aiming cheaper property ?
    Can’t afford condo, find apartment, can’t get a property in strategic location choose some further location.

    Stop whining and start finding alternative.

  11. james
    July 16th, 2013 at 23:23 | #11

    I agree. Can’t they just buy all those old flat. Example ..Paya terubong still got many flat less than 150k. Well,, beggar can’t choose rite!

  12. Kenny
    July 16th, 2013 at 23:28 | #12

    Macallum or perak road also got affordable house for fresh graduate..

  13. Oracle
    August 4th, 2013 at 13:02 | #13

    @ST Khor
    Don’t worry the vicious cycle will end… and here’s why?

    Foreign money that is leaving Malaysia is now accelerating. This is why MYR/USD has been falling over the last few months. And also why Malaysian credit rating has been down graded to negative by several international ratings agencies… Not looking good for property…

    This foreign money is the source of cheap credit for the banks that they use to lend out to the public. The banks made it easy to borrow this money for housing speculation. and hence property prices sky rocketed over the last 5 years.

    But as the foreign money leaves the banks will find it hard to get their hands on new sources of credit. This will cause interest rates to start to rise to try to attract the foreign money to stay… This will be passed on to the public. And when I say rise I don’t mean by 0.5% or 1%. I mean 3-4-5%…

    This will cause many people who already over committed themselves at the current low interest rates to start to struggle. It will cause many to start defaulting (default rates are at record highs anyway… Been to an bank auction lately???)

    So property prices will flood the market at an accelerated rate causing huge over supply and forcing property prices down…

    Those who are holding onto properties to speculate will also dump their properties on the market and slash their prices just to get rid of them…

    Those who brought for investment will also dump their properties on the market because they don’t want to end up in negative equity…

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