Taking a home loan? Here are 5 common home loan mistakes that people make especially when they’re applying for it for the very first time. Read on so you can avoid these pitfalls too.

Diving in When You’re Not Qualified

Banks, by nature, are generally eager to offer home loans to qualified homebuyers. The keyword, though, is “Qualified”. In Malaysia, a qualified home loan applicant generally refers to one with the appropriate Debt Service Ratio (DSR) and has no red marks on the Central Credit Reference Information System (CCRIS) report collated by Bank Negara. If you don’t fit the criteria, they’ll have no problem rejecting your application. So before you apply you’ll want to make sure you’ve done the necessary preparations and are not fighting a lost cause right from the start.

Going Straight for the Lowest Interest Rate and Nothing Else

You’re going to borrow a big sum of money. Obviously, you’ll sign up with whoever that offers you the lowest interest rate. Right? To a certain extent, it is. Your priority should definitely lies with getting the lowest possible interest rate, but you shouldn’t forget about things like margin of financing, lock-in period, and simple stuffs like making sure a branch is within your vicinity.

For a list of things you should consider, check out these 6 things you should consider when taking up a home loan to buy a house in Malaysia.

Applying with Just One Bank and Telling Them So

In Malaysia, it has become a general practice for seasoned homebuyers to “shop around” for the best home loan deals before you commit.  Apply with only one bank, and what you’re really doing is giving yourselves no other options even if the terms offered to you are appallingly bad.

The even worse mistake you could be making is telling a loan officer that “they are the only bank you’re applying with”. It’s pretty much the same as giving them the licence to give you the worst possible rate, because they’d know you have no where else to turn to as the 2-or-3-week deadline you’re usually given by the housing developers runs down.

You may try this Home Loan Recommendation tool.

Not Factoring in Your Home Loan Costs

Home loan involves fees, charges and even home insurances that may come as a surprise for the inexperienced homebuyers. Some banks absorb part of these charges, whilst others may not. Most homebuyers have limited funds (and hence the need to take a loan), so it is imperative that you understand these charges involved before you commit.

To understand the major fees and charges associated with buying a property through a home loan, please refer to our article “Are You Financially Ready to Buy a House in Malaysia” written for The Star Property.

Not Reading the Terms & Conditions

At iMoney, we’ve always emphasized on the need to read all the fine prints for anything that involves money. This goes for your home loan agreement as well. If you don’t have the capacity to do so, make sure you get the loan officer to point out all the things that matter (such as loan amount, interest rate, installment amount, loan period, margin of finance, lock-in period, early settlement penalty and fees & charges).

The general rule: if it doesn’t appear in your agreement, it doesn’t take effect. Period. So if your home loan shows a lock-in period of 3 years whilst your officer is telling you it’s 1 year, the former wins. All the time.

Taking a home loan right now?  Why not check out our home loan comparison table and find one that suits you the most!

This article comes courtesy of www.imoney.my which compares between the various loans, savings and insurance schemes available in Malaysia.

I found my dream house. The developer’s office said the project was selling like hot cakes. Sales were on a first come first serve basis’ and I must pay a deposit otherwise she would have to give it to someone else. Or was it a booking fee she called it?

I begged her to give me one week. Three days, she said. How very sweet and understanding of her. Bank loan? No problem… 85% loan margin? No problem, she assured me. If I could not get a housing loan I could always cancel and get my money back. I left the developer’s office feeling on top of the world. I had secured my dream house by paying the deposit. My dream turned into a nightmare when I could not get a bank loan. I had no choice but to forgo the house.

As if letting go of my dream was not bad enough, the developer now refuses to give me back my deposit. The lady said her hands were tight because it’s a management decision. It was not stated in the option letter’ or booking form’ that my purchase was subject to the loan approval. On reading the terms and conditions in the option letter/booking form, I now realised that all terms were inclined in favour of the developer.

What do I do? I just want my money back. I don’t mind if they keep a small sum for cost of paper work and for administrative purposes.

The above scenario is not at all uncommon.

Many house buyers are unaware of lending guidelines requiring loans to be tagged to net income as opposed to gross income. Many find that they are unable to obtain the financing they want and have to withdraw from an intended purchase before the sale and purchase agreement is even signed. The developer then refuses to refund the deposit or booking fee or whatever other payment which may have already been paid.

The unfortunate part about this whole thing is that house buyers do not have the luxury of a learning curve in which they can acquire the necessary skills to avoid getting themselves into trouble. Very often by the time they realised that they have made a mistake, it is already too late and the result can be traumatic and financially crippling.

This very noble and seemingly simple undertaking of buying a house, in a lot of cases, have gone terribly wrong.

Can developers collect booking fee or deposit?

The sale and purchase agreement (Schedule G, H, I or J) as prescribed by the Housing Development (Control and Licensing) Regulations, 1989 (the Housing Regulations) provides very clearly how the purchase price is to be paid. The first 10% is payable immediately upon the signing of the sale and purchase agreement (SPA), not before.

No collection of any payment is allowed before the SPA is signed. Deposit, booking fee, advance payment, administration charges are just some of terms used by some devious developers in their vain attempts to circumvent or contract out of the Housing Regulations and to confuse, mislead and convince nave house buyers especially the first-timers.

Collection of any payment by a housing developer before the signing of the SPA is an offence. This is very clear under the Housing Regulations and it does not matter what the developer calls it.

The Housing Regulation 11(2) stated: “No housing developer shall collect any payment by whatever name called except as prescribed by the contract of sale”. (In this context’ contract of sale means the SPA)

Commission of such an offence under the Housing Regulations means that the developer in question can be prosecuted, fined and/or even imprisoned under Regulations 13. Even those persons who knowingly and willfully aids, abets, counsel, procures or commands the commission of such an offence shall be liable to be punished.

Prosecution, however, is in the hands of the public prosecutor whose action or non-action the house buyers are not able to dictate. House buyers and indeed the general public are of course at liberty to lodge a complaint against any developer in breach of any housing laws. Such complaints can be lodged with the Enforcement Division of the Ministry of Housing and Local Government: www.kpkt.gov.my

The law as regards non-payment before the signing of the SPA is very clear and house buyers are strongly urged to understand the law and not be misled by some cunning, unscrupulous developers or their smooth talking sales representatives who either do not know the law or simply do not care about the law.

Profit orientated developers care about nothing but profit. The more they sell the more they gain. They engage marketing commission agents and sales representatives whose only mission is to sell. In their quest to sell their products, some unprincipled commission agents (secondary markets included), who are untruthful will not hesitate to mislead, conveniently telling “white lies” and make empty promises to make a quick buck. Some are so well trained in the art of selling they can probably sell sand to the man in the desert.

Ever wondered why the sales office told you there are only five units left but three months later there are more than 10 units still available? Did the developer’s office tell you the unit you want is already booked but called you two days later to congratulate you because the same unit has just become available? Ever gone to a developer’s office in the hope of getting the “Early Bird Discount” advertised the day before only to find that the project was launched more than a year ago?

Filing a claim for refund

Free gifts, rebates, and waivers of this or that are also fairly commonly seen and are often stated to be for a limited time only. House buyers hurry to meet the deadline. Three months later the same advertisement appears, again for a limited time only or perhaps extended due to popular demand. Gimmicks of “Free legal fees” offer but you must use the developer’s panel lawyers are commonly marketed.

The list of marketing ploys used by developers and their marketing alliance goes on and unscrupulous developers and real estate agents are not likely to stop trying to exploit vulnerable house buyers any time soon. House buyers must therefore be very wary and not be easily swayed by promises made by the developer’s office.

House buyers who are already caught in tussles with housing developers over refund of booking fee or deposit are at liberty to file their claims at the Tribunal for Homebuyer Claims (the Housing Tribunal). The Housing Tribunal was set up as an alternative forum for house buyers to save them the costs and hassle of fighting with housing developers in the civil courts.

The filing fee is only RM10; no lawyers are required and hearings are normally fixed within a month. The Housing Tribunal is empowered to hear disputes between house buyers and licensed housing developers even though the SPA is yet to be signed but the claims must be filed within the time frames provided under section 16N of the Housing Development (Control & Licensing) Act 1966 (the HDA). Check out the link: www.kpkt.gov.my TTPR

Can the developer forfeit such payment?

Where booking fee or deposit or any other payment is collected by the developer before the SPA is signed, the house buyer would normally have been asked to sign a document indicating the house/apartment/condominium he/she is interested and agreeing to sign the SPA within a certain time frame, say 7 or 10 days or upon notice from the developer. This document may be in the form of an option letter, letter of offer, sales proforma, booking form or another document by whatever name the developer chooses to call it, all in an attempt to disguise a collection prohibited by law.

The amount varies and in some cases it is as much as 2% of the purchase price RM10,000 for a RM500,000 house. When the house buyer decides to withdraw from the intended purchase, the developer refuses to refund the deposit, or was it booking fee, or was it …?

by Chang Kim Loong

Source: StarProperty.my

Chang Kim Loong is the honorary secretary-general of the National House Buyers Association: www.hba.org.my, a non-profit, non-governmental organisation manned by volunteers. He is also a NGO councillor at the Subang Jaya Municipality Council.

Grande Residences, a low density freehold development in Butterworth, Penang. It is located along Lebuh Kg. Benggali 2, opposite Ria Apartment. Comprises 46 residential units with size ranging from 1,400 sq.ft. onwards. Each floor has only 5 units and each unit comes with 2 car parks.

Property Project : Grande Residences
Location : Kg Benggali, Butterworth, Penang
Property Type : Condominium
Tenure : Freehold
Total Units : 46
Indicated Price: RM285 psf. onwards
Developer : Scenic Season Sdn Bhd

Location Map:

The H2O Condominium, a mixed development by Tauplene Development Sdn. Bhd. at Jalan Jelutong, Penang. It comprises 21 retail/office and 71 condominium units with size ranging from 1,560 sq.ft. onwards.

Property Name: The H2O
Location : Jelutong, Penang
Property Type : Mixed Development
Total Units: 21 (Retail & Office), 71 (Condominium)
Built-up Area: 1,560 sq.ft. – 1,656 sq.ft.
Developer : Tauplene Development Sdn. Bhd.

Location Map:

WITH residential prices continuing to rise and and currently standing at 61%, 52% and 108% above the post Lehman troughs in China, Singapore and Hong Kong respectively, do interventions really help? And what are their effects on Malaysia?

In the April issue of Asia Pacific Residential Review, Knight Frank brought into focus how these markets have tried to cool property prices.

Singapore instituted seven rounds of cooling measures, ranging from increasing downpayment, rising stamp duty to property tax. The recent budget has also set out an increase in property tax for high-end residential real estate, set to be phased in over 2014-2015.

Cooling measures were also introduced to the non-residential sphere for the first time, with an exit stamp duty introduced on industrial property sold within four years from the date of purchase.

In Hong Kong, the stamp duty for property over HK$2mil was doubled to 8.5%, putting the brakes on volumes transacted in the local market. China, too, sent out strong signals, which include a capital gains tax of 20%. Buyers are looking to exit before these measures are enforced, most notably in Shanghai, which saw an increase in volumes transacted in March.

Bloomberg reported on April 24 that Beijing and Shenzhen have submitted tax plans to their central government.

The aims of the interventions are broadly the same across all of the key markets; control price inflation, reduce the role of speculators and help support first time buyers. The tools vary. It could be a mixture of fiscal policy, supply side intervention, home buyers regulations and financing restrictions, the Knight Frank report says.

Government intervention in the property markets is not a sudden new phenomenon. Policy-makers, to varying extents, have always found it necessary to intervene by exercising some element of control over market participants, along with two key factors of production; land and finance.

They do so because they desire “stable and sustainable growth”. Property consultants contacted say they prefer a gradual increase in prices rather than a steep hike.

While the recent increase in prices are fueled by high liquidity, urban migration, and economic growth, especially in China, questions on sustainability have arisen.

Their conclusion is that, interest rates – at their lowest today – coupled with speculative activities are fuelling prices beyond this “sustainable” barrier.

The various measures taken so far were a result of significant price rises that have brought into focus issues of affordability and the risk of potential asset bubbles.

Effects of cooling measures

The Knight Frank report says as a result of these measures, Singapore saw a reduction in annual price growth, but not perhaps the reduction policy makers expected. China saw prices drop in 2011, but they rebounded in 2012.

Hong Kong continues to see very strong price inflation, buoyed by low interest rates (the HK dollar is pegged to the US dollar) and tight supply.

Knight Frank is of the view that prices will soften in Singapore by an average of 5% and Hong Kong by 10% over the next 12 months. In China, prices will likely continue to appreciate in Tier-1 cities, while there may be drops in some of the Tier-2 and 3 cities.

The protectionist measures introduced into Singapore and Hong Kong have led to a reduction of purchases by foreign buyers. Singapore saw a drop of 23.5% in 2012 from 2011 (for permanent residents and non-permanent residents). Hong Kong also saw the proportion of mainland Chinese buyers drop from around 30% in October 2012 to only 9.4% in January 2013 (in the Hong Kong luxury market).

What is the impact of these various measures on Malaysia?

Knight Frank Malaysia’s head of project marketing Herbert Leong expects the additional cooling measures in competing Asian markets to lead to further interest in the Kuala Lumpur, Penang and Iskandar Malaysia property markets.

Leong also says that overseas investors have viewed Malaysia as an attractive alternative investment destination for some time and expects further activity in 2013, particularly post-election.

While prices in Hong Kong, China and Singapore have risen considerably, annual price growth in the major markets in Malaysia has flattened considerably over the last 12 months. Perhaps, this may be due to the “wait and see” attitude in light of the general election (GE). Malaysia is likely to see a rebound in activity following the GE.

Says Leong in an email: “Malaysia has always been favoured by investors from Singapore, HK/China, Indonesia and Middle East, though not as much as the countries (Singapore, Hong Kong and China) mentioned. The cooling measures will encourage investors from these countries to buy Malaysian properties as our prices are much cheaper and the returns (capital appreciation/rental returns) are reasonable.”

Source: StarProperty.my