Buying a house: cost and affordability calculation

How much is really needed to qualify for affordable housing?

YOU may find it hard to believe. Just four to five years ago, it was possible to own a decent-sized, quality condominium unit in urban centres like Kuala Lumpur, Petaling Jaya, Johor Baru and Penang for approximately RM200,000. They were in fact, quite common.

From 2010 up till 2012, the Government had considered the price of RM220,000 to be within the “affordable” housing range. This was evident when it first launched the My First Home Scheme or Skim Rumah Pertamaku (SRP) for houses priced up to RM220,000. However, towards the tail-end of 2012, it was becoming increasingly evident that houses hovering around that price was becoming more of a rarity.

Genuine first-time house buyers were gradually finding themselves being priced out of the market.

Recognising the changing property price landscape, the Government in 2013 bumped the maximum price range for SRP eligibility to RM400,000.

The move garnered ridicule from both sides of the spectrum for different reasons. On one hand, lower income groups found it laughable that a price tag of RM400,000 for a house could even be considered “affordable” as it was far beyond their reach.

On the other hand, the younger and more urbane groups who were striving to purchase their first home derided the ceiling price of RM400,000 as being out of reach. Their contention was that prices for an acceptable standard of housing was already priced beyond RM400,000.

If anything, the Government’s efforts at trying to determine what is “affordable” shows us that it should be assessed based on our personal situation.

And, what might be affordable to you today may no longer provide as comparable a standard of living to what was affordable to you five years ago. Regardless of what is affordable to you, how much is really needed to purchase an “affordable” house? Let us examine house prices ranging from RM100,000 to RM600,000.

Affordability of initial entry costs

Firstly, there are the entry costs of purchasing a house. Table 1 illustrates the kind of upfront cash one must have to purchase a house in a given price range.

There is the standard 10% down payment, along with the rest of the legal fees and stamp duties which follow a scheduled fee structure.

If the entry costs above look discouraging, fret not. There is hope yet. If you are a first-time buyer, there are certain schemes and methods that you can take advantage of to ease your purchasing burden.

These include (Refer to Table 2):

1) A 50% stamp duty discount on the Sales and Purchase Agreement (SPA) for properties priced up to RM400,000.

2) SRP, which allows you to take a 100% loan for properties priced up to RM400,000, negating the need to pay the initial 10% down payment. Even if one does not qualify for the above schemes, there is still the EPF (Employees Provident Fund) or KWSP’s (Kumpulan Wang Simpanan Pekerja) scheme that allows you to withdraw money from your EPF Account II to help pay for the down payment of the house.

Affordability of loan

Even if one can afford the initial cash outlay to purchase a house, one must still be able to qualify for a mortgage loan to proceed with the purchase. When assessing whether a housing loan is affordable, there are two criteria that must be considered.

Firstly, do you meet the minimum acceptable level of income you must have before a bank can even approve your housing loan?

Secondly, even if you do qualify for the home loan, after paying off your monthly instalments, realistically, could you get by on the remaining amount?

It would be unwise to enter into a home purchase if your answer to either of the above is “No”.

Table 3 indicates the estimated minimum level of household income one must have to qualify for a loan of the given amount in the year 2014. It also shows clearly the estimated monthly instalments one must pay. These calculations have not even taken into consideration any other commitments that you may have.

Conclusion

While your personal financial situation may be unique, the costs associated with the purchase of a home are somewhat set according to price.

The best way to know what you can afford is to measure your personal finances against the required costs.

- Loanstreet

Selling Cost

Bumi lot

This is an entry i shall dedicated on how i plan to dispose of one of  my bumi units i bought in Horizon Hills to a foreigner.

So, this is the current state of my bumi units:

1. Status: VP February 2015.
2. Title: Individual (Adely Bin Kassim), previously Master Title (Horizon Hills Dev Sdn Bhd)
3. Date of purchase: SPA signed on 6 Sept 2013.

Summary of procedure:

So now, what we have to do is to sign a conditional SPA* and to apply for consent to transfer by providing compelling enough reasons (i.e. there is no demand for the lots following a year of advertising) to the Land Office.

Strategy:
If the buyer still wants our unit, even after explanation about bumi units and the consent to apply, we can propose to the buyer of renting the unit first in waiting for the application to be approved because the consent application can take a long time.

Current steps to be taken:

1. Advertisement on newspaper. DONE - 1/9/2014 to 6/9/2014
1. Made by lawfirm, fee is around RM150.
2. Sign conditional SPA
1. Fee is RM6000 to lawfirm - paid after consent approved, usually borne by seller.
2. The validity of the SPA is one year to which the buyer cant back off during this period. After a year, if the buyer still wants to continue with the application, a new SPA can be signed.
3. Apply consent to Land Office
1. Total cost is RM13000 to lawfirm - usually borne by seller, but can also be made from both sides.
2. Initial payment is RM2000
1. RM1000 lawfirm fee + RM1000 for registration at Land office
2. To be made when signing the SPA.
3. The rest RM11000, to be paid once the consent approved.
4. The fastest period to get the result is 6 months and it can go to more than a year.

* conditional SPA is SPA with special clauses since we have yet to receive consent from Land Office.