Fund My Home – A long awaited solution to own our dream house?

We heard this in the Budget Announcement and then we read the news of the Program Launch subsequently. It seems to be a solution long awaited to help us purchasing our dream home. Is it really the long awaited solution?

Highlights:

  • Purchaser pay 20% to own the property for 5 years.
  • No Monthly Instalment within 5 years.
  • The remaining 80% is not in the form of loan – No obligation.
  • Full Ownership within 5 years – Own Stay, Rent Out, etc..
  • After 5 years, choose to Own or Sell.

What is so great about this program? In order for us to find out, we compare it to a normal way for us to buy a house (10% Downpayment and 90% Mortgage Loan) : ~

Comparison

At a glance, the Fund My Home is indeed a good option for buyer that could not secure a mortgage loan. However, this is not a permanent solution as buyer is only owning the property for 5 years.

What happens after 5 years?! This is the most important portion that you must understand before making your decision to take up the program.

Proceed Distribution

The table above obtained from the FAQ section of Fund My Home website (https://fundmyhome.zendesk.com/hc/en-us/articles/360018733792-How-will-sale-proceeds-be-distributed-)

Looking at the table above:

There is only 2 possibilities after 5 years, owner buy the remaining 80% or sell off the whole property. It seems that the owner does not benefit from owning the property unless the property appreciate by more than 20%. It is not as what we assume earlier that the owner could have share on the appreciated value of the property.

Assuming owner is buying the remaining 80% of the property after 5 years with 20% appreciation in the price of the property, the owner need to finance RM300K (2nd Row Last Column). Which mean owner still need to pay in total RM 360K for the property (initially paid 60K and finally refinance 300K). This is one of the disappointment for this program.

Further to that another major disappointment for the program is when the property actually depreciated. Just like appreciation, up to 20% depreciation will be fully paid by Owner rather than the loss being shared with the investor as well. When property depreciate by 20% to RM 240K, owner is the only one that making the loss (refer to 6th row of the table above)

In short, owner does not benefit from appreciation of the property price unless it is more that 20%; Further to that, the owner only get the share of 20% from any amount in excess of the 20%. And at the same time, when the property depreciate, owner will be the only one absorbing the loss up to depreciation of 20%.

So, it seems like this is only a last option when you want to own a house now but you can not secure a mortgage loan. But after 5 years, you will be facing the same problem.

Maybe one should consider whether to defer your plan to own a house such as renting one for the moment..

We welcome any comment from anyone for this matter and feel free to contact us at ask@ethanteh.com or ethanteh@moneysense.com.my

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Navigating Through Turbulence

What is Turbulence in Financial Management? Turbulence is disruption to your current plan (Example: during economy downturn), which may cause you to start worrying. It is indeed great that you are aware of the condition and start worrying. So, what should you do?

Airplane Turbulence

Normally during this time, you will see and hear that many pulling out from their investment as the investment is making lost.

Whenever we come to this situation, I always recall a story shared by Mr Appelles Poh many years ago:

Airplane in turbulence

A: Assuming you are on a plane and suddenly the plane going through turbulence, what will the crew or pilot ask you to do

B: Get back to our seat and fasten seat belt.

A: Would you follow the instruction?

B: OF COURSE!

A: What if there is a passenger who doesn’t follow instruction and run into the cockpit to take over the role of the pilot? Would you do that or allow that?

B: NO! NEVER! It is best left to the pilot.

A: Would you jump off the plane? Since it is going through turbulence?

B: NO! The chance is better to stay on the plane.

A: Finally, if the pilot says the plane will crash, would you jump with or without parachute?

B: Of course with parachute.

After going through this story, we can easily relate:

1. Discuss with your pilot for your financial plan.

2. Decide if it is still on track? Do you need a alternative plan? Or the disruption is just temporary and we shall navigate it through?

3. If you really need to terminate the plan, what is the risk mitigation plan (your parachute)?

Rent to Own is Finally Revealed! Is it your BEST Chance to Own your House?

We have heard about Rent-To-Own scheme some time ago, and it is now revealed by Maybank Islamic through it’s innovative product – #HouzKEY. What could be better than having the opportunity to own a house by renting it first? We often hear that owning a property is very challenging especially for fresh graduates or young generation, but most still wanting to own a property in long term as renting is deemed unsecured and owning a house is still one of the dream of every Malaysian.

Rent2Own

Before we decide with the Rent-To-Own scheme, we must first understand that we want to own this house and it is not for those who think that rather than paying rent, I might as well choose this scheme so that I have an option in the future. The gap between Market Rental Rate and HouzKEY Rental Rate is too huge for discussion. (Example: Da Men Apartment, Subang Jaya; HouzKEY Rental Rate start from: RM 2908.40; iproperty Rental Rate start from: RM 1,500.00) For this reason, we will not discuss any comparison between this scheme and renting a house.

Few Key Features:

  • Low Entry Cost – compared with the cost involved in purchasing a property. (3 Months Security Deposit)
  • No Obligations to Own it – After a period of 5 years, we can choose not to take up the property and we are not in debt.
  • Ride on Property Capital Appreciation – If anytime after a year, we can choose to “Sell it Off” should the price increased although we have not actually bought it. This is due to the obligation of the scheme to transfer it to the Scheme participant whether through cash out or taking up a mortgage.

Control measure well considered:

It seems to be a good opportunity for speculator again to ride on the low entry cost to get into the scheme with multiple units. However, in order to be eligible for this scheme, one MUST NOT HAVE more than ONE home financing which is one of the good measures to stop speculators.

The question is, what about multiple applications from a person? And, is application to this scheme also considered as a home financing? (Product Disclosure Sheet revealed that participation in this scheme will be reflected in CCRIS)

HouzKEY’s Rental Rate vs Mortgage Financing Rate

From the PDS, both are Effective Rate to be pegged against Bank’s Base Rate and 4.85% has been used for calculation (We are not sure if this is the Effective Rate for HouzKEY). Quick check with online comparison site shows that current rate for a typical RM 500,000 loan start from 4.20%) .

To make the comparison easier, PDS simulation shows a total payment of RM1,204,403 for a RM 500,000 property. We did a simple calculation with RM500,000 loan amount (assume 100% loan) with effective rate of 4.85% (as used in PDF), total amount payable will be approximately RM 949,846 (with tenure of 30 years). There is a difference of almost RM 300,000. This is due to the pre-determined purchase price to be agreed in the contract.

Should we opt for Rent-To-Own?

In our opinion, maybe one could search for 100% loan option available such as Graduate program. When all other options are not available, HouzKEY could be an option to consider.

However, there is one feature of the program that one should not overlook – Lock In Period. The minimum contract period is 5 years; Quick check in the FAQ section on m2own website suggests that if tenants decided to terminate the contract earlier, tenants are required to pay the rentals for the remainder of the lock-in period.

*Disclaimer – Information provided is based on information obtained from official site at the time of publish. Purpose of this post is to share the update in property market for reference only. One should always see a qualified personnel prior to any decision.

2017 Coming to an End, have you found out about 2017 Tax Relief?

Malaysian will be required to file personal tax by end of April each year for employed person (Form BE) and by end of June for self employed/business owner (Form B), however the assessment period shall be from 1st Jan 2017 to 31st Dec 2017. Therefore, we should be prepared and foresee what are items that could benefit to us as Malaysian Tax Residents.

Before we discuss the relief available, we should first understand Tax Relief. Tax relief means it is deducted from you taxable income, which is different from Tax Rebate. Example, if your tax able income is RM 20,000, with tax Relief is RM 3,000, your taxable income will be RM 17,000. Tax Rebate will be the amount deducted from the amount of tax you supposed to pay to LHDN. Let’s say your final calculated tax payable is RM 1,200, and when you are given a Tax Rebate of RM 400, then you only need to pay RM 800. Therefore amount of saving from Tax Relief will depend on the Tax Bracket of individuals.

There are some changes to our tax relief as announced during National Budget in year 2016, let us recap how we could fully benefited from it:

  1. Full Medical Check Up – If you have not carried out any medical check up and intended to do so, it is now the right time as you will be entitled to RM 500 tax relief.
  2. Lifestyle Relief – In year 2017, lifestyle relief included printed newspaper for reading material, tablet and smartphone and monthly subscription for internet. In year 2016 only personal computers are allowed (once every 3 years) and newspaper was not included for reading material relief. However the combined limit was lowered to RM 2,500 compared to RM3,000 for personal computers and RM 1,000 for reading materials earlier. However, it is still worth considering and keep a good record of your purchase or subscription.
  3. Savings in SSPN-i is a great point to consider as SSPN-i dividend for 2016 was 4% and individual are allowed up to RM 6,000 or tax relief. The dividend was better than savings in Fixed Deposit and considering the tax relief up to RM 6,000. If a person tax rate fell into 20% bracket, you could actually saved up to RM 1,200 besides receiving the dividend of 4%.
  4. Another important savings (or investment) is Private Retirement Scheme, tax relief up to RM 3,000 was allowed for investment with approved scheme. If one is planning to utilise Unit Trust as part of retirement planning, you should first invest in PRS since both are of the same concept and have some identical fund manager, but PRS allows tax relief up to RM 3,000. Adding onto that, any individual below 30 years old would be topped up with RM 1,000 from government as encouragement to invest in this scheme.

If you have any opinion or suggestion, please feel free to leave a comment or email to ask@ethanteh.com

Reference: http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=1&bt_posi=3&bt_unit=1&bt_sequ=1&bt_lgv=2

认清购买房地产程序,避免被骗!

购买房地产,尤其是属于自己的房屋是每个人梦寐以求的梦想。但,很多时候,一些买者因为不了解程序而赔上辛苦储蓄的金钱。所以,大家是有必要了解正常或一般的购买房地产程序,避免蒙受亏损。小编这一扁是针对马来西亚的程序。

MandariSalesProcess

1。先了解自己的财务状况。

在寻找适合的房屋前,有必要先了解自己财务状况就比较容易锁定适合自己的房屋。在了解自己的财务状况的两个重点。

(一)头期

一般上这等于房产价格的十八仙;也就是,如果想要购买的房产价格是700千,那么就必须准备70千。但,除了房产的头期,其实还有一些费用,比如买卖合约费用,转名费用,估价师费用,保险费用,等等。当然,有些费用是可以融入在房贷里。

(二)房贷每月分期付款

房贷可是现代我国家庭的一大开销。所以,在购买房屋前有必要大约理解每个月的分期付款数额。以最简单的算法(大概30年贷款),把每个月所能够付的数额乘200将是您适合贷款的数额。比如,每个月可以付款3000令吉,那么3000 x 200 = 600,000(贷款数额)。那么就应该寻找650千至700千的房产。(没有考虑银行贷款审核条件)

2。预定适合的房产

当有了适合的房产,首先必须预定。一般上是向发展商或透过地产经纪人购买。无论是透过哪一个管道,买者都会先预定。在预定时,双方都会签署一份预定合约/表格。在这时候,定金一般上介于房价的2%至3%。定金最好是以有记录的方法比如支票或转账,而且应该是转账至公司户口(发展商或地产经纪公司)而不是私人/个人户口。预定表格上除了产业地址,款式,买者,卖者等基本资料也必须注意一些事项:

(一)有效期

一般的预定表格都会限定有效期,也就是在几天内必须签署买卖合约。如不能在有效期内,签署买卖合约,卖者就可以取消然后卖给其他有意的买者。一般上有效期将会介于14,21或30工作天。

(二)取消条件/费用

第二个重要的内容既是如果买者在什么情况下可以取消这分预定合约。最普通的是申请不到房屋贷款,因为如果买者申请不了房屋贷款,那么就无法完成这交易。一般上,在有效期内,买者的贷款申请都被银行拒绝将使这预定合约都会被取消。(被银行拒绝就是买者已经把完整的申请移交了,但银行不批准)那么,在预定表格里,双方可以决定是否全数退还或将会收取手续费。

3。申请房屋贷款

买者可以透过地产经济介绍,或自寻银行,房贷顾问来申请房屋贷款。买者可同一时间透过任何管道向不同的银行申请贷款,但决不能通过不一样的管道甚至不一样的银行分行向同一家银行申请贷款。因为如果一家银行接到两份同样的贷款,银行必须先理请申请最后决定要哪一方代办申请手续才会进行审核。如果无法理请,那么将不会继续审核申请。到目前为止,申请程序是不需要付任何的费用

4。签署银行献义信

当银行批准了申请者的贷款,银行将会发出一份献义信。这份献义信将列明贷款数额,贷款期限,利息,及所有重要的条件。所以,当申请者得到这份献义信就应该小心了解献义信的内容。如果申请者得到多于一分批准,那么可以比较哪一份较于适合自己。在签署献义信时也是不需要任何的付费,但如果签署后反悔就可能需要付某些手续费。当然,有些买者会在这同时购买房贷保险,那么买者只是需要付保险的保费。

5。签署房贷合约及买卖合约

一般上,买者会先签署房贷合约再签署买卖合约或是同时进行。两份合约可以由同一律师楼代准备或是两家分别的律师楼。在签署房贷合约时,律师将征收合约的费用及印花税。(在签署前,买者可以要求律师楼清楚解释费用)如果,申请贷款着把这费用加在贷款数额内,律师楼将不会向买者征收。而在签署买卖合约时,律师楼同样会向买者征收合约费用,转名费等。(这费用是不能加在贷款数额内)买者也必须清楚了解,即使卖者也是聘请同样的律师楼代办,那律师楼还是代表买者而不是卖者。所以律师还是要一买者利益为优先。除了合约费用,买者也必须在这时候还清10%的定金给于卖者。如果,在预定时,买者已付了2%,那么买者在这时候只需要付其余的8%。以上所有的程序都必须是在律师办公室,或是在律师(或代表)见证下完成。

切忌,如果在签署了买卖合约后,若买方无法还请其余的数额(自付或贷款),所有已支出的费用(律师费,估价费等)都无法取得退款。10%定金也即将成为赔给卖者在时间上的损失。在签署后,买者将会获得3+1个月的时间把其余的数额付给卖者。(如果已获贷款者,贷款银行必须在时间内把贷款数额付给卖者)3+1个月意味这3个月是合理的期限,如果已进入第四个月,那么卖者将征收利息。这是一般上的程序。在一些情况下比如不是永久地契或分层地契等的产业需要更长的转名时间,那么那将不会构成超出3+1个月期限的状况。(确实有个案是需要超出一年甚至更长的时间)

6。移交钥匙

等待一切手续完毕,律师将把钥匙移交于买方。所以,这可能要等上几个月或是更长的时间。买者如果是有需要在特定时间得到产业,应该在购买前向律师或合格房产代理了解。

SPEF (Flexible Financing Scheme for PR1MA) – DREAM Solution for purchaser?

speffb

PR1MA launched SPEF (Skim Pembiayaan Fleksibel/Flexible Financing Scheme) with the hope to increase loan approval for PR1MA house buyer. It is understood that many qualified purchasers of PR1MA scheme are unable to secure a housing loan, hence could not own their home even with PR1MA. How does SPEF actually work?

How does SPEF works?

First of all, it allows only paying interests for the first 5 years. Is this something special? This is actually as any of our property bought from developer. During construction period, most borrowers are paying only interest during the period of time based on amount drawn down by developers. In this case SPEF could be viewed as extra 2-3 years extension of interest paying only as currently our standard construction period is 2 years for landed and 3 years for high rise residential.

By paying interest only during the first 5 years means if you are serving 35 years loan, your 35 years begin when you start to pay full instalment (the 6th year). Further to that, you are paying highest amount of interest during the first 5 years since no reduce in principal amount. The cost impact is illustrated by The Edge Malaysia as below.

new-doc-39 *Source : The Edge Malaysia, 20th-26th Feb 2017, page 8, “Housing loans are not always productive debt”

How does SPEF increase the chance of approval for Housing Loan?

As known to most of us, Debt Service Ratio (DSR) is one of the major consideration in housing loan approval especially in determining the amount of loan eligible. Most of the banks allow DSR ratio up to 70% or 85%. Therefore, an increase or RM 100 a month in repayment ability could actually increase about RM 20,000 in loan amount. SPEF Step Up allows borrowers to justify repayment by taking into consideration monthly EPF contribution by both employer & employee into EPF Account 2. Using example below, referring to RM 216 of example one is derived from 30% of (RM 3000 x 24% (11% employee + 13% employer). By additional amount of RM 216, one could actually arrives at extra loan amount of near to RM 45000 (total loan – approx. RM 232,300). This is considered as level one step up loan under SPEF.

Example below is illustration of Step Up Level 2 as borrowers would also agree to use the accumulated amount in account 2 of EPF to pay instalment. (for the terms & condition, kindly refer to www.pr1ma.my) In this illustration, it is assumed that loan amount eligibility is based on instalment ability of borrowers in the first 5 years which is paying interest only. (RM 283,300 x 4.75%/12 = RM 1121). However, we have doubt over this assumption as banks would need to determine further how much amount has actually been accumulated in EPF Account 2, many might not have accumulated a lot, especially those looking for first house might comprised of many who has just started work for not long ago.

As of this time of this article, we have yet to gather enough information from participating banks (Maybank, CIMB, RHB & Ambank) in regards to this matter.

new-doc-40

*Source : The Edge Malaysia, 20th-26th Feb 2017, page 8, “Housing loans are not always productive debt”

Points to consider for PR1MA buyer?

  1. EPF always allow members to withdraw amount from EPF Acc 2 as down payment for purchasing first house. Should you have sufficient amount in Acc 2, you may consider to make EPF withdrawal and pay higher down payment, which resulting lower loan amount, hence, lower monthly instalment and subsequently lower DSR. Many may not be aware that, one is allowed to withdraw a total amount (Property Price – Loan Amount) + 10%. This means that you can actually withdraw 30% of property price from EPF account 2 if you are taking only 80% loan.
  2. Have you done your credit management? The extra repayment ability by taking EPF monthly contribution as discussed above can easily being cancelled off by your other loan commitment. For example, an outstanding amount of RM 3000 in your credit card account would have been considered as RM 150 monthly expenses. Or you might have a personal loan /  hire purchase loan that is about to complete in few months time. We would advise you to talk to a mortgage advisor to understand you own situation prior to make any decision.
  3. Are you ready to utilise your retirement fund for owning your house? Typically Malaysian doesn’t save enough for retirement. By fully utilising EPF Account 2 might further reduce our saving for retirement. Further to that, we can not do any other withdrawal even for Medical in the event of emergency until the loan is fully paid up.