Expert Series with Charles Tan – First Property Guide for all, especially couples.

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(Source: KopiAndProperty.com)

Someone asked me these questions. Since I have drafted my reply, here is my sharing with all. It is a guide to buying that first property as a couple. Daunting isn’t it? Prices going higher it seems. It will wipe out nearly all our savings of many years almost immediately. I felt the same in 2002 too when I bought my first property, an apartment of 730 sq ft for RM123k. It was a starting point to a property investment journey as a working professional for me. Happy reading and learning. 

1.  What is the first non-obvious thing you would say a couple should consider before they decide to purchase a property (besides property value, location, etc.)?

I think both should know the actual financial situation for one another. Let’s not have surprises when the wife thought she could rely on the husband or the other way around but in the end, both were actually already in a bad shape, financially. Credit card debts, existing car loan payments every month and even their total savings in the bank. All these matters and should be made transparent before any joint purchase is even considered and later decided. Both should only proceed when both know exactly what they would be getting themselves into. Remember, one major argument leading to breakups has always been about money.

2.   How can couples (married or not married, familial, friend/investment partners) maintain their personal financial securities when obtaining joint loans?

Personally, I would only recommend married couples to take up joint loans. However, if there is a very clear financial goal to be achieved from a joint purchase, then it is still okay to proceed. Spell out the commitment from the parties involved before hand. For example, a certain target price that would trigger a sale. It would be good to draft out an agreement to be agreed and signed by all parties. I do not recommend using a lawyer because if a lawyer is needed, perhaps the relationship was not that close to begin with or the ultimate goal for the investment is not a jointly agreed one. Either way, please do not proceed.

3.  What are recurring or indirect charges should new homebuyers consider before making an offer on a house?

Beyond the homeloan, there would be four other components that one should take note of. Three are quite certain.

#1 – LEGAL FEE – The first one is the legal fee. The first RM500,000 would incur a 1% fee and the next RM500,000 would be 0.8%. I assume first time home buyer would not buy anything above RM1,000,000. A minimum fee of RM500 will be applicable should the 1% fee is lower than RM500. If the house is RM500,000 then the legal fee applicable would be RM5,000.

# 2 – STAMP DUTY – The second one which is NOT based on purchase price but themarketvalue would be the stamp duty. My friend bought an undervalued condominium nearby KLCC for RM750,000. However, the stamp duty was based on marketvalueof the condominium which was RM850,000. This is to also to prevent any hanky-panky transactions. Following would be the applicable stamp duty schedule:

For the First RM100,000 – 1%

Subsequent up to RM500,000 – 2%

Again, I assume the buyer buys a RM500,000 property. In this case, the stamp duty calculation would be RM100,000 x 1% and RM400,000 x 2%. Total would be RM1,000 + RM8,000 which comes to RM9,000.

#3 LOAN STAMP DUTY – This is quite straightforward. It is total loan amount X 0.50%

Assuming it is a RM500,000 property, the total duty would be RM2,500

In conclusion, for a RM500,000 property, the homebuyer would need to have RM16,500 in his pocket too.

#4 Renovation and Furnishings. A general number would be 15-20% of the property price. The reason is because if we were to spend way too high and we should need to sell the property in the near future, chances are we would be selling it at a loss due to the substantial amount for renovation and furnishings. Note though that if one were to do further renovations after one has moved in would be a huge hassle. Get it done before moving in, its better.

4.  Which location/s would you say is an affordable choice for young couples in major Malaysian cities?

Seriously, stop looking at locations. The question is not WHERE but WHY. Assuming you love area A. Ask yourself what’s the three main reasons why you love Area A. If Area A is still affordable, by all means buy a home within Area A. However, if the three reasons stated could be fulfilled by Area B and it is 20% cheaper, I think it’s time we understand that the savings we have from buying area B could be invested into something else. Perhaps even a second property a few years down the road. Secondly, think duration and not distance. An area could be 10km away from the city centre but driving to work and back home may still take almost the same time as another area which is 20km away. Usually, the nearer the place to the citry centre, the more expensive. Again, thinking about duration instead of distance may save us a tidy sum which we can use for many other purposes.

5.   What should young couples know when choosing a real estate agent?

Go online, find their listings in the many property sites. See how they write about the property they are selling. It should be a good write-up, showing they put effort or know enough about the property they are selling. Talk to the real estate agent. If the real estate agent knows nothing about area they are selling, time to find another one. A really good real estate agent would be able to ask the right questions and provide the right answers. You would also be able to make a better choice because of the information provided by the real estate agent. In fact, the person may become your good friend and may just be the same agent you use when you are thinking of the second property.

6.   What type of screening procedures should young couples prepare for during the pre-application process?

Check out their credit scores. For example: www.mycreditinfo.com.my     or   www.ctoscredit.com.my       or     http://creditbureau.bnm.gov.my/reportobtain.html

If the credit score is good, please proceed. If it is not, perhaps good to make it better first. Else, the application may just be rejected. Do note that rejection rate these days could be as high as 50% of all applications.

7.   What is your advice for young partners currently looking to obtain joint ownership of a property?

Be serious about it. This is most likely the single largest purchase in our life. View more units before deciding on one. Be transparent about it. Know the financial limitations of one another. There should not be sudden surprises 6 months later. By then, it’s too late. Be comfortable. Please do not stretch to the maximum limit that we could afford. Always buy below what we could afford. This helps to manage the risks. The next purchase can always be an upgrade while the current one can be turned into an investment. All the best

All the best to all taking this HUGE step.

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