40-year home loan feasible, but ‘challenging’

5th Jan 2013

KUALA LUMPUR- The long tenure of up to 40 years to repay loans under the My First Home Scheme is feasible but it comes with some challenges, analysts said.

The scheme helps to lessen house buyers' burden and gives them greater opportunity to own their first house in the Klang Valley, they said.

But finding a decent house costing RM200,000 to RM400,000 there will be tough for young adults, they pointed out.

The home scheme, launched by the Prime Minister Datuk Seri Najib Razak in March 2011, is part of the government's efforts to help young adults own a house, with 100 per cent financing from banks.

Under the scheme, individuals with a monthly income not exceeding RM5,000 (previously RM3,000) will be eligible to buy their first house of up to RM400,000 without paying the 10 per cent down payment.

The government, via Cagamas, will guarantee the initial 10 per cent of the loan.

For joint borrowers, the income limit has been increased to RM10,000 per month.

The higher income limit of purchasers is effective this year.

The loan repayment period is up to 40 years, or when the buyer reaches 65 years old, whichever is earlier. This means, a buyer needs to be 25 years old or younger, if he wants to apply for a 40-year loan.

A research head from a local brokerage said the scheme can be a catalyst for the property industry as it spurs young adults to be first-time house buyers.

"Property developers can also take advantage of this by building more affordable houses as there is a group of ready buyers.

"However, as cost to build a house has increased, the government would need to figure out a way to solve it before you can see many developers jumping on the bandwagon," he added.

Based on dipstick calculation, a buyer earning RM5,000 a month would be in a "borderline situation" if he were to purchase a RM400,000 house via a 40-year loan under the scheme.

"The new lending guidelines require banks to look at a borrower's net income," said a bank officer who declined to be named.

"This would mean that by default, his net income would be about RM4,500, that is without factoring in his car loan.

"A 40-year loan period would mean that he has to pay up about RM1,790 a month (based on an interest rate of 4.5 per cent).

"Under the new lending guidelines, the approval or rejection of the loan would depend on his other commitments, like personal loan or car loans. It's going to be borderline.

While the longer tenure for loan repayment may have its benefits, it does have some "loopholes".

"Today, getting a RM400,000 property in the Klang Valley will be a challenge. So, you can imagine if one were to look for a decent new development under RM300,000 or RM200,000.

"Let's assume that the supply of properties worth RM400,000 are in abundance. How many young adults will have a monthly income of RM5,000 a month at the age of 25 years?

"I guess the likelihood of individuals aged 25 or below buying a RM400,000 property will be low, but if they opt to buy a property as joint borrowers, it is still very much possible," said an analyst.

The good news is, the government has established the Perumahan Rakyat 1Malaysia Bhd (PR1MA) with the sole purpose of developing and maintaining affordable and quality houses, specifically for the middle income group. These houses are expected to be priced between RM100,000 and RM400,000.

Currently, PR1MA is accepting applications for one of its projects in Nusajaya - a double-storey link house (1,384 sq ft and above) for as low as RM199,000. Its website stated that more projects are underway, in Penang and Seremban.

-btimes.com