KUALA LUMPUR, April 5 ― Stumped on when is the right time to stop renting? Not sure if you should defer buying a house? The National House Buyers Association (HBA) has some tips.
HBA honorary secretary-general Chang Kim Loong explained that since rental does not build personal equity, renters should consider both market conditions and their financial standing.
“In our opinion, it is only worth renting if the monthly rentals are approximately 50 per cent or less than the monthly loan installments required to take a housing loan of the same value,” he said.
Chang gave an example of a prospective buyers eyeing a 30-year RM300,000 housing loan at a 4.6 per cent interest rate, which results in a monthly installment of RM1,538.
“If the buyer has not saved enough money to buy the property and has to continue renting, the max rental that this buyer should pay is RM1,538 * 50 per cent = RM769 to say RM800 per month,” he said.
Check your wallet
But before jumping into a decades-long commitment, Malaysians should first review their finances and try to stick to the rule-of-thumb previously imposed by Bank Negara Malaysia (BNM), Chang said.
While banks are now free to fix their own Debt Service Ratio (DSR) — or total monthly commitments versus income — before deciding on loans, Chang said borrowers should avoid any single repayment greater than one-third of their income or total commitment that exceed half their pay.
“Prospective borrowers must also always factor in potential changes to the family and lifestyle such as having additional children, future university education fees when buying a property and subsequently taking on a housing loan,” he said.
Age Factor: No magic number
Chang said there is no “right” age for when Malaysians should buy properties, saying it all depends on whether they are financially ready to make such purchases.
“There is no magic number as long as the buyer is financially ready but the ideal age would be between 25 to 35 and then taking a housing loan of between 20 years to 30 years to that the loan repayment stops before the borrower reaches the mandatory retirement age of 60.
As for those who buy after 30 and taking housing loans that run beyond their mandatory retirement age, Chang said they will bear the “additional risk” of having to continue loan repayments after officially retiring.
This could force them to either work after retirement or dip into their savings such as their Employees Provident Fund (EPF) accounts.
“However, when borrowers dip into their EPF funds to settle the housing loan, this creates another problem that such borrowers will have less money for the remainder of their retirement,” he added.
BNM had in July 2013 tightened lending rules in Malaysia, bringing down the maximum tenure of housing loans from 45 years to 30 years.
Cash rich vs asset rich?
When asked if it would be advisable to continue renting indefinitely to stay cash-rich during retirement, Chang indicated that this was down to personal preference.
While property is viewed as more than just “a roof over the head” and as a security when the owner is no longer able to work or generate sufficient revenue to continue renting, Chang notes that some would opt to rent instead of buying.
“Hence there is no single rule that must be forced down on everyone,” he said.
“However, most people, especially in an Asian society will prefer to legally own the property instead of renting in perpetual,” he added.
Chang also said HBA believes an expansion and implementation of a nationwide “Rent-to-Own” scheme by both the federal government and state governments is required to avert the potential crisis of a “homeless generation”.
Compared to traditional methods of saving for 10 per cent of house prices for downpayment, such schemes provide a more affordable alternative and lower entry point for those seeking to own a house.