When I was driving home from Sitiawan to Ipoh home today, I saw a huge banner for a new development project saying that a 120% loan from the bank can be arranged. I believe banks no longer give more than 90% and it is even based on your net income. In fact for commercial, typically it’s even lower. So, the question is, did I see wrongly? I do not think so, it was clearly printed in huge bold letters. I checked online and I think it’s not clear what’s the maximum that banks can lend when it comes to commercial properties. Question is, should the banks lend so much, even if it is for commercial property?
Imagine the property we are buying is RM500,000. Banks lend us just 70%. This means we must come up with 30% which is not an easy task if we do not have sufficient cash. Thus, banks are lending only to those who really qualify. It’s even based on our net income. As for bank, when they lend u just 70%, it helps them to manage their risks too. If the value of the property is really RM500,000 and we are unable to service the mortgage, the bank can still auction off the property and the 30% margin that they have is definitely enough for them not to lose money in the auction.
Now imagine banks lend us 100%. We need not pay anything at all. Thus, anyone can borrow money. Sounds familiar? Yes, it happened in US not too long ago where those who just do not qualify also got the loans based on the potential future price increase. It was like a never ending story. Coming back to Malaysia, if we are loaned 100% and we stop paying, the bank can choose to auction of the property. However, with all the fees and the fact that the banks may not even get 100% for the property, it means every time someone defaults, the bank loses money. Now imagine thousands of buyers all doing that? I don’t think we want to imagine what may happen with a 120% loan.
I seriously think that even when you see such an advertisement, do not be too happy and simply sign the SnP. If you can sign, so can many thousands other unqualified borrowers. This ensures the potential bubble that some people are talking about becomes a real bubble in the near future. Buy what you can afford, not the future earnings that you have in mind. As for any bank offering such a package, I think they should be warned seriously.
written on 1st Feb 2014
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