Affordability, long time ago
Before we go into loan tenure extended to 45 years topic, please allow me to tell you how many people think about affordability long, long, long time ago. My parents think of affordability based on their savings. Once they have enough savings for a downpayment for a home of RM85,000 they will look around for houses which are cheaper than RM85,000. They saved so hard for the downpayment, they will not want to use all of it so easily.
Now, how do people think about affordability nowadays? They think of affordability based on the INSTALMENT! Yes… RM4,500 smartphone is AFFORDABLE because the instalment is spread over 24 months and therefore, it’s just RM187.50 per month, interest free. Buying a new Japanese B segment car of RM75,000? It’s affordable if spread over 9 years lah… This is why we need to think on their behalf and not just allow them to think of affordability based on instalment. Now, let’s talk about the recent news. Loan tenure extended to 45 years.
Just like the image below showing this long long road… Imagine if we are moving one step at a time… (monthly repayment). Let’s go to the article I read about the suggestion for a 45-year tenure.
Article in nst.com.my . Mah Sing Group Bhd founder and group managing director Tan Sri Leong Hoy Kum wish the government will reinstate the maximum loan tenure to 45 years from the current 35 years. At the same time, the calculation to use gross income rather than net income in the loan application review.
He also hoped that the government will consider allowing Developer Interest Bearing Scheme for first-time homebuyers. He said, “This will allow first-time homebuyers to not service their loan interest and rentals at the same time during the construction period. We are also hopeful for the government to continue working with financial institutions to relax lending requirements to boost homeownership, especially for first-time homebuyers.”
He also gave many other suggestions. Please do read them here: Article in nst.com.my
Affordability if loan tenure extended to 45 years
First of all, loan tenure extended to 45 years is not necessary a bad thing. It will enable many people who could not afford to actually be able to afford a property. Everyone must understand that a property is compulsory because rental does not stop when one retires. No owner would tell the tenant that since you have paid me rental for the last 30 years, when you retire, you can continue staying for free… None that I know of anyway.
Affordability turning into liability?
However, there’s also the possibility that this affordability goes back into the instalment mode like buying a handphone. If there were no instalments available, people may buy that RM599 handphone. However there’s an attractive 12 months instalment plan, suddenly they will now buy that RM3999 smartphone instead. If this is the mindset of the buyer when they buy, then we will have buyers who SHOULD only buy a home of RM350,000 now stretching himself to buy a RM500,000 home instead…
By the way, the intention is for the buyer to STILL buy the same RM350,000 home, pay lower instalments and he use the savings from lower mortgage to invest too. At the moment, this is just a proposal. Loan tenure extended to 45 years should not be happening anytime soon. Remember this? “Money is the root of all evil” By the way, the root of all evil are people themselves yeah.
This tenure extension is not a bad thing if we look at the advantages part too. However, people may still turn it into something bad. It will be a huge issue because buying a home is usually the single largest purchase ever in our life. This is why it will require a lot more thoughts and new supporting requirements too. Happy anticipating whatever happens in the very near future. Yes, the property market transactions are still happening. Earlier article here: Official: Property market transactions Malaysia
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