Making the right choice when buying a house

KUALA LUMPUR (Mar 21): Buying a house to live in is often a very positive experience, especially for first-time homeowners. However, for some, the transaction process can appear daunting, and for most people, the purchase is probably the biggest financial commitment they've made in their lives. With the dream house identified and booking fees paid, the next step is to withdraw one's savings from the Employee Provident Fund (EPF) and apply for a loan to pay the 10% deposit and the balance for the house. Most buyers use both the EPF funds and the loan to pay for the house. The first thing that is likely to be on the mind of first-time buyers is whether they are eligible for a loan and how to apply for a loan. Today, borrowers are spoiled for choice since non-banking institutions also provide loans, and their interest rates are highly competitive compared with banks that offer a discount of 1.8%-2.4% on the base lending rate (BLR) for a fixed period. Apart from financial institutions, insurance giants such as AIA and ING also offer fixed-term loans at a profit rate of 4.8%. The writer's own experience with buying her first house in the 1990s could serve as a guide to other buyers. When a new phase of the housing project was launched, several banks had opened their counters in the housing developer's lobby located at Wisma Tractors in Subang Jaya. Since Islamic loans were unheard of at the time, the writer and her husband took a joint conventional loan from Bank Simpanan Nasional (BSN). All the calculations and documentation for the RM120,000 loan with a 15-year duration were left to the bank. By the end of the term, the writer had repaid the bank RM150,000 through a fixed monthly payment of RM850. And today, the Muslims prefer the Islamic loan based on Syara'. Starting with the Bai Bithamin Ajil (BBA) at the end of the 1990s, there are now more Syariah-based loans such as the Bai Al Inah, which is becoming increasingly popular. Islamic loans are based on a fixed profit rate and not on the fluctuating BLR. The basic concept is that the financial institution sells the house to the borrower at a future value, that is, the value at the end of the loan term. For example, if a property costs RM350,000, the repayment over a 20-year period could reach RM900,000, inclusive of the fixed profit rate. Although this entails repaying about three times the original loan, the borrower need not worry about fluctuating interest rates or the conventional interest forbidden by Islam. However, an Islamic loan can be settled early if the borrower agrees to return the excess payment through "hibbah". Nonetheless, Islamic loans allow fixed repayments — a factor most welcomed by wage earners walking a financial tight rope in keeping up with their repayment obligations. Hazel Lim, a private sector worker, recently chose to buy property in Bangi. "Like other borrowers, I too place my complete trust in banks, lawyers and developers to complete the whole transaction. "I will ask the bank to calculate an affordable repayment by adjusting the repayment period. "It is important that I'm able to keep up with my payment obligations as stated in the agreement. If I feel that I cannot afford to repay the loan, then it's best that I don't take it in the first place. Then I have to look for a cheaper home," explained Hazel. Her choice is a corner double-storey terrace unit on 470 meters of land costing almost RM900,000, and it is Hazel and her husband's second property. "If I take a 15-year conventional loan from a local bank, after paying a down-payment of RM 150,000, the monthly repayments amount to RM5,500. "When I asked for the payment to be extended to 20 years, the repayment [amount] reduced to RM5,000 per month. I'm still considering this option. The repayments are high considering people like me and my husband are just wage earners," said Hazel. However, buyers should also take note of the much lower interest rate available now with a discount of 1.8%-2.4% on the BLR. Before making any decisions, buyers should also consider the developer's reputation. Buyers should be wary of the developer's status to ensure their housing projects are not abandoned halfway through, leaving them burdened with repayments and no house to show for it. Developers such as Sime UEP Development Sdn Bhd, Guthrie Property Development Holding Bhd, MK Land Holdings Bhd, IJM Land, SP Setia Bhd Group and I&P Group have etched a sterling reputation in the industry. Some newcomers such as Trinity Group Sdn Bhd have received good reviews from buyers for their ability to complete projects on schedule and to meet the buyers' expectations. — Bernama