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Saturday, March 17, 2012

The many extras on offer can be irresistible for the home buyer

If you are looking to buy a new house or apartment, there has never been a better time than now to seriously consider it.

With home builders becoming more competitive in their quest to win new buyers and investors, and with higher demands from purchasers, there is now a wide range of extras to entice the potential buyer.

This is especially so in the higher end of the market, where purchasers are generally more discerning and more demanding. They are prepared to pay top dollar for a new home, and they expect to get the best product.

As a result, built-ins such as kitchen cabinets and wardrobes are becoming standard fare in newly built homes. In many areas, so are some basic appliances such as refrigerators, ceiling fans and air-conditioners.

In the higher end of the market, the design and concept are also important. Homes are sold on emotion as much as style and utility. The home must not just be a place one wants to come home to it must also be able to impress the guests.

While these extras go a long way in helping a potential buyer make his choice, equally important is how he is going to pay for it. Developers, working together with financial institutions, now offer various benefits in the financing packages that not only make it easier for the buyer to make his initial payments, but also save him some money in the longer term.

How do these new schemes work?

When a developer has a new project to launch, the many domestic banks as well as foreign banks that have operations in Malaysia are invited to offer financing packages to potential buyers.

Given that banks have to work within very strict guidelines set by our monetary authorities, the packages they offer are mainly confined to attractive interest rates for loans.

In today's market, most banks offer home loans at interest rates of BLR (base lending rate) minus 2.45% to 2.5%. With the BLR at 6.6% today, buyers pay a 4.1% to 4.15% interest on their loans.

This offer comes with a caveat a lock-in period of three to five years, during which a penalty will be charged if the borrower decides to refinance his purchase with another bank. The penalty is usually about 3% of the loan amount.

Apart from absorbing the legal fees and stamp duty on the loan agreement, there is not very much more that banks are allowed to offer. Banks used to absorb the penalty imposed on borrowers who move their loans from other banks, as well as the fees for discharge and new loan agreement but even these are also not permitted now.

Where the banker's hands are tied, the developer has now come in with offers that help to ease the financial burden on buyers further.

The absorption of legal fees on the sale and purchase agreement as well as the stamp duty and other miscellaneous charges are now standard fare offered by developers.

Some developers have taken it a step further by offering an interest-absorption scheme to those who buy into a newly launched property. This works in the sell-then-build concept, which is the practice in Malaysia.

When someone buys a new property, he usually is able to get a loan of up to 90% of the purchase price. For instance, if the property costs RM1mil, he will have to pay a 10% down-payment, or RM100,000, upon signing the sale and purchase agreement.

The remaining RM900,000 is disbursed by the bank to the developer at various stages of the construction from the completion of the foundation, the structure, walls and so on in lump sums of 10% or more.

Interest is only charged by the bank on the amount that has been disbursed, and while the project is still under construction, the developer pays the interest to the bank. For landed property, the construction period usually takes 24 months while high-rise projects take up to 36 months.

The buyer only starts paying when the project is completed and vacant possession of the property is handed over to him by the developer. The total sum in interest borne by the developer can thus be quite substantial.

But for those who are unable to make that first 10% down-payment, there is yet another solution. Developers now accept credit cards for the down-payment, so long as the credit limit is sufficient to cover the amount.

The buyer then repays the amount in instalments over one or two years under an “interest-free instalment plan”, much like what is on offer now for purchases at various consumer goods outlets.

The interest incurred on the sum borrowed on credit card is absorbed by the developer.

Offers such as the interest absorption scheme and the credit card plan are geared towards helping the potential buyer take the big step towards owning a property.

As competition toughens, developers are bound to come up with even more offers and extras to attract buyers. However, these offers eat into profits. Rising costs of land and materials also put pressure on margins.

Like any enterprise, there is a limit to how much extras or discounts the developer can offer. It cannot reach a point where it is no longer economically viable to proceed with a project.

Meanwhile, it is still a shopping haven for property buyers. So why wait?

Teh Lip Kim is the MD of SDB Properties Sdn Bhd, a lifestyle property company. Bouquets and brickbats are welcomed. Send by email to

By The Star

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