Bread & Butter Properties

Bread & Butter Properties
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Tuesday, March 15, 2011

My First Home Scheme - a great opportunity

Well what do you know? The central bank, BNM has left its overnight policy rate (OPR) unchanged at 2.75% in its latest Monetary Policy Committee meeting last Thursday. This means that the banks won't be raising their Base Lending rate (BLR) this round; well, I suppose that's what can happen when its an election year! So, house owners, here is some reprieve from having to pay higher installments. However, BNM did raise the SRR or statutory reserve requirements for banks from 1% to 2%- this is the amount of the bank's deposit have to keep with the central bank (w/o any interests). It's basically a way for BNM to mop up some liquidity in the market and force the banks to work harder in order to make money from their lending: so, watch out, banks will be lining up to get your cheap deposit in light of this development. In any case, in my view rates will likely to move up, perhaps 0.5% this year but probably not until after June.

The other interesting piece of news was PM Najib's announcement on the government’s My First Home Scheme. Launched last week, this scheme will enable young adults aged up to 35 and earning less than RM3,000 to get 100 per cent financing to buy houses worth between RM100,000 and RM220,000 with a repayment period of up to 30 years. This is certainly good news for those of you below 35 (too bad I am not!) but it got me wondering on a few things. But firstly, I figured that at 5% interest rate, for a 200k loan, for 30 years, the repayment would be around RM1k per month, right?

- But, what could you buy for RM220k in Klang Valley today? certainly not a descend link house; maybe not even a descend condo in P.J area, which prices now run way pass RM300k,
- so where could you buy a house like that? perhaps in Rawang?or in Selayang? 
- Does that mean you don't buy one? Certainly not! if the bank is willing to fund the whole property, take risks and in addition, the government is throwing in its guarantee for free, you certainly must not decline. You don't even have to come up with a down payment!  I mean it would be foolish if you don't take this kind of opportunity- it would be like throwing away free money.

What can you do? Well even if you don't want to live in a RM200k house, there are plenty of people who would - so, the answer is to buy a rental property. Yes, why not? It is not likely the government will come and check if you are really living there?

So, what you could do is to find a rental property that fits the price range in a good area, buy it with 100% funding from banks, and then proceed to rent it out. Of course, you gotta make sure that the rental at least cover your installment of RM1k per month. Even if you had to subsidize it a  little bit, it may still be worth it. In the end you walk away with a house, fully paid which hopefully would have appreciated somewhat. 

In the meantime, well, you can always rent somewhere cheaper to stay in or do what I did when I was 30 and single - stay at home with your parents! It's a great way to build up your funds, and you get to enjoy your mum's cooking.

Happy investing!

copyright Chris Gan@2010,

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