1. I recollect that in Year 2002, there was an exemption on stamp duty for property transactions to reduce the overhang that was plaguing the nation. 2. Developers were stuck with property that just could not be sold as many, especially the ones who speculated just before the Asian Financial Crisis, were still licking their wounds. 3. Genuine buyers also shied away as the weak economy either made it difficult to raise even the 10% down payment or be very cautious in their spending. 4. Interest rates were in the BLR + X% range and double storey houses could still be purchased below RM200,000. 5. The situation is in stark contrast today. Locations such as Nusa Bestari, Bukit Indah and Horizon Hills are retailing double storey units at nothing less than RM650,000. Once in a while, units do come at lower prices by these tend to be rare and far in between. 6. Herein lies an opportunity for early buyers to use their timing advantage and finance the purchase of a new unit. Rather than struggle to raise fresh funds for the inflated 10% down payment for the new unit, one just has to use their existing property to grow the asset portfolio. 7. Let’s say a double storey house was purchased for RM200,000 in Year 2002 with an initial loan of RM180,000 on a monthly instalment of RM1,200. 8. Assuming the valuation has risen to RM600,000 today, banks would be willing to lend up to 90% of this amount which translates to RM540,000. 9. Let’s say the original loan is now reduced to RM105,000. The owner can now apply for a maximum of RM435,000 in cash as a second loan on the same property. These funds can now be used to finance the purchase new units. 10. Theoretically, this scenario is only possible provided ones credit history with the bank is good and current income is capable of handling the increased loan amount. 11. Back to the increased loan. Now there will be 2 loans to service on the same property. Depending on the bank, the increased loan can either be charged at a rate that is similar to normal housing loans or as a collateralised personal loan. 12. If it’s treated as an increased housing loan, interest rates are relatively lower but the bank is likely to demand a valuation report as well as a fresh set of legal papers so as to register a new charge on the property. 13. This process can take slightly over a month and fees alone can take up to 2% of the new loan amount. 14. Where the new loan is taken as a collateralised personal loan, only stamp duty will be imposed for the extra loan and in most cases, valuation report can also be waived. 15. In essence it is a personal loan but with the property as collateral. Interest rates are thus lower than a regular personal loan but higher than housing rates. 16. The only drawback of the 2nd loan approach is that the borrower is stuck with the same bank as the loans cannot be split between separate lenders. 17. This may not be the most efficient form of financing as the original loan could be on a BLR + X% basis while the increased loan may be on BLR – Y% basis. 18. Where needed, the property can be refinanced with a new lender who may offer a more cost effective package. 19. Many people are unaware that monies can be taken out of their appreciated property this way. When used properly, this avenue can be used for cash flow management and capture opportunities as and when they arise. 20. Happy property shopping!
Posted on: Mon, 05 Aug 2013 00:24:36 +0000