9MP mid-term review sets tone for budget

THE midterm review of the Ninth Malaysia Plan (9MP) has set the tone for the 2009 budget, which will be tabled in two months, with the emphasis on more “people-centric” projects.

Among the projects are the upgrading of rural infrastructure, building more affordable housing units, improving the food security situation, enhancing the public transport infrastructure and meeting the escalating costs of approved infrastructure projects.

To finance such projects, the Government has increased the allocation of the 9MP by RM30bil to RM230bil.

Of the RM30bil, about half will be for infrastructure, including RM10bil for the growth corridors, with the rest for projects to mitigate the impact of inflation on the lower and middle-income groups.

The agricultural sector is expected to be the major beneficiary in the coming budget due to the emphasis on improving food security.

Furthermore, the mid-term review report stated that emphasis would be given to increasing productivity through replanting activities with new and high-yield clones, land consolidation, good farm management practices and maximising the use of technology and mechanisation.

Besides this, there is also a RM3bil allocation that would go towards the National Food Security Policy.

In the next budget, the Government might very well be looking at measures to enhance the revenue base by reviewing tax incentives and improving tax collection, now that it has reduced the fuel subsidy and increased the electricity tariff.

To start with, a total of RM13.7bil is to be saved via the restructuring of the fuel subsidy while a windfall tax of 15% (for peninsular states) and 7.5% (for Sabah and Sarawak) to be effective tomorrow (Tuesday) has been imposed on plantation companies' revenue.

The Government, in the mid-term review report, has said it would continue to practise fiscal prudence with operating expenditure at the federal level to moderate to 6.9% per annum in the remaining period of the 9MP.

Although several construction projects, notably Penang's outer ring road and monorail projects, have been deferred for now, others, especially in the five growth corridors nationwide that were launched successively since late 2006, were left largely unchanged.

The Sabah Development Corridor even had its investment allocation raised to RM113bil from RM105bil.

Aseambankers Malaysia Bhd, in a report that came out on Friday, said it was cautious that the budget deficit target of 3.2% might be “busted” due to fuel subsidy issues, indefinite deferment of the Goods and Services Tax and pressure on Government spending.

It said the mid-term review report held “no surprises, but some disappointments”, as there were no new catalysts overall for the construction sector although RM2bil had been allocated to kickstart the financing for the Ipoh-Padang Besar and Seremban-Gemas double-tracking projects, RM1bil had been allocated for the construction of affordable housing and RM2bil for improving the rural infrastructure.

“Our major concern is that development growth may be sidetracked by politics and inflation,” it said.

CIMB Research head Terence Wong said in another report that while spending was up, it was unclear where the funds were going.

“Unlike the 9MP, the mid-term review does not spell out where exactly the increase in spending is going to as no proper breakdown is provided,” he said, adding that the construction sector would be the main loser due to the cutbacks on large infrastructure projects.

Wong said what was certain was that the bulk of the spending (41%) would go towards improving the standards and quality of life of the people.

He said other areas of major spending were raising the capacity for knowledge and innovation (22%) and moving the economy up the value chain (21%).

He said the average spending in the remaining period of the 9MP had been increased to RM53bil a year from the average spent per year of RM35bil over the last two years.

OSK Research said in a research note that it was neutral on the impact of the developments on the economy as a whole although there might be some light ahead for the construction sector.

It questioned whether the real growth for the sector, which has a revised target growth rate of 4.3% per annum from the initial 3.5% targeted in the beginning of the 9MP, was “a tad too optimistic”, given the escalating cost of building materials.

Source: The Star Online

Islamic Financing

Islamic banking only deals with “halal” products. Talking about “halal” food that Muslims consume, the terminology “halal” does not necessarily mean that the food is “pork free” but basically the slaughtering of the animal must also be undertaken in the manner approved by Shariah. Likewise, all banking transactions (including services) and operations must comply with Shariah principles. In banking, a loan which is normally offered by conventional banks is priced by adding interest at an agreed interest rate on top of the principal loan amount and the bank can continue charging interest on a monthly basis until the loan is fully paid for.

Under Islamic banking, however, no profit or fee can be charged on top of the loan amount granted. The word loan commonly used by conventional bank carries a different meaning under Islamic banking. Under Islamic banking, when a loan is granted, it has to be a benevolent loan (al-Qhad Hassan) which is free from any interest or fee. Thus, when a Islamic bank grants a loan of RM100,000 to a customer under al-Qhard Hassan, the bank can only collect RM100,000 (truly interest free).

In order for an Islamic bank to generate income from its banking activities, it has to structure its financing contracts based on a buy and sell contract, which is trade related. It can also grant financing by using leasing contracts, which is very popular in the Middle East or a partnership contract where the bank and the customer, both agree to a profit and loss sharing arrangement. In Malaysia, the buy and sell contract is more popular where debt is created and the settlement of the sale price (financing amount plus total profit margin due on whole financing tenure) is on a deferred payment basis. Although there are arguments that the buy and sell contract is a modified term loan at a fixed price, the transaction is in accordance with the requirements of buy and sell transactions stipulated in the Al Quran (verse Al Baqarah 275) where in short, it is translated as “Trade is like usury”, but God had permitted trade but forbids usury. This is the basis for trading transaction for deferred payment financing facilities like Al Bai Bithaman Ajil and Murabahah. However, there are also arguments that the buy and sell transaction must be a genuine sale, which means that one must own the asset before it can be sold. This will be discussed in further detail in an article on financing.

Based on the explanation above, reporters when writing about Islamic banking should avoid using the word “Islamic loan” but replace it with “Islamic financing” instead. The earlier refers to benevolent loan whereas the latter, refers to business transaction the bank normally undertakes when granting financing facilities to its customers. Thus, Islamic bank relationship with its customer is regarded as “Financier – Customer” rather than “Lender – Borrower”.

For a buy and sell contract to be considered as “halal,” each transaction must subscribe to these five (5) tenets;-

1. There is a Seller, capable of taking responsibility, sound mind, has attained the age of puberty and not restricted in dealing with business transaction i.e. not a bankrupt;
2. There is a buyer, of similar criteria to as (1);
3. There is a merchandise (asset), exists, pure substance (halal/lawful), of some use therefore of some value, seller must be the real owner, can be delivered to buyer and specification is known to both parties;
4. Price, known by both parties in amount and type of currency (ensure transparency);
5. Offer and acceptance, absolute, indefinite, acceptance must be consistent with the offer and acceptance conditions.

In addition to the above five tenets, Islamic banks must avoid offering financing or invest in four (4) main related activities forbidden (“haram”) under Shariah law, namely

1. gambling and chance-based games (Qimar),
2. alcohol based, particularly intoxicated drinks, including production, distribution and retailing
3. usury or in other words, bank interest charge by conventional banking and or the more serious business type of usury is loan from “loan shark, and
4. Non beneficial items such as entertainment related equipment, cigarette manufacturing plant and the likes of it.

On placement of deposits, most Islamic banks accept deposits under the principle of Al-Mudharabah (profit & loss sharing) which defer from conventional banking fixed deposit where interest is determined at the front-end of placement. For this reason, Islamic deposit rates are higher for depositors who place funds for longer tenure as they are willing to share the risk with the bank by placing funds at a longer tenure.

Before we move on to financing products, we would like to talk about the various types of deposit available in the market, how profits are shared and distributed to customers, and the benefits as compared to the conventional deposits. We shall highlight the comparative aspects of deposits in our next article.

Source: money3.com.my

Bright Future of Islamic Banking

The concept of Islamic Banking and its inherent benefits, seem to be catching on globally. Many countries are now following in the footsteps of Malaysia in instituting financial products and services that offer certainty and transparency.

Basically, Islamic banking refrains from the practice of usury and unfair banking penalties such as “interest upon interest”. It focuses on an equitable sharing of profits between the bank and the customer or depositor.

The United Kingdom and several other European countries, as well our closest neighbour Singapore, have ventured into Islamic banking. And they all aspire to be an Islamic Banking hub.

In Malaysia, the government’s efforts in positioning the country as an international Islamic financial hub have shown much progress. This is seen in the high growth rate of Islamic-based assets and liabilities of the banking sector of the past few years.

Other initiatives include the liberalisation of the Islamic banking sector with the granting of Islamic banking licences to major foreign Islamic financial institutions and the launch of the International Currency Business Unit (ICBU) with a 10-year tax break. These steps further prove that Malaysia is keen to expand its master plan in the growth of the Islamic banking sector.

Most local banks have already set up full-fledged Islamic subsidiaries and a foreign bank has also obtained approval for similar establishments. It is expected that some other foreign banks will follow suit.

The recent approval by Bank Negara Malaysia for the setting-up of a full-fledged Investment Bank under the ICBU platform marks another milestone for Malaysia.

The Islamic banking system can attain significant growth if the value proposition is better understood.

Any misconception about Islamic banking, once eliminated, will certainly encourage more customers to switch from existing conventional banking practices to Islamic banking.

Perhaps, the true value propositions have not been highlighted by financial institutions with full-fledged Islamic banks, fearing that such a move may “cannibalise” their existing conventional banking business.

One of the main misconceptions (although Islamic banking has been introduced in Malaysia since 1983) is that Islamic banking is exclusively for Muslims. With the affixing of an “i” to Islamic products rather than applying the Arabic contract name, we hope that this change will make the product acceptable to non-Muslims.

Islamic banking products and services address the requirements of all, regardless of race and religious belief. For Muslims, it will fulfill their religious obligations where they must refrain from taking usury (or interest). For non-Muslims, it provides viable alternatives to their conventional banking products.

Comparatively, conventional banking is predominantly driven by a floating interest rate system, as opposed to Islamic banking which subscribes to fixed or a hybrid of fixed and variable profit-rate mechanism. Thus, Islamic banking promotes certainty, clarity and predictability in its financial transactions.

In addition, Islamic banking also offers profit-sharing contracts. Customers, particularly the depositors (or investors in the true sense of risk and reward arrangement), can enjoy higher returns (at an agreed profit-sharing ratio) from profits generated from the bank’s investment in financing and other ventures. This measure is in contrast with the conventional banking model where profits generated from the bank’s business is not shared but predetermined on placement of the deposits.

Technically, in a rising deposit rate trend, depositors who place funds under a long tenure, conventional fixed deposits will lose out while depositors of Islamic deposits will continue to enjoy uptrend movement of the profit rates (irrespective of their placement tenure) which normally is benchmarked against the “interest rate trend” due to competition.

Nevertheless, two important differences between conventional fixed deposit and Islamic fixed deposit that most customers are not aware are: (a) profit rate for longer tenure placement is generally higher than the shorter tenure to ensure principle of fairness is applied; (b) there is no penalty for premature withdrawal.

With regards to Islamic financing products, the pricing is determined as a fixed selling price which incorporates and pre-determines the profit levels that the Islamic bank will charge for the whole financing tenure. This will enable the customers (or the borrower as termed under conventional banking) to better manage their cash flow, unlike conventional banking loans where the interest rate is on a floating basis.

The 1997 financial crisis taught us a great lesson where floating interest rate pricing caused hardship to both businesses and consumers alike. On top of that, the “interest upon interest” or compounded method used by conventional banks is strictly prohibited under Islamic banking.

Late charges on overdue instalment is normally charge as a deterrent and whatever income derived from late charges are given to charity. (Late charges are part of the bank’s income under conventional banking.)

A series of articles on the value proposition of Islamic banking on various products and services offered by Islamic banks will be published to help consumers and business entities understand better and appreciate what Islamic banks can offer and the benefits associated with Islamic banking.

Midterm review of the 9th Malaysia Plan

Prime Minister Datuk Seri Abdullah Ahmad Badawi says the tabling of the review is aimed at carrying out strategies and programmes and making provisions so that the country will become strong and united.

Malaysia Financial Tools

Money3.com.my has setup various easy-to-use financial tools to help you to get your financial situation back on track. These useful tools will help you chart your current loan payments, find out how long it will take you to become debt free, how much you need to save for education or retirement and more. Try using our tools right now and see how easy it is to start taking control of your finances.




What type of home loan can I afford? [Loan Affordability Calculator]
Find out how much you can potentially borrow for your home loan or home loans.

How much will I pay monthly? (Conventional Loan) [Loan Repayment Calculator]
Calculate your monthly payments for your home loan.

What are the fees I will incurr in buying a property?[Entry Cost Calculator]
Calculate all legal fees pertaining to loan agreement including scheduled legal fees, stamp duties, caveat, and legal disbursement fees.

What is the balance owing on my loan? [Loan Balance Calculator]
Calculate your outstanding loan balance.

How much can I save by refinancing my loan? [Refinance Calculator]
Calculate and help you to decide whether or not you should refinance your current home loan at a lower interest rate.

Home Loan Finder & Comparator
Brings you instant comparisons of the current home loan products from more than 25 Malaysia Banks and Finance Institutions. Compare two different home loans to see which will save you more.

How much should I pay for fire insurance?[Fire Insurance Calculator]
Calculate how much needed to protect you against damages resulting from other causes, such as riot, strike, malicious damage, subsidence, landslip and etc.

How much should I pay for home loan insurance? [MRTA Calculator]
Calculate how much cover needed to have peace of mind for your home loan.

How much will my EPF be worth?[EPF Estimator]
Calculate how much your Employee's Provident Fund (EPF) contributions will be worth in the future

BLR Wears Prada - The case for Fixed Rate Loans

Of the many benefits one gains having being in the home loan industry for many years, one in particular is a clear insight into how people think when choosing a home loan. Many factors are in play but none as influential as the “interest rate” of the loan, usually taken as the indicator of the cost of the loan and hence a borrower’s ability to afford the said loan.

However, the true cost of a loan is often mistaken simply because the interest rate or cost of the loan consists of 2 separate components, one of which is constant and the other a variable, and it is the variable that is often overlooked.

Interest Rate = Base Lending Rate (BLR) + Spread (a.k.a. Margin)

Whilst a lending bank will usually define and fix the loan’s spread e.g + 1% or -2%, the other component which is equally if not more important, is the Base Lending Rate which is truly a factor beyond anyone’s prediction especially over a long term such as the loan’s 25-30 year tenure.

For most of us, the author not excluded, it is best for us not pretend to understand the “invisible forces” that make the BLR go up or down. It is often said in jest that when the US Treasury sneezes, the rest of the world catches pneumonia. Whilst it may have been said as a joke, what is certain is that Malaysia’s BLR is something that moves in response to a number of internal and external forces, none of which are within the loan borrower’s control. Imagine that! You have no control over what may be the single largest debt you own.

So, if the interest rate of a loan is so important to the borrower (to the extent that a mere 0.1% difference is adequate to swing a borrower’s decision from one lender to another) shouldn’t we make an effort to understand this variable called BLR. Afterall. This is one factor that can have such an impact on one’s continuing ability to afford the loan over its entire tenure, not just in the initial “honeymoon” years.

Much can be learned about BLR from just looking at the BLR chart below.


Observation 1.

BLR is NOT a constant and it changes in response to internal/external economic influences. Therefore, if a loan you are planning on taking is a BLR-based loan, you must accept the fact that the cost of the loan that you decided you can afford when you signed on the dotted line, may not be the cost you will be obliged to pay in future.

Taking the “cheapest” BLR-based loan available in the market today, a mere 1% average increase in BLR over the tenure of the loan will see to it that the borrower pays about RM40,000 more in interest [ read-RM40,000 more in cost]. Dare we postulate a 4% or 5% increase, or is it cozier to stay in denial?


Observation 2.

How high can BLR go? Well, if BLR prediction were a sport, it must surely rank somewhere between darts and mumblety-peg. Sometimes the sharp end bounces back. But seriously, BLR as the chart indicates has spiked to almost 13% twice in the last 25 years (coincidentally the favorite tenure of loans) with the most marked increase being in January 1995 from a base of 6.6%, to a high of 12.27% in June 1998.

To put it into perspective, if you had taken a RM225,000 loan in January 1995 and signed on to pay approximately RM1531 per month, you would be paying about RM2,400 for the same loan three years later. Of course to assist you the bank may allow you to maintain the same monthly repayment but you will end up paying for many more years that anticipated., and ultimately at a much higher cost than you thought when accepting the loan in 1995.

A bank’s letter of offer today states that the bank’s BLR is 6.75% presently which gives the illusion that the rate is fixed. It is not and one must remember that the loan’s overall interest rate is ultimately determined by BLR which can be a highly strung kid tripping on sugar.
And we might as well now correct a very popular misconception. As competition amongst lenders become fiercer over the recent years lenders have indeed slashed their spread or margin which gives the impression that interest rates are southward bound. Remember the loan’s interest rate is a function of BLR + Spread. BLR so happens to be on the upward trend rising from 6% to 6.75% over the last two years. Again, any discussion of rates going up or down is mere conjecture and a borrower should look at the loan being taken over a 25-30 year horizon.


Observation 3.

They say life is about timing but in reality a lot of good opportunities become lost waiting for “perfect conditions”. A BLR based loan would be great to have when BLR does nose-dives but is that where we are at now?

When the base rate hit an all-time low of 6% in 2003, lending became so cheap that along came a number of loans FIXED at ridiculously low interest rates. Fixed rate loan as the name suggests are unlike BLR-based loans in that there is no BLR influence and as such the interest rate, ie cost of the loan is fixed from the beginning.

Fixed rate loans today are offered by a number of Insurance Companies through their mortgage departments, as well as a host of Islamic Banks. Fixed rate loans on offer range from 5.75% with some lock-in period to 7.25% without any lock-in (no penalty for early settlement). There are even some “hybrids” i.e. BLR-based loans with rates capped at a maximum rate of 7%-8%.
Translated, with these loans, you KNOW how much you are going to pay and you never have to pay a cent more regardless of what economic cycles we are in. Having the certainty and peace of mind? Now that’s really good value. The bonus is, these loans are fixed at a rate lowest in history.

However, it is not a mystery why fixed rate loan uptake is still a low percentage of the overall industry loan growth. Put a BLR-2% loan (at 6.75%, BLR-2% = 4.75%) beside a loan fixed at 5.75% and the untrained eye would say the BLR-based loan is cheaper, and it may very well be the case but for the fact that BLR fluctuates and presently seems to be fluctuating upwards.
Cosmetics have become very important in packaging loans and this is where the fixed rate loans can look like pumpkins beside a Prada-clad loan with rates of 2.5% in year 1, BLR+0% in Year 2 and BLR plus or minus spread for subsequent years. Remember the highly strung kid on a sugar hit? He is wearing Prada (with apologies to fans of The Devil Wears Prada).

In conclusion, as you debate between Lender 1 with rates at BLR-2% with 5 year lock-in and compulsory MRTA and Lender 2 with rates at BLR-1.6% with 3 year lock-in, and no MRTA and Lender 3 at 0% in the first year followed by BLR+0% in subsequent years and Lender 4 with rates of BLR-0.5% Flexi and Zero Entry Cost and Lender 5 with that free 42” Plasma TV…..throw into the equation, another factor. Ask yourself how much BLR increase can you really afford?

Having said all that, the case must be made for BLR-based loans with flexi features that allows you to offset monies kept in deposit against a corresponding sum of the loan’s interest. BUT, be sure that you have the said “monies in deposit” for the interest-offset effect to happen, and all the big money you are going to win from your friends at the next World Cup when Paraguay beats Argentine shouldn’t count in your analysis.

For now, smart money is on the lowest fixed rate in history. Some fixed rate loan providers will absorb your entry costs (ZEC packages) and may even be convinced to throw in a couple of Prada bags to carry your worries away.

Foreigner Home Purchase In Malaysia

There are presently no Malaysia Government regulations prohibiting foreigners and expatriates from taking a mortgage to assist in the acquisition of Malaysian real estate. Individual banks determine their respective policies and lending guidelines in this respect. However, certain countries may require their citizens to first obtain consent from their own Central Bank or equivalent before applying for a housing loan from Malaysian banks to buy Malaysian properties.

In general, foreigners/expatriates seeking a housing loan in Malaysia come under four categories ie:

(i) Expatriates married to a Malaysian citizen;
(ii) Expatriates with a valid working permit and/or an ongoing business in Malaysia;
(iii) Expatriates coming into Malaysia under The Malaysia My Second Home programme(MM2H);
(iv) None of the above (Pure Foreigner Status)


Foreigners married to Malaysians

Provided the Malaysian spouse is a co-borrower, most banks would treat the application as if coming from a Malaysian citizen. In this case the Margin of Finance (MOF) may be as high as 90% to 95% of the purchase price/value of the property. The loan tenure may also goes up to 70 years of age, based on the younger borrower’s age.

Whilst it may help that the Malaysian co-borrower is gainfully employed, lenders are prepared to base their assessment on a single income source provided that such income meets with the Debt Servicing Ratios (DSR, also known as Payment To Income Ratio) of the lender. DSR is the percentage of the borrower’s gross income that the monthly servicing of the loan applied for, will take. As a general rule a Debt Servicing Ratio of 40% or under is considered good.

All calculations are in Malaysian Ringgit based on prevailing published exchange rates. So, a USD4,000 pm income may very well be able to support a RM1Million loan!


Expatriates With Working Permits/On-going businesses in Malaysia

In all probability, an expatriate working in Malaysia will have a housing/rental allowance of RM6,000-RM10,000 per month. That amount is more than adequate to support a RM1Million loan. Hence, it is often said that presently, it is cheaper to buy than rent Malaysian properties.

What factors significantly for foreigners that come under this category are (i) the number of years the borrower has been working in Malaysia (ii) the remaining duration of the working permit and (iii) the company the expatriate is working for (ie multinational; publicly listed company or a private holding).

Lenders look for the borrower’s commitment to treat the country as their permanent resident. Therefore a healthy bank balance in a local bank, and the ability to show monthly wages being credited into a local bank account augurs very well.

In cases where part of the income is paid into an overseas bank account, the borrower must be prepared to provide bank statements of the said bank oversea bank account.

Be wary not to be caught in-between jobs as Lenders prefer to see longevity in a particular post rather than a new job that may only be weeks old, albeit at a higher pay.


Foreigners Under The “Malaysia My Second Home Programme” (MM2H)

The Malaysian Government is on a drive to attract foreign nationals to stay in Malaysia on a long term Social Visit Pass under The Malaysia My Second Home programme.

The Participants of Malaysia My Second Home Programme are provided with various incentives to make the Foreigners stay more comfortable and enjoyable in Malaysia. For acquisition of residential properties under MM2H programme, purchase of residential unit is exempted from Foreign Investment Committee’s (FIC) approval.

Certain Banks are more actively involved with the expatriate community and the MM2H programme, and hence more willing to offer “softer” financing terms such as higher margin of finance.


Pure Foreigner Status

The last 2 years has witnessed a spike in foreign ownership of residential properties in Malaysia. This is largely driven by the fact that Malaysia presents one of the most attractive upscale property bargains in the world. In addition, the abolishment of the Real Property Gain Tax (RPGT) has provided a further financial incentive for overseas buyers to invest widely in Malaysian property market.

In line with the Malaysian Government relaxation of the rules on foreign ownership of real estate, Lenders have become friendlier towards foreign buyers in term of their lending guidelines. Some lenders are even willing to offer Margin of Finance of up to 80% of the property.

However, the lending terms and conditions to Foreigners are still rather subjective and Banks may impose additional terms and conditions on a case to case basis.

As a guide (and this applies to all categories of Foreigners) here are some of the factors that Lenders look our for:
(i) Country of origin with a preference for developed Countries
(ii) required loan size. Under RM2Million id preferable.
(iii) location of the property. Properties in Kuala Lumpur and Penang are clear favourites especially properties located in the high-growth suburbs such as Damansara Heights.
(iv) credit profile & financial standings of the applicants. Whilst Lenders do not necessarily discriminate between employed and self employed borrowers, it is easier for borrowers under employment to establish credit worthiness by showing pay slips and corresponding entries into a regular bank account. For those who own businesses it may a wise move to just show the amount of salary drawn instead trying to make a local lender understand how your business mechanics. Remember that you only need to establish a good Debt Service Ratio of preferably under 40%.
(v) Margin Of Finance. Try and avoid anything over 60% lending. However, should a borrower manage to “package” his/her application to fall neatly into items (i) to (iv) mentioned above, a 80-90% may not be out of the question.

Be wise on the selection of the property type. A “landed” property (house) is usually more well received than a “non-landed” property (apartment/condominium). A completed property with title scores better than a property which is under construction due to the completion risk. Whilst premier high-end condominiums have been very popular amongst, do bear in mind that most Lender have limited appetites to any one development project and a Lender’s exposure to certain property projects may well affect the terms the Lender may be prepared to offer a buyer, regardless of the his/her credit strength. For a lot of Banks, the magic ingredient seems to be the ability to show liquidity (cash in savings accounts and fixed deposits) and perhaps the placement of some savings in the Bank that you are trying to obtain credit from, without necessarily having to pledge the money as collateral.


FAQ’s

Q: Can we set up a Malaysian company to take loans to assist in the acquisition of Malaysian properties?
A: Yes, however the terms and conditions may be significantly differently to a personal housing loan. Loan tenure is usually to a maximum of 15 years, and interest rates may be higher by up to 2%. Some Lenders allow third party charges which means that whilst the property is bought by a company the loan may be personally housing loans to the Directors of the company on a joint and several guarantees.

Q: What documents do I need to prepare?
A: A Photocopy of Passport, Letter from Ministry of Tourism certifying your participation in MM2H Programme (if applying under MM2H), Sales & Purchase Agreement, Property land title (if any) and relevant income documents (6 months salary slips, 6 month’s bank statements, income tax statement, assets & liabilities)

Q: What are the fees and charges associated in (a) applying for a loan; (b) accepting an offer and (c) drawing down on the loan?
A: It is uncommon for Malaysian Lenders to charge an application fee. Fees and charges associated in accepting the loan are the legal documentation fees that include the bank’s lawyer’s fees, stamp duty (Memorandum Of Transfer), disbursement fees and valuation fees. However, most lenders offer “Zero-Entry-Cost Loan Packages" where all these costs are absorbed by the Banks with the trade-off being a slightly higher rate of interest. As a guide, see schedule of fees .

Q: What is the usual time it takes to get a loan approved?
A: Standard Processing timeframe: 5 to 7 working days.

Q: Can I raise a housing loan against collateral in countries outside Malaysia?
A: No, as Malaysian Banks and Lender 's will insist on local real estate collateral. However a few foreign banks in Malaysia may accept foreign collateral and loan in foreign currencies.

Q: In what currency may I draw the loan?
A: Ringggit Malaysia (RM) for all local banks with exceptions of a couple of foreign banks that allows lending in USD, Euros and Yen.

Malaysia Home Loan Types

There are hundreds of different home loan products on the market that fit into each of the types of loans explained below. With so many loan packages offered by Banks and Financial Institutions , how do you know which one suits you best? We have provided some pro's and con's to help you understand each loan type.

You should also use our Loan Finder to show you the top loan packages available from all banks in Malaysia based on your search criteria. However, we strongly advise you to consider all factors that may impact on your financial situation other that just interest rate.

We can help you choose the home loan product that suits you best. If you're ready to discuss your options in more detail then please don’t hesitate to contact our professional consultant.

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Malaysia Historical Base Lending Rate

Analysis of the lending rate over the past twenty thirty (30) years in Malaysia. Useful when considering to take a home loan in Malaysia.














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How Financial Institutions Assess Your Credit Rating For Home Loan Applications

Financial institutions in Malaysia generally assess the credit rating of potential borrowers through the Central Credit Reference Information System (CCRIS) and Credit Tip Off Service (CTOS) or similar type of bankruptcy search.


CCRIS

A majority of financial institutions report to the Credit Bureau at Bank Negara Malaysia (BNM) monthly on all their loans. CCRIS is a computerised database system that stores information reported to the Credit Bureau. CCRIS currently contains credit information on about 5 million borrowers in Malaysia. CCRIS processes the credit data received from the financial institutions and summarises the information into credit reports, which can be made available to the financial institutions upon request.

Your CCRIS report shows your total principal, interest and charges outstanding on each of your loans including your housing loans, personal loans, credit cards, car hire purchase and overdrafts. It also shows the number of months your payments are in arrears on a monthly basis for one year. A CCRIS report also shows other loans you have applied for as well as brief information on summonses or bankruptcy petitions if any.

Financial institutions assess your credit rating by analysing each debt item, looking at your loan balances and trends in your repayments track records. In general financial institutions will either reject or query debt repayments in arrears of more than 2 months. Some financial institutions are stricter than others. Financial institutions will also use existing debt and debt application balances in the CCRIS report to estimate how much total debt commitments you have or are likely to have and the likely total monthly debt servicing amount. This information is used to calculate your debt service ratio. In general, financial institutions will reject or query a total debt service ratio of 50% of your monthly income.

You can obtain your own credit report by visiting BNMLINK at:

Ground Floor, D Block, Jalan Dato' Onn, Kuala Lumpur.
Tel: 1-300-88-5465 (1-300-88-LINK) (Overseas: 603-2174-1717)
Fax: 603-2174-1515 E-mail: bnmtelelink@ bnm.gov.my

For more information on CCRIS go to http://creditbureau.bnm.gov.my/.


CTOS or similar bankruptcy searches

CTOS Sdn. Bhd. and other similar organisations, collate public information usually from national newspapers on bankruptcy and summons information of individuals and companies into an electronic database.

Bankruptcy information include information of individuals and companies petitioned, declared, released or deceased bankrupt. Bankruptcy reports usually provide information such as the Court filing number, the location, the date of the Notice or order, the name of the individual, the identification card number and, in the case of petitions, the date of the court hearing.

Summons information usually include details of individuals and companies where substituted service of a summons has been issued, the Court filing number, the location of the filing, the date of the Notice or order, the name of the individual or company , the amount of the summons (if available), the identification number of the individual or company (if available) and the date of the court hearing.

You can currently obtain your CTOS report free from:

CTOS Sdn Bhd (209649-U)
Unit A-8-4, 8th Floor, Megan Avenue 1,
No 189, Jalan Tun Razak, 50400 Kuala Lumpur,
Malaysia
Tel: 603-2770 8833 Fax: 603-2770 8834
Website: http://www.ctos.com.my/

You can also enquire with the Jabatan Insolvensi Malaysia on your bankruptcy status. The department recently launched e-insolvency. The purpose of e-Insolvency is to facilitate individuals in checking their bankruptcy status and company's liquidation status via the Internet through the e-Insolvency portals. An individual can perform a search through appointed agents such as www.myeg.com.my, http://www.e-services.com.my/ or http://www.rilek.com.my/ .

For more information see http://www.bheuu.gov.my/jim/index.shtml .

Customer enquiry Information from your CCRIS and CTOS statements are often analysed at the start of your loan application. Your loan officer will usually enquire with you to clarify on any negative results in your loan accounts reflected in the reports. It may be a good idea to consolidate your debt or at least have a plan for debt consolidation prior to your application for a home loan. The loan officer would likely want to see that you are making an effort to ensuring that you can pay your debts as and when they fall due and maintaining a good credit rating in the long run.

How to Improve Your Loan Approval Chances: Debt Service Ratio

An important consideration for financial institutions in evaluating your suitability for a home loan is your debt service ratio (DSR). In Malaysia, a DSR is usually calculated as the percentage of total debt payments over income. Your debt service ratio represents your ability to service or handle your current debt. The lower your DSR percentage, the stronger a loan applicant you are.
Acceptable DSRs vary from lender to lender and can range from 30% to 60% with majority of financial institutions maintaining a 40% DSR. This does not mean that your loan will be approved if your DSR is below 40%. Financial institutions also evaluate other factors such as your credit repayment track record and the favourability of the collateral. However, a good DSR makes it more likely that you will get the loan you sum you wish to borrow.


Debt Consolidation

One of the first steps towards minimising your monthly debt repayments is to consolidate your debt. Often financial institutions in Malaysia do not only take into account your loan balances when calculating your debt service ratio, they also take into account the available credit you have.

For example with credit cards, financial institutions can attribute a sum between 1% to 5% of your total credit card limit (on all cards) towards your DSR calculated, regardless of whether you actually use some of the cards or not. So, if you have a total of 4 credit cards with a total credit limit of RM40,000.00 some Lenders may assume that you will spend anywhere between RM400.00 to RM2,000 per month(being 1%- 5% of the total limit) and this assumed spending may be added on to your estimated total monthly debt repayments. A small factor such as this make affect your DSR calculations and ultimately your credit score.

Consolidate your debt by having a debt reduction plan to quickly repay or settle some of your smaller loans (e.g. an overdraft that has never been utilized, or a car loan with a small sum outstanding) and cancel the credit cards you don’t use. It may be good advice to settle the debt with the highest interest first but make sure you make the minimum payments of other debts as well.

Financial institutions generally ascertain and analyse your debt through your Central Credit Reference Information System (CCRIS) report. All financial institutions report to Bank Negara Malaysia (BNM) on information on their loans. This information is then collated into reports and made available for financial institutions to access. As information is reported once a month, ensure that the debt you intend to settle is done at least one month prior to your home loan application. For example, if you own an extra car which is still under hire purchase which you intend to sell, it is worthwhile doing so before you apply for your home loan.

If you have other income sources besides your monthly salary, declaring your income sources to the financial institution may improve your DSR. Some financial institutions will take income other than your main source of income into consideration when calculating your DSR. Other income include rental, interest income, capital gains from mutual funds, insurance commissions, director fees, share capital gains or dividends or profits from companies. Ensure that you furnish the financial institution with proof of your secondary income sources. This information include rental or tenancy agreements, at least 3 months of monthly commission statements, dividend statements or audited financial statements of companies you may be involved in.

Also consider joint applications. In general, income from applicants will be added together when calculating DSR. However, monthly debt obligations of joint applicants will also be included so ensure that your joint applicants have a strong DSR.

A longer loan tenure also assists in DSR calculations due to the lower monthly repayments required. Recall, DSR is an examination of your monthly commitment as a percentage of your declared income.


Benefits of having a good DSR

Your DSR is usually evaluated in tandem with the strength of your collateral property, your credit repayment track record and other factors. If these factors are positive, financial institutions will look at your loan application more favourably if you have a good DSR. The benefits of being a strong loan applicant is firstly that you will be likely to get the home loan you want and your loan application will be processed in a shorter time frame than weaker applications. You may be able to also negotiate for better terms and conditions on the loan such as a slightly lower interest rate (or matching of an interest rate offered by another financial institution), fee waivers or for the bank to absorb some of the loan entry fees.

Finally, maintaining a good DSR is good practice to ensure that you are not over burdened with debt obligations, you will be likely to meet you debt repayments as and when they fall due and therefore maintain a good credit rating and standing with financial institutions.

How To Improve Your Credit Rating For Your Home Loan Application

1. Build good credit history and repair past problems

If you already have a marred credit history, you must make an effort to repair past problems and start building good credit history. While some of the steps below can assist you to improve the way a financial institution would assess your credit application, they will probably reject or at least query any bankruptcy petitions, summons, or repayments in arrears of more than 3 months. Many financial institutions now start classifying accounts with repayments in arrears of more than 3 months as non performing loans.

The simplest way to repair past problems is to speak to your creditor to negotiate a repayment plan. There are many ways a financial institution can further help you to restructure your current loans and/or consolidate your loans. If you have a summons or bankruptcy proceeding against you, consult with a lawyer your best alternative to action to repair your credit rating.

2. Cancel unused credit cards, debts and accounts and consolidate your debt

A few months prior to when you think you may purchase a home by a home loan or arrange for the refinancing of your home loan, clean up your debt.

Firstly, cancel unused credit cards. Some experts recommend holding between 2 to 4 credit cards provided by major credit card companies. When you have cancelled a credit card do double check with the financial institution that you have no more amounts outstanding with the financial institution and that your account has been properly closed. If possible, request for a faxed confirmation and include this in your home loan application.

Canceling credit cards can also sometimes improve your debt service ratio even if your credit card balances are low or virtually empty. This is because a bank will assume that you will use at least 10% of you’re the limit of all your credit cards.

If possible, close and consolidate all your other debts prior to applying for a home loan. If you have an additional car and you intend on selling your old car, try to sell and settle the hire purchase on the old car at least a month prior to applying for your home loan. If you have a few personal loans or overdraft accounts, try and consolidate the accounts into one or two accounts and close the rest of the accounts. As with credit cards, check that the accounts have been properly closed and if possible, obtain a confirmation.

If you cannot minimise your debt balances and consolidate your debt it is still worthwhile trying to close one or two accounts and think of how you would consolidate your debt. When speaking to you, financial institutions often want to see that you are making an effort to clean up your finances and planning to consolidate your debt. Financial Institutions may even recommend their loan products to assist you if they see you are making an effort.

3. Time applications correctly

At the time applying for a home loan, try and best ensure that you are no more than 1 month in arrears of all the repayments on your loans. Better still, maintain a good track record of loan repayments at least 6 months prior to applying for your home loan.

Additionally, it may be a good idea to space out your loan applications. If you intend on applying for a home loan, personal loan to furnish your home and car loan at the same time, it may be beneficial to prioritise and apply for each loan as and when the other is finalised. However, you can apply for a home loan on the same property with different financial institutions.

4. Avoid situations beyond your control that may damage your credit rating

Avoid being a guarantor or providing an indemnity for any loan. Many people are not as hesitant as they should be to lend their names to help a friend obtain a loan. However, if the primary borrower defaults on the debt your were guarantor to, you will probably be liable for the debt. If you cannot repay the debt, you could be issued a summons and even be sued for bankruptcy.

Further, you may be unaware that you may be participating in a fraudulent loan and this may have severe consequences including a jail sentence. Some people are not aware that they are implicated in a fraudulent transaction until they receive their bills or when suddenly served with legal notices. In some cases, they realise when they try to renew their documents like driving license, passport, identity card or when they attempt to get credit facilities. Typically, in the latter, the credit grantors may inform them that they have been sued and request of them for proof of settlements.

While it is common knowledge that principal credit card holders are responsible for debts incurred by their supplementary card holders, many do not realize the reverse is also true in most cases. Supplementary card holders can also be responsible for all debts incurred by the principal card holders.

5. Spend within your means, keep up on debt repayments and never be late

The best way to have a good credit rating is to establish a habit of paying for all your debt promptly. Devise a sound financial budget and plan, ensuring that you have sufficient every month to repay your loans, pay for your utilities and monthly expenses, pay for prudent enjoyment and also some left over for savings and stick to it.

Ensure that you control your monthly credit card spending. The convenience and relative ease of obtaining credit today has encouraged reckless spending. What many people don’t want to realise is that they will eventually have to pay for every cent that they spend on credit cards. Additionally, credit card interest is high and can accumulate making the debt you owe higher.

Always try to follow at least the minimum repayment plan for your financial products. Even if you're struggling, don't default or miss payments. If you are in difficulties, it may be cliché but contact your lender. Often lenders are helpful in assisting you to change your repayment schedule. Changing your repayment schedule is preferable to you defaulting.

Financial discipline is crucial in a society where credit is easy to obtain. Budgeting and prudent spending is key to financial discipline and maintaining a good credit track record. Excessive spending beyond what you earn will bear dire consequences to your financial health.

Refinance Guide in Malaysia

If your home loan is more than 5 years old, it is likely that you are servicing your loan at a higher interest rate than what is on offer by financial institutions today. Many borrowers are complacent with their current loan or they wait till their lock-in period expires before thinking about refinancing. However, with the many competitive home loans products on offer especially ones that will cover any refinancing costs, exploring refinancing is a worthwhile investment at any point in the life of your home loan, to lower monthly repayments and save you money in the long run as well as give you the flexibility in managing your cash flow.


Reasons to Refinance

The primary reason for refinancing is to reduce your current interest rate, monthly repayments and/or loan tenure. You may want to lower monthly repayments to set aside money for your use or to save in an investment product every month. If you think interest rates may rise, you may want to refinance to a fixed rate loan. Another reason for refinancing, particularly if your home has increased substantially in value, is to tap into your home equity for additional funds for emergency and other ventures.

An important and often overlooked reason for considering refinancing is to consolidate your debts and deposits for better cash flow management. Refinancing can be one of your first steps towards spring cleaning your financial state of affairs. If you are paying high credit card or overdraft interest you may want to clear some of this debt to save you money in the long run. Home loan products have become very competitive in recent years offering interest calculations on a daily rather than monthly basis and additional flexibilities for prepayments and redraws save you on the total interest you pay on your current loans.


Shop around

Whatever your reason, it pays to shop around for the best loan product to refinance your current home loan. Factors to look out for are zero moving costs or zero refinancing costs packages. Also look for a flexible product which allows you to make additional prepayments and redraw any repayments throughout the life of the loan. Some financial institutions offer a line of credit tied to your home loan where repayments are interest only. If lowering monthly repayments is your aim for refinancing, look out for products that offer a longer loan tenure thus by stretching out the repayments, monthly installments are lower. This is an attractive option if you intend to stay in your home for a long length of time.

In order to make the best decision for you and your family, it is important to be aware of your short-term and long-term financial goals pertaining to your financial situation and your home. Draw out your current situation, your immediate financial needs such as to consolidate your debt or to renovate your home and your future financial needs such as to send your kids to college. Also match this with a long term savings and insurance plan to ensure that you have a nest egg when you retire and no longer earn a constant stream of income. The best decisions are based on the most thorough information.


Pick a refinance loan

The home loan market is becoming more and more competitive as financial institutions look for new ways to do business and more efficient ways to get customers. This makes it better for you as the products available for you to choose from are cheaper and more versatile than before. However, it can also be confusing to a consumer which home loan to pick.

An experienced mortgage sales person or mortgage consultant would be able to give you good information on the many products in the market which is suitable for you. When speaking to a mortgage consultant, enquire about trends in interest rates currently, in the short-term and in the longer term. Also enquire about the features of home loan products which are suitable for your unique financial situation. Try and get an independent view of the home loans available from different financial institutions including the smaller financial institutions which may offer competitive products as they may be more eager for your business. Don’t forget to get a good understanding of any hidden costs in any home loan product.

The process of refinancing is not as difficult or bothersome as you think, particularly if you have a good mortgage consultant. Considering refinancing could be a worthwhile effort to save you your hard-earned money and give you the financial independence you seek.

Use our Refinance calculators here.

Making The Application

Step 3 – Making The Application.

Have ALL your documents ready. [see List Of Documents Required]. Applications with incomplete documents will only delay the approval process.
For applicants who come under the ‘Employed” category, be sure to have bank statements ready, as Lenders will definitely want to see the state of you bank account where your salary is credited.

For self employed applicants, you may need to submit some of your company/business’s financials unless your official income (income tax income) is adequate to meet the Lender’s DSR.

Presently Malaysian Lenders do not charge an application fee and there is no legal obligation for you to accept any Letter Of Offer. You are free to apply to as many Bank/Lender as you wish and choose the best offer.

An application accompanied with complete documents will usually take no more than 5 working days to yield a formal answer from the Lender.

Some Lenders give Indicative Letters Of Offers which are NOT legally binding documents and in all likelihood have not been formally approved by the relevant department of the Lender. If you are unsure of whether the loan will be approved or not, it is important to have formal and binding Letters Of Offers prior to committing to the purchase.


Next:
Home Loan Finder Apply a Home Loan

Finding the “Right” home loan

Step 2. Finding the “Right” home loan.

Clearly what is “right” is very subjective to the individual, and factors to take into considerations are your age, your employment (employed or self employed; salary or commission), whether the property is for your own occupation or to be rented out, if this is your first home loan, the length of time you plan to keep the loan/property; your spending pattern, your short/medium/long term plans for the property and your future financial needs.

For instance, if you have an irregular income, you may be better off to select a loan with flexible repayment terms to better manage your cash flow.

A loan with free prepayment and “re-draw” facilities will suit people with “spare” cash that they can pay into the loan now to save interest (most loans today calculate interest on a daily basis) without denying themselves the right to re-use the sums that was “prepaid”, at a future date.

If buying land with the view of building on that land, be sure that the Lender you choose is not adverse to providing you with an additional loan for the construction of the property, and at a suitable margin for the construction loan.

For property investors, be careful not to select a loan with a long “lock-in” period or high penalties for early discharge, which may well eat into your profit margin.


Common Mistakes

The most common mistake that first home buyers make is not to anticipate future expenses such as costs associated with having children and elderly parents to look after. Whilst the monthly repayment on the loan may be comfortable now, do make allowance for your overall expenses to go up.

Another grave mistake is not to realize that your loan repayments may go up. Most if not all loan borrowers fail to ask themselves if they may still comfortably afford to make the loan repayments if/when interest rates go up 1%, 2%, 5%? Loans with interest rates pegged to Base Lending Rate (BLR) are called floating rate loans which means that as BLR goes up, you will have to pay more towards the loan. Historically, BLR has gone up beyond 12% per annum. In the past, rate hikes have coincided with market downturns and increase in cost of living. Be sure to do your homework here as Lenders will not asses your future financial needs.

If you find that you cannot afford any increases in loan repayments, don’t despair as there are Fixed Rate Loans available in the market usually offered by Islamic Banks and Insurance Companies.

Also, determine how much you deposit you can spare taking into consideration all the costs and fees associated with purchasing a property and taking a housing loan. Once done, decide the margin of finance you want be it 70%, 80% or 90% of the purchase price. Do not forget “ Entry Costs” i.e the fee for the Sales & Purchase Agreement, Loan Agreement Fee, Valuation Fee, Stamp Duties and charges for the Memorandum Of Transfer.[see Acquisition Cost Calculator]

If you are a bit low on cash, you may decide to opt for a loan with Zero Entry Cost (ZEC) where the Lender pays for all or part of the Loan Documentation Fee (lawyer’s fee), Disbursement, Stamp Duty, and Valuation Fee. You will note that these loans attract a higher interest rate.


Insurance Coverage

Finally determine if you wish to have Life Insurance Coverage/Mortgage Reducing Term Assurance ( MRTA) to cover the loan redemption in the event of untimely death of the borrower. This is especially important if the servicing of the loan depends on the joint incomes of all borrowers. Note that not all loan providers make MRTA compulsory although some do offer better rates if the borrower is insured.

A number of Lenders offer loans up to 95% margin on the understanding that the sum equivalent to 5% of the purchase price is utilized to purchase life cover.


Read on:
Making The Application

Taking A Home Loan in Malaysia

Before you commit to buying a property, please use the following guide:

Step 1. Do your home work.

A very common mistake is to commit to the purchase of a property before having clarity on (i) if you qualify for the loan, and in particular, if you indeed qualify for the amount you need to borrow to complete the purchase; and (ii) the terms and conditions that the Lender(s) may impose and that you can easily meet those conditions, and (ii) the sum of monthly repayments that you will be obliged to pay.

First, find out how much you are entitled to borrow and how much the repayments will be.[see Note below] While most Lenders follow a similar process in assessing loan applications, they do differ somewhat in their preferred margins of finance (% of purchase price/value); loan tenure; treatment of source of income such as commissions, rental income, debt service ratios (DSR also known as payment to income ratio, PTI), total commitment to income ratio) as well as whether insurance/MRTA is compulsory.

[Note: As a general rule, a DSR or PTI of 40% is acceptable, that is, the monthly loan repayment is less than 40% of the borrower’s gross income.An important note of caution: how much you can borrow need not be equal to how much you can actually afford, and should borrow. It is vital that you take into consideration future expenses, increasing cost of living, and the fact that interest rates may increase. Please feel free to use Money3’s Loan Affordability Calculator or contact us by email].

If buying a property under construction, it is important to have confirmation that a particular developer is not under the Banks’ negative list. Also important is the type of property you are planning to buy. Some Lenders may not accept serviced residences and/or holiday or resort type properties, while other Lenders may not be prepared to lend on properties in certain regions.

Finally, be sure that you have a clean credit history. All consumers are entitled to search the Central Credit Reference Information System (CCRIS) and Credit Tip Off Services (CTOS). Basically, both CCRIS and CTOS are two credit checks that all Lenders perform as part of their assessment in determining the risk of lending to a borrower.

Should you discover that that you have a history of bad/missed payments or pending lawsuits against you, it pays to speak to an officer or consultant prior to making a down payment for the property as poor credit may very well see to your application being rejected or assessment being severely delayed.

Read on:
Finding the "Right" home loan