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Is It a Good Idea To Buy a House During Covid-19 Pandemic?

Updated 06 Aug 2021 – By Team Loanstreet


In collaboration with 

With the rise in Covid-19 cases and the Full Movement Control Order (FMCO) implementation, it looks like the property market like most sectors is currently on a long road to recovery.

This might make some of us who had been considering homeownership this year anxious - you could be one of them.  Suddenly, you have a major FOMO. Are prices expected to drop? Will interest rates stay low? When will all the houses come back on the market? Can we get a good deal? 
 


First, let’s take a look at how has COVID-19 affected the property market...

According to the property consultancy firm, Rahim & Co, the current property market is likely to persist on its current trajectory and remain soft for another year. In its Property Market Review 2020/2021 report, the firm revealed that property transaction activities dropped by 204,721 units in the third quarter of 2020, which is equivalent to almost 16% lower than the same time frame in 2019. The report also disclosed that the residential sector declined slightly over 14% in volume and 14.8% in value in the first three quarters of 2020.


Image source: Rahim&Co Property Market Review 2020/2021 report

The firm shared that this predicament is caused by issues such as financial priorities and potential employment insecurities, together with the ‘wait & see’ mode for the best bargains and spending patterns that have taken a change for longer sustainability.

Tang Chee Meng, the Chief Operating Officer of Henry Butcher Real Estate divulged the same sentiment not long ago: “Overall, the property market in 2021 is expected to be flattish or record a slightly better performance than 2020, as the start of the vaccination programme in the country would help in controlling the covid-19 pandemic and start the economy on a recovery path.”

However, he also noted that the recent spike in Covid-19 cases and the subsequent moves by the government to curb the spread of the pandemic may delay the industry recovery until next year.

 

So, is it a good time to buy a house?

 


YES. Here’s why. Due to Covid-19’s impact on the economy, Bank Negara Malaysia (BNM) has decided to maintain OPR 1.75%.  This means you as a borrower can enjoy lower interest rates on home loans. For example,  CBP via its Pembiayaan Perumahan-i Al-Amali is offering borrowers home financing at profit rates as low as 3.75% p.a.

Other than that, you should also take advantage of the government’s House Ownership Campaign (HOC) initiative, which has been extended till 31st December 2021. According to a news report by The Edge, AmInvestment Bank said that this extension could help you (homebuyer) saves up to 4% of the purchase cost


ALSO READ: HOC 2021: Get 10% Discounts & Free Stamp Duty When You Buy a House

 

In a statement, KGV International Property Consultants executive director, Samuel Tan shared: “... the current climate is good for homebuyers as it is a buyer’s market. Borrowing rates are at an all-time low, developers are more willing to sell at a lower profit margin for better cash flow, and many keen sellers in the market are ready to negotiate a deal.

“The government has also introduced various incentives, such as the HOC and other stimulus packages, to encourage property purchase, especially for first-time homebuyers.”

HAVING SAID THAT, it’s only a good idea to buy a house during COVID IF you:

  • earn a steady income
  • have dependable employment
  • have a good credit score
  • already have money saved up for a down payment and closing costs
  • ready to be in debt for the next 30 to 40 years
No doubt, falling prices and low interest may be tempting. However, if you’re not financially stable in these uncertain times, you might want to put a big yellow “SLOW” sign on home-buying during a pandemic.


Image source: Malay Mail
 

It’s important to be mindful that in the current economy, employment and income stability are key. According to the Human Resources Ministry, 99,696 Malaysians have lost their jobs since the implementation of the movement control order (MCO) in March up till November 2020.

Emir Research's recent survey also found that over 8 in 10 Malaysians still fear losing jobs to the Covid-19 pandemic. They shared: “In terms of household income, respondents earning between RM3,001 to RM5,000 appeared to be the most worried group as they demonstrated a significantly higher magnitude of worry on employment and living cost dimensions than those who make less than RM3,000 overall.”

 

How to know if you can afford a house? Use this 3-3-5 rule


Original image: kelvinchanphoto.com
 

Aside from the basic cost, you should also know the ideal amount you should spend on a property. This is important because you don’t want to get your loan rejected, unable to make repayment later or overspending.

Here’s the popular 3-3-5 rule for you to take into consideration before purchasing your property. This is how it works:

  • 3 - have a capital of at least 30% of the property’s asking price. This is to ensure you have enough savings to cover the upfront costs.
  • 3 - don’t spend more than ⅓ of your monthly wages on your monthly mortgage repayment. This is to ensure your monthly instalment is proportionate to your monthly paycheck.
  • 5 - The price tag of the property should not be more than 5 times your annual income so the property’s overall price isn’t out of your means.

Let’s take a look at the example below. Perhaps your gross monthly income is RM5,000 and looking to buy an RM450,000 home. After deducting your monthly expenses and savings, you have about RM2,000 extra to spare for your new home.

Rule Calculation
Rule 1 - 30% of property price RM450,000 x 30% = RM135,000
Rule 2 - ⅓ of monthly salary RM5,000/3 = RM1666.67
Rule 3 - 5x of annual income (RM5,000 x 12) x 5 = RM300,000

SIDE NOTE: We find it easier to analyse it backwards.


So, based on the table, the ideal maximum price tag for a property you should go for is RM300,000 (rule 3). However, if you’re going for an RM450,000 property, you’ll need an upfront cost of RM135,000 (rule 2), which is higher than opting for an RM300,000 house. And, although you have about RM2,000 to spend on your monthly mortgage, it’s recommended that you only spend RM1666.67 (rule 2). 

According to this information, you should look back at your financial standing and make the best decision. We believe the whole idea of this rule is so that you can be financially savvy, instead of being asset rich and cash poor.

Just in case you’re allergic to numbers, fret not - there’s an easier way to do this. You can just use Loanstreet’s Home Loan Eligibility tool.

 

All in all, consider all risks before making a decision

The decline in property prices and prevailing low-interest rates may sound enticing. However, the decision to buy a house needs careful consideration. Don’t forget to do thorough research and make a home loan comparison from over 18 banks in Malaysia HERE

If you’re thinking of getting that dream home of yours, we’d suggest making it a reality with CBP’s Al-Amali Home Financing-i. With profit rates as low as 3.75% p.a., you can get up to 100% financing and no lock-in period. For more information, click here.

Just a reminder, a mortgage is a long-term commitment, so make sure you’re financially ready, regardless of what’s happening in the real estate market. 

Good luck, home buyers! 


*The above article is intended for informational purposes only. Loanstreet accepts no responsibility for loss that may arise from reliance on information contained in the articles.


ALSO READ:
5 Property Market Lessons M'sians Can Learn From COVID-19
Self-Employed & Want To Buy a House? BSN MyHome Can Help
[UPDATED] Avoid Being Cheated by These BLACKLISTED Property Developers!

 
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