The question on a lot of first time home buyers’ minds has always been – “what kind of property can I comfortably afford?”. It’s a valid and important question too because as a potential homeowner, you would never want to overextend yourself with your monthly commitments.
As a base line, look at your monthly salary versus your monthly commitments (car loans, credit cards bills etc.) and you can roughly ascertain how much your debt service ratio (DSR) is. The DSR is used by banks to gauge the maximum home loan one can get.
On average, a bank will look at a DSR of between 30-40% or around 1/3rd of your salary to gauge the monthly mortgage and the value of the property one can afford. That said, some banks do accept a higher DSR of 60% to 80%, but for now let’s just focus on the average.
Now if you’re just starting out in a job and are nestled within the B40 Group (average household income of RM4850), here’s how you go about calculating what you can afford in real estate. If you are drawing a salary of RM4850 per month, and you have a monthly commitment of RM1400, you will have a DSR of 29%.
Based on a home interest rate of 3.5% and a tenure of 35 years, this equates to an allowable monthly instalment of around RM2090 per month, which is permissible for a home worth around RM500,000 (based on 90% of property value plus 5% for MRTA financing).
In that price range there are abundant choices in the property market and if you put in some leg work, you may just uncover potential gems that could become a worthwhile investment. A quick search on Mudah.my can also provide some enticing choices for consideration.
Currently, Mudah.my has over 68,000 listings each for apartments/condominiums and houses that are valued at RM500,000 and below all over Malaysia. Narrowing the search parameters to key areas such as Kuala Lumpur and Selangor (or the area of your choosing) will further reveal potential choices.
For instance in the capital city of Kuala Lumpur, there are over a 1000 listings for landed homes within the RM500,000 bracket. Areas and neighbourhoods such as Setapak, Bukit Jalil and Puchong provide considerable opportunities, especially with their close proximity to prominent areas such as KL and PJ.
For apartments and condos there are even more choices with over 12,000 listings. However do also factor in the monthly maintenance and service fees that come with condo/apartment living that will need to be added to your monthly commitment along with your new mortgage.
Obviously with the price range of below the half a million mark (and lower), prospective budget homebuyers may have to look more closely into the sub sale market and also older properties in their search. The outskirts or suburbs and even townships and high density developments will also reveal good choices, perhaps revealing even larger units with better facilities that provide a better bang for your buck.
First time buyers should also look into new or upcoming developments to take advantage of offers such as rebates, freebies and zero down payment to get even a better deal. The savings could help to further lower the monthly commitments. It can also be channelled towards renovations when the property is completed and ready to be moved in.
Regardless of what you choose though, it is important to note that you should always buy a property that won’t burden you in the long run. It is a long term investment after all, one that will not just put a roof over your heads but perhaps a place that could produce good potential returns in appreciative value or from the rental market in the near future.