When it comes to what is the best investment instrument to leverage one’s savings on, invariably the subject on property will crop up. So, is it a wonder why the property market is so hot?

Rightly or wrongly so, more Malaysians and investors from around the world believe that investing in property is a better investment choice than others, and are putting more of their “eggs” in the property basket.

Although property investment is not a fool-proof investment, it has been seen many times over that one cannot go seriously wrong with property, unless its location is really poor – for example, it is inaccessible or the project is abandoned before its completion.

Compared with other big ticket items like automobiles which usually depreciate in value the moment the vehicle is driven out of the showroom, property is one of the more reliable in terms of investment return.

Most of the time, even average property developments have the potential to enjoy some form of capital appreciation and steady income streams (if they are leased out to good tenants).

The lack of other more reliable investment alternatives, given the volatile nature of the stock market and prevailing low savings rates, has certainly given an added edge to property investment.

Although Bank Negara has raised the overnight policy rate (OPR) a number of times since the onset of the global financial crisis, borrowing rates are still one of the lowest in recent times.

The easy (competitive or affordable) housing packages or financing schemes also make buying property a viable proposition. After a downpayment of 5% or 10%, a buyer need not make any more payment until the property is completed and this could be two or three years down the road. The delivery period for landed housing units is two years, while high-rise and commercial projects take three years.

To ease the heat in the market, it looks like it is timely to put a stop to these easy housing schemes, since the First Home Scheme (FHS) to promote home ownership among first time house buyers will take care of the needs of the critical group – those who have yet to buy their first home. Moreover, the purpose of the easy housing schemes promoted by the developers was to boost property buying as there was a sudden pullback among buyers when the global financial crisis first broke out in 2008. But, since early 2009, property sales and prices have surpassed the levels recorded before the crisis.

If the easy home ownership schemes are allowed to continue, they will dilute the effect of Bank Negara’s move in raising OPR to arrest speculative property buying and overheating in the market.

In fact, it has been found that persistent speculators are still undeterred by the imposition of the loan to value ratio of 70% for third mortgage borrowers. To circumvent this new ruling, some borrowers have resorted to using the names of their spouse or other family members when applying for loans.

For the FHS to be effective in promoting home ownership among first time buyers, the scheme needs to be fine-tuned with more workable guidelines.

Under the scheme, those earning RM3,000 or less could obtain 100% financing if they buy houses priced between RM100,000 and RM200,000, and the repayment period is stretched up to 30 years.

However, in the Klang Valley and Penang (especially), the land alone usually constitutes 20% to 25% of the cost of the property, and so it is important that the land for the FHS be provided by the Government.

If developers do not have to fork out a hefty sum for the land, they will be able to spend on better quality building materials, and the result will be better quality projects.

It is a well known fact that house prices, especially landed property, have increased beyond the RM200,000 mark.

To ensure homes built under the FHS will not turn into urban slums like many of the low-cost housing schemes in our vicinity, it is sensible to raise the prices of these homes to at least RM300,000.

We cannot assume that all first time buyers do not mind staying in high-rise dwellings, and so it is better to offer them the choice of landed property as well. Those who sign up for landed schemes should be prepared to pay a higher price.

It is necessary to draw up clear and specific guidelines for developers who are involved in the FHS to ensure they give due emphasis on quality in their projects and that includes location. Notably, many unsold housing units are those built in unfavourable and inaccessible areas.

SOURCE: The Star