Buying a home is no simple walk in the park, not especially when property prices have soared while our salary is left in the dust. With the present rate of unemployment, income loss and a terribly weak economy, the dream of owning our own home can look like a distant reality. While there are projects offering 0% down-payments with upfront rebates, these privately developed residential units can sometimes be beyond our affordability and be a huge burden on our monthly salary.
Having that said, it is a good thing the government launch several affordable housing schemes to help out first time home buyers that fall within the eligible category. These are good efforts by the government but it just is not good enough in the longer run.
If you are considering these affordable homes, I want you to know that you are not alone and there is no shame to considering these affordable homes. In fact, I applaud you to proceed with it. However, and I emphasize, the basic principles of choosing the right home are the same and you should be these affordable homes according to the right location and the right surrounding amenities.
As a general rule, buying an affordable home is done through the government portals or through the developer marketing the affordable home. It is a straightforward process but it does require a lot of patience. Affordable homes can turn into a wonderful investment vehicle if and only if it is coupled with strong economy boosters. These boosters are typically the location, surrounding amenities and facilities, development concepts, and being built by an ethical developer.
What are the affordable housing-schemes out there?
First and foremost, I want to let you know these affordable housing schemes are mainly for homebuyers in Kuala Lumpur and Selangor. While I do not cover the list of schemes for the other states, there are affordable housing schemes available for the other states as well and is typically found on the government portals. An example of affordable housing projects in Sarawak, here.
List of Affordable Housing Schemes - Selangor and Kuala Lumpur
| Housing Schemes | Home Price Range | Applicant Eligibility | Imposed Restrictions |
|---|---|---|---|
| Perumahan Rakyat 1Malaysia (1Prima) | RM 100,000 – RM 400,000 | 1. Malaysian citizen 2. Single or married 3. Household income between RM 2,500 – RM 15,000 4. Only for FIRST and SECOND home | 1. Cannot be sold for FIVE years |
| Residensi Wilayah (RUMAWIP) | Up to RM 300,000 | 1. Malaysian citizen 2. 21 years old and above 3. Born, living, or working in Federal Territory 4. Individual income up to RM 10,000 5. Family income up to RM 15,000 | 1. Cannot be sold for TEN years |
| Rumah Selangorku (RSKU) | RM42,000 - RM250,000 | 1. Malaysian citizen 2. 18 years old and above 3. Does not own any house in Selangor 4. Type A units for household income up to RM 3,000 5. Type B, C and D units for household income up to RM 10,000 | 1. Cannot be sold for FIVE years 2. Cannot be rented out |
| Perumahan Penjawat Awam Malaysia (PPA1M) | RM 90,000 – RM 300,000 | 1. Malaysian citizen 2. Civil servant – contract or permanent 3. Retired civil servant with retirement card | 1. Only 1 unit per household |
List of Affordable Financing Schemes - Selangor and Kuala Lumpur
| Financing Schemes | Home Price Range | Applicant Eligibility | Imposed Restrictions |
|---|---|---|---|
| My First Home Scheme (SRP) Participating bank list | Up to RM 500,000 | 1. Malaysian citizen 2. First time home buyer 3. Salaried worker or self-employed individual 4. Single or joint applicants 5. Individual income up to RM 5,000 6. Family income up to RM 10,000 7. No record of impaired financing for the past 12 months | 1. Buyers are required to reside in the property |
| BSN MyHome | RM 25,000 – RM 300,000 | 1. Malaysian citizen 2. 18 – 60 years old; 65 or younger by end of the mortgage tenure 3. Minimum income of RM 1,000/month 4. No other mortgage loans with any financial institutions 5. BSN Giro/i account holder 6. Security deposit equivalent to 3 months of monthly instalments | 1. Buyers are required to reside in the property |
What is the application like?
While I never got to buy one of these affordable homes, I did complete the application at one point in my life but the application never got through and I managed to save up for a home I really like. However, from the stories told to me by my friends, it is in fact a fairly simple and straightforward process but you need to have patience. Due to the number of applicants an affordable home project receives, especially for those in great locations, it really does take a long while before you receive news on your successful application.
Below are 2 types of housing schemes, which I was told personally on the processes,
Perumahan Rakyat 1Malaysia (PR1MA)
- Check out PR1MA website, fill in the online application and ballot for the PR1MA units.
- Receive invitation from PR1MA for a showcase event, which I heard can take between 4 – 6 months, some for years, I can only wish you the best of luck!
- Upon arriving for the showcase event, you will need to check your credit score with the CCRIS counter.
- Visit the showcase event as you would for any other development showcase.
- Pick the unit of your choice (floor, size and type).
- Get assistance with the loan application.
Rumah Selangorku (RSKU)
- Prepare all the documents required for the application.
- Copies of identity cards
- Birth certificates of dependents and children
- Copy of marriage certificate
- Employment letter or verifications from Commissioner of Oaths for self-employed
- Pay slips, bank statements or income verification from Commissioner of Oaths for self-employed
- Statutory declaration from Commission of Oaths for unemployed spouse
- EPF statement
- Copy of utility bill
- Credit report from CCRIS or CTOS
- Apply for an RSKU and wait for invitation from LPHS.
- Applicants for RSKU are assessed based on merit system where they compare your eligibility and potential merits.
- Successful applicants will receive a letter from LPHS.
- You do not get to pick your unit, which is a big concerning factor!
What should I know about affordable home before buying one?
When you buy into a government-subsidized housing scheme, there will be restrictions and regulations put in place to prevent speculations. The main intention of the government is to help those who need financial assistance while doing their best to impose checks and balances against investors looking to cash in on heavily subsidised properties.
#1 Limited freedom to sell or rent
Almost all housing schemes in Selangor and Kuala Lumpur are limited to a 5 year cooling period, RUMAWIP up to 10 years, before the homeowner can sell it to another party. In some cases, if the property is on leasehold land, you will need consent from the corresponding government body before the title can be transferred to the new buyer.
In the Rumah Selangorku (RSKU) scheme, if your property is on leasehold land, not only will you need consent from LPHS, you will also need your buyer to be of the eligibility criteria before LPHS will approve of the transfer. This makes for a really difficult transaction and makes it inexplicably difficult in the long run.
When it comes to renting out affordable homes, RSKU owners do not have the flexibility to rent out their homes to third parties. While I do not advocate for you to break the rules, I have heard of others who quietly rent out their properties. You might want to monitor the state governments’ ruling on this as they draft out new disciplinary actions to combat this issue.
#2 Low-cost units will likely have lower demands in the long term
In states like Selangor, if a unit falls under the category of low-cost houses, it will remain so due to an enforced policy to prevent these cheaper homes from falling into the hands of wealthier individuals. From an investment perspective, it can be problematic if such a price control movement inhibits the capital growth an affordable home is allowed. Hence, it is best to consider affordable homes with terms and conditions that allows for capital gain in the longer term, say 10 years or more.
#3 High transaction costs
Almost all affordable homes do not have the marketing gimmicks you see other private developers throw out for the private developments. When it comes to government-subsidized housing, there is likely no rebate, no discount and no free legal fees.
Upfront payments and transaction cost to consider when you purchase an affordable home,
- 10% down-payment
- Legal fees
- Sales and Purchase Agreement
- Loan Agreement
- Transfer of Ownership Title
- Stamp duties
- Sales and Purchase Agreement
- Loan Agreement
- Transfer of Ownership Title
- Legal disbursement fees
- Bank processing fees
These transaction cost is in conflict with the financial standings of an individual who can only afford to consider these schemes. If I am unable to afford a home, it is likely because I do not have enough savings in the first place to pay for a down payment. While the home is significantly more affordable now, the down payment will be a substantial sum to fork out.
#4 Public perception when it comes to affordable homes
Due to the limited value growth typically associated with affordable homes, it is uncommon to hear talks from friends and families hinting at a community of poor education and ill-mannered families.
Low-income households are perceived to be a social nuisance where they demand less for a better environment and neighbours, whereas, high-income households have both the ability and the willingness to pay a premium for better neighbours and a sustainable environment.
These opinions from our friends and families should be taken with a pinch of salt. If the RUMAWIP is situated in a highly desired location with wonderful connectivity, I believe it might be worthwhile to consider the opportunity while you are still eligible.
Are affordable homes worth considering as an investment?
FIRST AND FOREMOST, THIS IS AN OPINION PIECE, COMING FROM THE PERSPECTIVE OF ADEQUACY AND CONTENTMENT,
It is always good to buy a home within your means. There is a lot of benefit to buying an affordable home, according to your earning capabilities. To me, the biggest achievement is the sense of gratitude and the hopefulness of the investment returns possible with the property.
Having said that, I have always believed a home should play 2 roles. Firstly, the role of a shelter – to provide security, comfort and protection against the harmful environment. Secondly, the role of an investment – buying a property is no small expenditure and the large sum of money put into the property better yield good returns in the long run.
If the property does not fulfil the 2 litmus tests, the role of a shelter and the role of an investment, then I will pass on the opportunity.
When it comes to the role of an investment, I do have concerns about the affordable homes’ investment potentials due to the imposed restrictions on affordable housings.
- Limited freedom to sell where consent is required – this naturally limits the demand and the potential capital growth
- Restriction to rent out the property to 3rd parties, for schemes such as RSKU and PPA1M
Comparing PR1MA, RUMAWIP and RSKU, I am of the opinion PR1MA and RUMAWIP are the only affordable homes worth considering for the long term. While the cooling period is 10 years for RUMAWIP, homeowners under this program are allowed the flexibility to rent out their properties. Having said that, it is still best to decide on RUMAWIP and PR1MA for the location and connectivity. These are the main driving factors that will determine the demand and desirability of the property in the future.
If your only option is with RSKU, perhaps it might be worthwhile if you save up a little longer and go for privately developed residential where you have better control over the rentals and the right to sell.
Final Word
Affordable housing schemes are good initiatives by the government but much is left to be desired. While the logic of imposing the aforementioned restrictions are totally understandable to prevent speculations, it does leave the properties in a state of low desirability and this may have an adverse impact on the market value in the future.
If there are affordable homes with good locations, it might be wise to consider them for the potentially high desirability it might have. Otherwise, you may fare better to continue saving up for a privately developed property with better control over rent and sales transactions.
Until then, take care.
