Gen Y Homeownership 101

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Soaring property prices and financial burdens make the decision to buy a home a tough one for Gen Y-ers.

Generation Y faces a dilemma – how does one find balance between the tradition of providing for aging parents, and the modern urge to leave home early and start their own family?

Inevitably, they become part of the Sandwich Generation, caring for aging parents while supporting their own children at the same time. However, Gen Y-ers have an additional problem: they cannot count on their children to do the same for them when they age. In fact, they face the possibility of having to continue providing for their children, the Boomerang Generation, all their life.

This begs the question: how do they secure a stable and happy old age?

Their answer? Many turn to property.

More than a Roof

Upcoming apartments and condominiums dot Mount Erskine.

Upcoming apartments and condominiums dot Mount Erskine.

Instead of renting, Gen Y-ers buy a house. Owning a home secures them a place to live when they grow old and removes the burden of having to pay for rent or depend on their children. It makes a lot of sense – why pay rent when you can instead pay for a mortgage and own the property at the end of the day?

More and more people in their late 20s to 30s are jumping on the homeowner bandwagon and buying their first house. Some are even buying their second and third houses as an investment or as a form of education fund for their children. Daniel Lee, 30, purchased his first house three years ago and is happy with paying RM2,500 a month. He values the privacy and comfort of owning his own place and looks at it as a form of forced saving of money he would otherwise spend elsewhere.

However, with the increased demand over the years, property prices have skyrocketed. Although the market slowed down in 2016 and prices have somewhat plateaued, buying a house is still very expensive for a young average-income earner. In Penang, condominiums in sought-after areas such as George Town, Tanjung Tokong and Tanjung Bungah can start with a hefty price tag of RM600,000-RM800,000 for a 1,200 square feet unit.

Let’s take for example an RM800,000 housing unit. A buyer will have to foot the first 10% down payment – one of the biggest barriers to buying a house – of RM80,000. On top of that, he has to factor in several fees such as the sale and purchase agreement legal fee and stamp duty, which can be a large sum depending on the price of the house. Taking a loan for the remaining RM720,000 at an interest rate of, say 4.4% per annum for 30 years, he will have to pay a monthly instalment of RM3,600. Don’t forget he is in the Sandwich Generation, with young and old dependents.

Affordable Housing

The median salary of an employee in Malaysia who works at least six hours a day or 20 days a month stood at RM1,600 in 2015. [1] In urban areas the median salary is higher, at RM1,855, while in rural areas it is only RM1,200. If we look at median salaries by educational attainment, those with tertiary education earn RM3,100 while the remaining earn RM1,500 or lower. Judging by these numbers, it is a challenge indeed for young average-income earners to purchase a house, especially in urban areas.

To counter this, the government has come up with several initiatives to promote homeownership and make housing more affordable, especially in urban areas. The 1Malaysia People’s Housing Programme (PR1MA), Rumah Mesra Rakyat Programme, People’s Housing Programme (PPR) and the latest MyDeposit are some examples of these.

In Penang, the state government has launched an affordable housing scheme. To be eligible the applicant must be Penang born working in Penang or have been residing in Penang for at least five years. In either case, he or she must also be a Malaysian citizen aged at least 21 years and a registered voter in Penang. [2]

To be eligible for low-cost and low-medium cost houses the applicant and spouse must not own any property anywhere in Malaysia. As for affordable housing, the applicant and spouse must not own any property anywhere in Malaysia priced above the maximum price category of their application.

Home buyers can also withdraw their savings in Account 2 of their Employees Provident Fund (EPF) to foot the down payment for their first home. A young average-income earner will now have a better chance of owning their first home with the availability of such schemes. If we now take an example of a RM200,000 home, one only needs to pay an instalment of RM900, with a 30-year tenure at an interest rate of 4.4% per annum. However, he or she will usually still have to fork out the down payment first before the application to withdraw from their EPF can be processed.

The Other Option

Then there are those who are satisfied with renting or with living in their parents’ home. They are not willing to exchange the comfort of financial freedom for a life bogged down by loan repayments. Lim, 29, has no plans to buy a house of her own for now and is living with her parents. She says she does not have the money for the down payment but is optimistic about owning one in the future.

With the wide availability of travel bargains, many young Malaysians are spending their spare cash on holidays and prefer a life of adventure to a life paying expensive mortgages. On top of that, people today are moving around more frequently – usually for a new and better job in another state or country. Some have plans to migrate while others move about so often that owning a property becomes a hassle.

Is it Time to Buy?

In the first half of 2016 the residential property market recorded a decline of 14.5% in volume of transactions against the similar half in 2015. This downtrend was seen in all states except Kelantan. Developers have responded in tandem and the overall supply side has shrunk by 30.8% with a decline of 73.6% in residential property supply. Major states like KL, Selangor and Penang saw cutbacks in new property launches that were as high as 93.9%.[3] The Malaysian property market is projected to remain lethargic with house price rises expected to slow down further. This could mean the chance has finally opened up for new homeowners.

However, in a recent assessment by the International Monetary Fund on Global Housing Prices, Malaysia is one of 21 countries whose development falls in the boom cluster in which the drop in house prices in the 2007-2012 financial crisis was quite modest and followed by a quick rebound.[4] One cannot but wonder if this could just be a brief blip in the Malaysian property market, or if the market has been overvalued – with its unexplained price growth – compared to its neighbouring countries. Could it go in the direction of cities such as Hong Kong, Sydney and Vancouver, the places with the most expensive properties? In Hong Kong prices have escalated to a massive US$25,000 per square metre according to the Global Property Guide, making the Malaysian property market a bargain for rich expatriates.[5]

That being said, because of flagging market sentiment, crowd psychology is driving some existing homeowners from investing in subsequent properties. With developer interest-bearing schemes banned and the hikes in real property gains tax, investors are approaching the market more cautiously. For the young average-income earner, the next couple of years could be a good time to consider entering the market as first home owners. But it really boils down to how much they are willing to spend, the location and how much of a lifestyle change they can accept.

  • [1] “Salaries and Wages Survey Report, Malaysia, 2015.” Department of Statistics Malaysia. May 27, 2016. https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=157&bul_id=czRyNkJIbDFyYXJFbU5YTVJ1V1BHZz09&menu_id=U3VPMldoYUxzVzFaYmNkWXZteGduZz09
  • [2] “Syarat Permohonan,” Sistem Maklumat Perumahan Kerajaan Negeri Pulau Pinang, accessed December 19, 2016. https://erumah.penang.gov.my/index.php/ms/syarat-mohon.
  • [3] “Overview of the Property Market Report First Half 2016,” National Property Information Centre, 2016, http://napic.jpph.gov.my.
  • [4] “IMF Global Housing Watch November 2016,” International Monetary Fund, 2016, http://www.imf.org/ external/research/housing/report/pdf/1116.pdf
  • [5] Global Property Guide, accessed December 19, 2016, http://search.globalpropertyguide.com/property/_ square_meter_prices/
Ch’ng Chin Chin just joined the pool of first home owners. A researcher and an avid traveller, she has no plans to give up travelling yet.



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