I recall reading a letter written to the editor of a popular daily which caught
my eye. The man related the story of the advice given by his grandfather and
father about getting onto the house ownership ladder as early as possible. He
was a young man, a fresh graduate in the mid-70’s with a starting salary of
RM900 per month. He came from a humble background and every month he had to
carefully allocate his limited earnings to his ageing parents and younger
siblings as well as plan for his expenditure.
With his meagre salary, he
rented a place close to his place of work so that he did not need a car, ate
modestly at food stalls and saved every ringgit he could. Life was no doubt
rather tough in the beginning but he worked hard at his job. He built up his
career and gradually moved up the corporate ladder and by then, managed to save
enough to buy a small Datsun (now Nissan) for RM8,000 (with 80% loan) and also
put the 10% down payment for a linked house in the outskirts of Petaling Jaya
priced at RM83,000. It was not near his workplace but that was all he could
afford at the time.
It was a choice worth his sacrifice, the location he
chose to stay has today boomed into a township and the home he bought is worth
more than RM800,000. Looking back, the man made a wise decision to have his own
financial planning set at an early stage and we should all learn from the young
man’s experience.
Lesson number one
Choose a property that
you can afford at that particular time when you are ready to purchase. The
longer one waits, the higher the property price would become and the increase of
such price will be higher in rate than the increase in our salaries and
savings.
Wait further to try and match the original price tag, and you
will find yourself chasing after the property forever and lose out on other
opportunities.
Lesson number two
Be realistic in your
choice of your first home. Everybody wants to buy their dream home but unless we
are realistic and practical, this will remain a dream forever. While the young
man in the story above is lucky enough to buy a linked house in the outskirts of
Petaling Jaya during that time, it is now impossible for young new graduates to
purchase a landed three-room unit in the same area. Whilst it may be prudent to
plan ahead for future needs and family expansion or proximity to ageing parents
and other priorities, we should be open to other affordable choices – perhaps a
strata property, a studio or one bedroom unit, or a location further from the
major urban centres where prices are relatively cheaper.
Eventually, when
salaries have gone up and the need for bigger units is more evident, you can
upgrade to a more suitable housing unit which could be partially funded by the
capital gains from your initial unit. The purchase of that bigger unit may
otherwise be impossible if you wait until you have accumulated enough savings
and earn a high enough salary!
Lesson number three
The most
important lesson to first time house buyers is to start saving for your home
purchase early. Prices are not going to be cheaper in the future as development
costs will continue to increase due to price hikes in land, building materials,
labour, logistics, utilities and inflationary pressure which will inevitably
lead to escalation in house prices. In addition, the challenge to come up with
the 10% down payment, be it for purchase from the primary or secondary market,
will be tremendous.
The Employees’ Provident Fund or EPF housing account
II from the monthly contributions will help to a certain extent but it needs
time to grow the fund and you still need to come up with the upfront payment and
other acquisition costs – legal fees, stamp duties etc, so it makes sense to
start planning and saving for your first house purchase as early as possible in
your career, along with other plans like car purchases, getting married or
starting a family.
Youths of today should have greater awareness and
appreciation for the importance of saving for their future and investing in
property at an early age rather than constantly changing their smart phones,
buying designer goods and frequently hanging out at overpriced cafés and
bistros. Buying a house definitely cannot be an after thought that you have not
prepared yourself financially for; for some who are more fortunate, you might be
able to seek help from your family members in planning for your first house
purchase but for those who are not, without early and proper planning you will
find that you will never have enough to buy a house of your own even later in
life.
Let’s take heed of the lessons learnt from the young man’s life
story. At some point in the future you may look back and be grateful that you
purchased the home despite some struggles to make a living. The young man, now
older and wiser is sitting on a lot of gain and equity for his next purchase for
investment.
BY DATUK SERI MICHAEL YAM (The Star)
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