By: Viknesh Ashley Clarence
It is often believed that getting a loan for property investment is difficult nowadays with stringent requirements attached to the rising prices. Property Insight sat down with property investor and CEO of SkyBridge International Adrian Un, seasoned investor and co-founder of the Community of Real Estate Investors (CORE) Rachel Lim and loan expert Gary Chua to find out if this is really the case.
How difficult is it now to get your loans approved compared to three years ago?
Adrian Un: The banks are still granting loans to house buyers. It has never been a challenge for genuine purchasers to get their loan approved. Those who have it hard are the ones who have purchased a lot and have built up leverage of their own. Banks are more lenient nowadays compared to the past. Banks even allow up to 150% debt service ratio, so if you asked me if it’s difficult to get loans nowadays, I wouldn’t say that it is entirely true. It’s just that Malaysians nowadays are typically buying more than one property at one time, within a year. For the banks, those who accumulate a lot of properties in one or two years, they are considered as a high risk loaners.
Rachel Lim: My point of view is from the point of view of an investor. I would rather say that the banks are more cautious, rather than saying it is difficult to get loans. In a way, the banks have raised their bar in the qualifications and are now categorising their loaners. Those who can comply with the documents and requirements can also easily get their loans approved, in a way that the banks see them clients who know the rule already. So in my perspective, I don’t think that it is hard to get the loans.
The group that are affected the most are the first home buyers, mostly consisting of Gen-Y’s and there are report saying that 70% of loan applications under first time homebuyers are being rejected, why is this so?
Adrian Un: Imagine yourself as a graduate who just found your first job. You don’t have credit cards, you don’t have any loans at all, and your Central Credit Reference Information System (CCRIS) is totally clean. Bank will most probably reject your loan. Why? Because there are no records on your repayment behaviour and that makes the bank cautious.
Even if you are working with a salary of RM5,000 monthly, your loan will probably be rejected, unless you work for a multinational company. Also, to bring up the lifestyle of these Gen-Ys, they are big spenders and even if they’re not, the cost of living is so high and some of them use credit cards. And when they do, their credit cards normally maxed out and this turns up in CCRIS. Now that the banks see that, they won’t be so keen anymore.
Rachel Lim: I do agree with Adrian. CCRIS is very important in term where the bank can observe your behaviour in repayment. If you have neither loans nor credit cards, they can’t trace it. And nowadays the markets have moved very fast. Another thing is that some of the people never bothered to pay their income tax. That can also affect since the bank doesn’t like those who can’t comply with what they want. And to add it up, these homebuyers don’t really know about the loans policy.
Gary Chua: There are two key points from this, and the first one is their income. They might be earning lower income like below RM5,000. And then their Debt Service Ratio (DSR) is at 60% which is lower than the masses at 70% to 80%. In fact, DSR rejection case is at 75%. The second reason is, again, your CCRIS. Clean CCRIS doesn’t mean your record is good. If you walk into a bank with a clean CCRIS, even with a high income, you will find that most banks offers you loan only up to 80% margin, even when you still have the 90% margin quota with you. CCRIS is a very important key point and, yes, you probably need to have credit cards as to give your CCRIS a record. But you really need to watch your behaviour in repayment and keep a good record with prompt payment in your CCRIS.
What can we do to please the credit approving officer?
Rachel Lim: First thing first, let’s rewind back to the process of loan submission. You will not be seeing the loan approving officer himself, but you’ll be dealing with the banker responsible for you on that day, meaning that there’s a middle person in between you and the officer. So it’s not a direct interaction, which means you can’t please him or her. Then here’s my advice: When submitting the documents, you might want to ensure good and complete documents so that the banker doesn’t have to do much with it. This will ensure that the documents go to the hand of the officer in an instant, without any second check by the banker. In certain cases where the loan is not approved the first time but is approved the second time, it might be that the banker handling the documents is the one that gives trouble in the first instance, and the second time it might be a different banker.
If I’m at my third property, and my loan eligibility is only up to 70%, what can I do about it?
Adrian Un: I’ll give you three strategies. Number one: guarantor scheme. The only condition is that, for example, you are a husband and you have two properties, while your wife has only got one. Your income is high compared to your wife and you want to buy a property with 90% loan. What you can do is that sign the purchase agreement under your wife’s name. Now your wife can purchase the house, and you can become the guarantor, and since your wife only has one property, you’ll get the 90% loan, no question asked.
Strategy number two: third party loan. In a same situation, husband and wife can sign under the wife’s name, given that she qualifies for a loan. And strategy number three is that sometimes, if you have two housing loans, you can pay off one of the housing loans. Say that you only have the remaining loan of about RM100,000 for one of the properties, and you have enough money to pay it off since the down payment for the next property matches the remaining balance. Why not pay off the [first] loan, so you can buy the next property back at 90%?
Rachel Lim: First thing first, you need to know what you’re doing if you want more than two properties. Bank Negara impose the ruling of 70% loan for the third property because they want to make sure that there are no overheads in property owning, so you need to know what you’re doing. And for me, it’s just as Adrian said, you need to monitor your other two properties’ loan movements. If you can pay off one of the property first before buying the third one, then you can get the 90% loan. Take your financing responsibly. A banker also taught me that you can refinance your property under a company, in which you can move 60% of your loan into the company. This way, you can get your personal loan back to 90%.
Gary Chua: I totally agree with Rachel, if you take your financing responsively and only buy when you can afford it. So now I’ll summarise the two loan-sharing [strategies]. There are two main strategies to use and number one is using third party loan. Certain banks have different practices and there are banks that will allow you to be a guarantor which in SPA there can be two person’s name and you can be the guarantor even though the guarantor doesn’t have his 90% quota anymore. Another way to do this third party strategy is that you can join with your relatives. And the third one is that there are certain banks that allow a joint loan with friends. So you can have a joint loan with your friend who still has the 90% quota and the loan will be under his or her name while you are the guarantor.
The second strategy is really moving alone into a company, like what Rachel pointed out previously. To me, these are the two strategies that can you use and broaden it up into many more strategies of your own.
This article is featured by PropertyInsight Magazine