How to Escape the Rental Trap in Malaysia?
by David Geh; (6 June 2022)
What is the Rental Trap?
As rental costs continue to rise steadily year by year, the definition of a rental trap is when the cost of your accommodation takes up much of your income to a point where you struggle to save up enough money to buy a new home for yourself and your family. An online article states that a rental trap is a market-induced inequality. A typical renter may find that the cost to rent a place takes up a significant portion of their income that they may never be able to save up enough money to purchase and this is made worse by the yearly increase in rents either due to inflation, demand or other economic factors.
So how do you rent smart and save up for a home at the same time? Before I bought my own home, I have been living in over 10 rented homes ever since I moved out to live on my own at the age of 19. By 27 I managed to save up enough money for the down-payment of the place I have been calling home for the past 14 years. I would like to share some methods I have used and have learnt along the way in my 14 years of property sales, ownership and investment journey.
Purchasing a Home as an Alternative to Renting?
Many online articles advocate for home ownership as an alternative to rising rents and locking in your housing costs for 25-35 years if you take up a mortgage and buy a property of your own, but in reality this is a very far and unreachable target for many.
Nowadays though, one of the options to purchase a property of your own is to purchase a new property, which is usually heavily discounted to a point where you do not need to put any money down to sign a sales and purchase agreement. Traditionally when you purchase a new property you are required to put down a RM1,000 booking fees to lock in the unit you want to buy, apply for a 90% loan with the bank for the property and when your Sales and Purchase Agreement (SPA) is ready to be signed, you are required to pay the balance of 10% of the purchase price plus whatever legal and disbursement fees plus additional stamp duties on the memorandum of transfer (MOT) for the purchase of your new property.
Due to the competitive nature of the property market with many property developments mushrooming around the country, the landscape today has changed. Now you only need to pay a RM1,000 booking fee and apply for the 90% loan as usual with the bank. The balance of 10% down payment is usually offered as a rebate by the developer. In some cases the developer would even absorb all or some of the other acquisition costs involved in purchasing your first property and this includes legal fees for sales and purchase agreement and loan facilities agreement, disbursement fees and in some cases even the stamp duties on the MOT. On top of that they will also throw in other freebies like kitchen cabinets, wardrobes, air-cond units, fridge, tv and the works.
Now all of a sudden the cost of ownership of a new home in Malaysia becomes a non-issue. However, it is noted that this only applies to new homes which would probably take 3-4 years to complete (for high-rise developments) and between 2-3 years for landed properties. In the 2-4 years it takes for the developer to complete your new home, you would still need to rent a place to provide a roof over you and your family’s heads.
Are Residential Property Rentals in Malaysia Expensive?
Checks on property listing websites show that average rentals for a typical apartment unit in Kuala Lumpur is around RM1,000 per month. There are of course cheaper alternatives but below RM1,000 you would probably get an old or low cost flat, shop apartment or low cost house in the outskirts of the city. Rentals in the smaller towns in Malaysia are of course cheaper, but so are salaries. According to a DoSM (Department of Statistics Malaysia), median monthly salaries & wages recorded a double-digit decrease of 15.6 per cent from RM2,442 in 2019 to RM2,062 in 2020. While many economists paint rosy pictures of the economy in 2022 with double digit growths, the reality is far from that. Of course not everyone earns an average of RM2,000 per month, but the majority of us do.
So say the monthly rent is RM1,000 per month, it is already half of what many of us Malaysians earn in a month not taking into consideration other expenses. Many of these methods I am recommending here are highly unpopular but it can help to lower your monthly renting cost so that you can save up some money to pay for the hidden financing costs as well as some move in costs should you quality for a loan to purchase a property of your own, even though you only had to pay RM1,000 as a (refundable) booking fee. Let’s be honest, for many of us, even saving up for that RM1,000 itself is not an easy feat let alone another RM10,000 to renovate and furnish your new home and to pay for the stamp duties should you be required to.
Tips for Renting Smart (To Save on Cost)
Here are some of my tips. First of all if you are renting a whole unit, consider subletting the rooms you don’t need to others to lower your rental costs. Say you rent a 3 bedroom unit for RM1,000 per month and you only need to use 1-2 bedrooms, you can rent out the 3rd room for RM400 per month (fully furnished with wifi and an aircon unit thrown in, excluding electricity of course), then all of a sudden a RM1,000 per month apartment only costs you RM600. Over a 1 year tenancy period that give you a savings of RM4,800.
If you don’t fancy other people staying with you on a long term basis, you can opt to become a host on Airbnb or let out your vacant room on a timeshare basis. You can list your room on booking websites and allow people to choose when they want to check-in and check-out. If you manage it well, you are well on your way to becoming a super host. You can google ‘How to become a super host on Airbnb’ and articles about this topic are never in short supply.
Another way I’d recommend is, something which I have been doing for years before I purchased my own home is to rent cheap. Instead of renting a RM1,000 per month home, I’d search for one that is between RM500 to RM700 per month. Before you say it’s impossible, remember that you can rent a 2-room People’s Housing Project (Projek Perumahan Rakyat) unit for as low as RM140 per month in KL city. If you fire up iProperty or propertyguru or even mudah.my you will be surprised to find that there is still accommodation available at this price point.
Some are repurposed shop-lots, subdivided apartments, terrace houses or bungalows, self-built houses in the new villages around the city (kampung baru) , older flats or apartments further away from the city center. I once rented a 3 room flat with lift access near Sg Long, Cheras for RM400 per month back in 2006. Checks on Mudah.my revealed that to rent a similar property today only costs you RM500-550 per month. Sometimes living in places a little further from the city center can turn out to be a blessing in disguise for the peace and quiet you get and the quality of life, although a bigger sacrifice would be time commuting to and from work if you work in the city. With MRT, LRT and other public transport available today, this may in a way address this problem. Otherwise you can opt to buy a motorcycle to commute to work or carpool with others you know to reduce transport costs.
How About Renting with Zero Deposit?
A further way to save rental costs is to rent with zero deposit. It is something more and more tenants are becoming aware of and more and more landlords are starting to accept and grow accustomed to. Zero deposit is basically an insurance product designed to replace the traditional security deposit when renting a home. Basically it provides a sum assured that covers for rental loss should a tenant run away, cover for unpaid utilities bills, malicious damage to owner’s property and also fire insurance. BlueDuck offers this zero deposit solution which you can check out on www.blueduck.my
Why should I opt for this instead of paying a security deposit to the owner when I know very well I can get the security deposit back at the end of the tenancy while if I pay for the premium of this zero deposit, I will not be able to get it back in the end, you may ask. First of all that’s an awesome point to raise, second, tenancies are usually for a minimum period of 1 year. If you are just starting out in life, coughing up RM3,500 upfront to rent a RM1,000 per month place is a big deal. Not many of us have that kind of money lying around, unless you are from a rich background, in which case you wouldn’t need to be renting in the first place. Second, even if you did have that much money lying around, you might need it for contingencies in that 1 year which you are renting.
Say halfway through renting a place you found somewhere to buy and it only required you to put a RM1,000 booking fee down. You would still need to pay the ‘hidden fees’ of that transaction, after getting a 10% rebate from the property developer and securing a 90% loan. Some of these hidden fees include disbursement fees and loan legal fees which are sometimes not covered in the package the developer offers. You can of course bundle it into the loan you took but it would mean your monthly payment increases.
If you ask me, a rental trap is there as long as you don’t have the solution to go around it. You will be stuck in the vicious cycle of paying expensive rent every month and not being able to ever afford your own home and having your rental costs increase year by year, further handicapping your ability to own your own home as long as you do not find a way out of it. We hope this article helps in your journey to finally owning your own home if you are currently still renting.
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