If you’re a young professional working in the Klang Valley, chances are you’ve been stuck in quite a few property investment conversations.

While investing in property might seem like the cool new thing to do, the reality is, most young people living around Kuala Lumpur and Selangor have been facing problems buying their first homes.

With the current property prices, most young people in the Klang Valley will struggle to buy their first houses.

James Tan, 25, had been planning to buy a house of his own since he started working two years ago.

After staying in a rented room for about a year while looking at condominiums to invest in, James quickly realised that he wouldn’t be able to afford the down payment and legal fees for a completed sub-sale property.

Instead, James turned to one of the many property developers offering rebates and incentives on those first-time payments, and was able to secure a house for just RM3,500.

The problem, however, is that the unit will only be completed two years from now. And of course, there’s the risk that the project could get delayed or, worse still, abandoned.

But that’s how desperate young people can get these days in their quest to own their first property. The huge financial risks have become part and parcel of buying property in the Klang Valley, and young people are having to face some tough calls because of that.

“Most of my friends have turned to buying developers’ units for all those rebates, even though they have to wait a few years (to move in). The prices are just getting too high,” said James.

Others like Julia Emmanuel says she feels “pressured” by escalating property prices to buy a house as soon as possible.

She’s been looking for six months now, but she just doesn’t see how she’ll be able to afford anything in the near future.

“I’m staying with my family now, which I don’t mind. But with prices increasing all the time, it’s better to buy now, because if I wait any longer, I might never be able to afford a good place,” she said.

Real estate agent Zack Chong says it’s a familiar story.

The trend of investing in properties over the last few years has created a generation of young professionals who mostly know a thing or two about the market, yet what they know is causing some to panic.

“We definitely have more young people trying to buy properties today. They see property launches and updates every week on the Internet and in the newspapers, and all the prices are going up. You don’t see anything around RM150,000 anymore, so they feel pressured to buy,” said Zack.

John So, 25, was so worried about the property market spiralling out of control, that he took the plunge on a condominium that cost almost half a million ringgit last year.

John had only just started working at the time, but decided to buy the property anyway as he was planning to propose to his long-term girlfriend, and his parents had offered to help with the down payment.

“We really liked the place. The location is good for us to get to work, and the price can still appreciate. So we had to make a decision fast – to go for it before it became completely unaffordable,” he said.

Budget limitations

The Budget 2012 announcement on the changes to the My First Home (MFH) scheme was supposed to help people like James with their down payments, but House Buyers Association (HBA) vice-president Brigadier-General (retired) Datuk Goh Seng Toh says there are problems with it too.

For one, the MFH scheme can now be applied for properties valued up to RM400,000, allowing young people earning less than RM3,000 a month to buy those properties with a 100% loan and special interest rates. The ceiling price had been RM220,000 before that.

The changes to the My First Home scheme announced by Prime Minister Datuk Seri Najib Tun Razak could bring about a new set of problems.

“(With the scheme) you will see an increase in young people buying properties, but you will also see an increase in young people defaulting on bank loans,” said Goh.

“That’s because many of them will be right on the borderline of affording a RM400,000 home, but the banks will be tempted to give loans to them. They will be in a very precarious position – what happens if there’s a family emergency and they need money?”

He added that developers could be tempted to take advantage: “Now they know there’s a market for RM400,000 houses, they’ll provide more houses in that price range, or even be tempted to push up their prices.”

The long haul

Securing the property, however, is merely the first step of a long journey for young home owners.

At around RM1,300, the bank loan repayments for James’ house will take up around 30%-40% of his monthly income when his condominium is completed in 2013.

Considering the average gross salary for degree graduates in Malaysia is between RM2,000 and RM2,500, that amount can be quite daunting.

The industry rule of thumb is that your house loan shouldn’t take more than 30% of your monthly salary. Based on that, someone earning RM2,500 a month would only be able to afford a house that costs just over RM200,000, an amount which leaves them with not too many options in the Klang Valley or any other developing city in the country.

That’s also not including other costs like legal fees, renovation, furnishing and utility bills.
For John and his fiancee, their combined income is only just enough to pay for their monthly repayments, and they haven’t even moved in yet.

“It’s quite stressful. We not only have to pay the bank every month, we also have to pay maintenance fees, and later on the utility bills.

“We thought about renting it out, but we’re still not sure as we might be moving in quite soon, too,” he said.

As for Julia, she said that even though she qualifies for the MFH scheme, it’s still hard for her to find the right place, as she doesn’t have enough money to buy a car, and therefore needs a place near an LRT station to get to work.

“Suitable” housing

According to Goh, it’s already hard enough for young people to afford housing in the Klang Valley, but finding a “suitable” house, on the other hand, is near impossible.

“The key word here is suitable – it’s very important. A suitable place is one that’s near your place of work, with public transport and has amenities like schools, kindergartens and things like that.

“They could probably buy a bungalow in Ulu Yam, but would it be suitable? If you’re looking at someone like an engineer, someone who is supposed to be successful and respected in their field, you can’t expect them to be staying in low-cost houses,” said Goh.

Finding a cheap home isn't that tough if you consider the outskirts of town, but it might not be the most practical option for those working in the city.

Couples who combine their incomes could probably afford such suitables homes where they can enjoy reasonably comfortable lifestyles, but Goh cautions that it could also leave them in very unstable financial positions.

“When you’re so heavily reliant on your joint income, what happens when you have a child?

“The wife can’t quit and that leads to other social problems – you’ll have to get a nanny to look after your child, and the quality of your family life will be affected because you are both constantly working for the house,” he said.

Engineer Erica Ting is also on the hunt for her first house. She has colleagues who have had no choice but to buy houses that are further away from their workplaces.

However, Erica is thankful to be in a better financial position than most, and can afford to wait for a more suitable property to come along, one that won’t see her driving through bad traffic to and from work every day.

“I’ve been taking the LRT to work all this while, but looking in the long run, I’ll have to drive. And you don’t want to buy a place where you’ll spend two to three hours every day driving through traffic,” she said.

For Erica Ting, a suitable property would be one where she wouldn't have to go through crazy traffic every day to get to work. And she still hasn't found it yet.

The wait

For those who are desperate to get a property before prices get out of hand, Danny Yeo, deputy managing director of property consultancy CH Williams Talhar & Wong Sdn Bhd, has one piece of advice – be patient.

“The market will always go up and down,” he said. “If you do your homework and be patient enough, you will see the trends. Then, it’ll just be a question of waiting. There will come a time when the speculators will have to dump their properties.”

Danny added that the steps the Government has taken will also help.

“The Government just increased the real property gains tax with the new budget, and we already have the 70% loan-to-value limit on third properties. And with the global economy not doing well, you won’t see prices spiraling up as they have been,” he explained.

In the meantime, while the market is still too hot, Danny suggests young people start looking and doing some research.

He said: “If you’re planning to buy, identify and view projects that appeal to you. Monitor them, and wait for the right opportunity to buy. Don’t be afraid to rent for the time being, and don’t worry that you’ll miss out on the opportunity and never be able to buy it. Your chance will come.

“But of course, stay realistic. Don’t wait for a million-dollar property to drop to RM300,000.”