Thursday, April 28, 2011

Why I bought a house?

I need to be careful with the choice of words in this entry so that I can share enough for the benefits of many yet it does not sound boastful. The title of why I bought a house may makes many think I finally bought my first house. Well, not exactly. It's an upgrade actually. I bought my first house two years after I came out from school. That was my first priority. All I did was saved and saved enough for my down payment. Believe it or not, income tax department went after me asking me how I got my down payment money. I graciously wrote to them explaining how frugal I was. Well, again not exactly. I was thankful that my father-in-law allowed both us stay in a small room and loaned me his 27 years old workhorse to work. The logic behind that priority was my salary will never be able to chase the inflation of house.

Now, in the middle of many debating about housing bubble in Penang, answer this question: Why are you Turtle upgrade your house? It was during last year, May '10, the recovery was very shaky and uncertainty clouded developers, buyers and banks. I love uncertainty because people tend to misprice the future valuation. Many buyers were in wait and see mode because they were not sure whether the recovery was real. I' ve been eyeeing a particular house and finally the moment arrived. The developer reduced price by almost 7% with free legal fees. That alone saved me almost RM 100 k. Not only I was enjoying a substantial saving but also rewarded with higher certainty -- the progress of the housing was well on track. Good discount and higher certainty were too good to pass.

Secondly, the banks were still facing intense price war. Right after I put down by booking fees, 4 major banks called me. That was fun because many years ago, I need to beg banks to loan me money. Now I can pit against them to get the best deal.

One of the things that I learn is this, years of being conservative paid off. I've ZERO debt at that point except a couple of hundred Ringgits undue credit card outstanding. That clean credit really attracted them believing that I can be their good customer. They gave me an excellent discount from BLR. To be professional, I can't disclose that rate. All I can say it's as low as crisis period. That discount again will save me a substantial amount of money.

The interest saving that I locked in will certainly way below the house inflation rate which is appreciating within 7 - 9 % over the mainland. If my final aim is to stay at certain size after retirement. It's cheaper to own it now. I can compound my money much faster than loan interest, though I'm leveraged now.

Back to the interest expense relief thing. We had a few chats in comments section. So to be fair to all, let me requote this for all. One of the most frequent ask questions is how to get relief from income tax on interest expense. This is what they said:

"4. What are the conditions to claim deduction on housing loan interest?

Interest expended to finance purchase of residential property. Relief of up to RM10,000 a year for three consecutive years from the first year the interest is paid.
Subject to the following conditions:
i) the taxpayer is a Malaysian citizen and a resident;

ii) limited to one residential unit;

iii) the sale and purchase agreement is signed between 10th March 2009 and 31st December 2010; and

iv) the residential property is not rented out."

Depending on your tax bracket, the Income Tax department could give you a big ang pow of 30,000 relief over a period of 3 years. That could translate into a maximum saving of RM 7,800.

The last point was of course it's natural that you buy something solid to prevent you from doing something stupid with your gains from stock market. That's why housing market appreciation and stock market have almost 70% correlation. I'm grateful that I got out almost at perfect timing before the hurricane and bought enough stocks when I saw blood on the streets.

1 comment:

Caprio said...

First thing first, thanks for your inspiring post!

Btw, I am curious that how could you afford to buy a house right after you came out from school? Could you share with us what exactly done to achieve that? I am going to graduate soon, but with my current financial situation, it is impossible for me to cover the downpayment...

I hope that you could share some specific tips how do you achieve that? Beside stock market, do you other assests?

Thanks for your reply.