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Tuesday, September 7, 2010

80% LVR (Loan-to-Value Ratio)?


Property investors should be constantly feeling the pulse of the market. One of the things that I feel will be inevitable is Bank Negara's potential directive in raising the loan-to-value ratio to 80%. According to the ministry of housing and local government, such a move should cool the speculation on property prices so that there will not be people who are putting out very little downpayment money, to flip their property quickly after capital appreciation, and thereby creating a property bubble that will burst and affect the economy later. In fact, according to the ministry, this move will not dampen the property market in the long run. See also "Loan mortgages move would not dampen market."
While many business analysts feel that this will affect the property market in the short-term due to knee-jerk reactions, small time investors like us will definitely feel the pinch in having to come up with a bigger downpayment to secure our next piece of property.
So, what do we aspiring property investors do in such a situation?
Well, go back to the basics, as the property gurus say:
1. Whatever the bank policies, we need to build up enough seed money. Practice delayed gratification, for example, if you are planning to take a family trip overseas for the year end holidays, change your plans to do Cuti-cuti Malaysia instead. It takes a bit of cutting back here and there to try to come up with the 20% downpayment.
2. Invest, not speculate. Do our homework to look for rental-income properties, not just buying for fast capital appreciation to sell. Let's look at the BNM (potential) implementation as something good as it will force us to do our homework well and not just follow the crowd and buy in a frenzy.
Photo from Chinadaily.com

Post-note: As of Tues, 21 Sept, the PM announced that it is still 90% LVR for 1st and 2nd purchase, but no mention about what the LVR will be for subsequent purchases.

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