Buying a Third Property: Securing a 90% Loan
This article explores strategies for obtaining a 90% loan when purchasing a third property in Malaysia, based on a discussion between Vincent Tai and Allyson from 【房谈金论】. It delves into various approaches, from straightforward solutions to more complex financial maneuvers.
The Challenge: Loan Restrictions on Multiple Properties
Typically, securing a 90% loan for a third residential property is challenging. Conventional wisdom suggests that banks usually cap the loan amount at 70% for third properties, especially those with residential titles. The core issue revolves around how many existing home loans an individual currently has.
Solution 1: Settling Existing Loans
The most direct way to qualify for a 90% loan on a third property is to settle the outstanding balance on one of your existing home loans. This clears your credit report (CCRIS) and makes you eligible for a higher loan percentage on the new property, provided you meet the Debt Service Ratio (DSR) requirements. This approach is particularly suitable if the outstanding balance on the existing loan is relatively small and manageable.
Solution 2: Investment Holding Company (IHC)
A more sophisticated approach involves establishing an Investment Holding Company (IHC). This entails transferring ownership of existing residential properties to the company.
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This effectively removes the properties from your personal credit report.
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It can improve your DSR and increase your borrowing capacity.
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IHCs are often used by high-net-worth individuals for estate planning.
However, this method requires careful consideration:
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It's suited for individuals who can establish and manage an IHC.
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Residential property loans under a company name are typically capped at 60% of the property value.
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Setting up an IHC involves additional costs, including legal and auditing fees.
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The company structure and its investment focus are crucial considerations.
IHCs can also simplify estate planning. Instead of individually bequeathing properties to different heirs, ownership is held by the company, and heirs receive shares, avoiding potential disputes.
Solution 3: Utilizing "Hidden" Loan Facilities
Some insurance companies in Malaysia offer housing loans that are not immediately reflected on conventional credit reports.
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These "hidden" loans can be used for the first two properties, allowing you to secure a 90% loan for the third through a regular bank.
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You can also refinance existing loans to this type of facility.
A key characteristic of these loans is that they typically offer fixed interest rates, which provides stability and protection against fluctuating overnight policy rates (OPR). However, the downside is that you won't benefit from potential interest rate decreases.
Solution 4: Proxy Ownership
A riskier and less conventional method is proxy ownership. This involves purchasing the property under someone else's name (e.g., a friend or family member) who has a clean credit history.
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A legal agreement is drafted to protect both parties, outlining the terms of ownership and financial responsibilities.
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The actual owner is responsible for loan repayments, while the legal owner acts as a proxy.
This approach is highly risky due to potential disputes, inheritance issues, and the inherent vulnerability of relying on another person's integrity. The article emphasizes the risks of this method citing a high profile Hong Kong murder case where assets placed in another's name led to dire consequences. It's generally advisable to avoid this method and prioritize purchasing property under your own name whenever possible.
Other Considerations
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Debt Service Ratio (DSR): Regardless of the chosen method, your DSR must be within acceptable limits for the loan to be approved.
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Credit Card Debt: Clearing outstanding credit card balances can improve your DSR and increase your borrowing capacity.
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Diversification: Consider exploring commercial properties (shop lots, offices, factories) instead of solely focusing on residential properties, as they may offer different loan terms and potentially higher loan percentages when using an IHC.
Conclusion
Securing a 90% loan for a third property requires careful planning and consideration of various financial strategies. While settling existing loans is the most straightforward approach, options like IHCs and "hidden" loan facilities offer alternative solutions. Proxy ownership, however, is a high-risk strategy that should be approached with extreme caution. Consulting with experienced bankers and financial advisors is crucial to determine the best course of action based on your individual circumstances.
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