Thursday, May 01, 2008

Buying home during turbulent times: Ten mistakes to avoid



Buying a home during turbulent times?

Share prices are falling. Inflation is rising. Property prices remains uncertain. Financial and banking system have never been seen as fragile before. Job market seems bleak. However, you (and your partner) have decided to buy a place call home. Below are the top ten mistakes you can avoid in buying a home.
We bought our home, a condominium, at the midst of Asian financial crisis in December 1997. The share market had fell by half. Future of property market seemed fragile but had without sign of cracking, yet. We made most of the mistakes listed below. Therefore, despite the economy conditions, the seller's agent was able to hold tight to the price offered. We did not manage to reduce a single cent. Looking back, we were lucky to go through that difficult period. However, if we were not so naive, we could have saved huge.

Market Timing

1. Not now, just delay for a while. In the time of fragile economy and slowing growth, you are taking greater risk to buy a property.

a. Property prices
Property prices may stay or fall further, while it is unlike to go up in near term. If the property prices had not fell or had not fell significantly, it does not hurt just to wait for while (3 - 6 months) and see.

b. Banks are reluctant to lend during this period
Your bank marketing officer assure you that you can get loan for this property. You happily place your 10% down payment to the seller. A week later, the bank credit department reject your loan application. You are left to scrabble for financing or risk losing your 10% down payment. Banks are simply reluctant to lend during economy slowdown.



In other scenario, your bank may want you to pay higher down payment and take less loan.

c. Depends on Central Bank strategies, interest may go up.

After just one year, the property market crashed (selectively) too. If we waited for just a while, we would have paid 30% lower.

We were lucky enough to get a loan during that period as I was working for a financial Group. The bank within the same group has got no problem in lending us home loan.

However, our first few instalments from July 1998 were lower than the monthly interest expenses due to interest rate hike after the loan was approved. IMF, though its aids was rejected by Malaysia government, was preaching for higher interest rates. All Western media was preaching about market forces and higher interest rates. (In 2000 and Today, US Federal Reserve did the opposite lowering interest rates. Western media kept quiet.)

Our loan principal went up for a few months.






Next

Part 1: Buying home during turbulent times: Ten mistakes to avoid
Part 2: Buying home during turbulent times (2): Ten mistakes to avoid
Part 3: Buying home during turbulent times (3): Ten mistakes to avoid
Part 4: Buying home during turbulent times (4): Ten mistakes to avoid
Part 5: Buying home during turbulent times (5): Ten mistakes to avoid