Joint ownership, an easier way to own a house?
SECURING a mortgage to buy a house is not easy these days as financial institutions continue with their tight lending policies. But your chances of getting the loan approved may be higher if you buy a property through joint ownership.
Indeed we are seeing more people buying properties as joint owners. There are also many so called group property investors in the market, taking advantage of the buying powers of the group to own as many as 10 properties at any one time!
Chur Associates managing partner Chris Tan notes that buying homes through joint ownerships has become a trend in Malaysia. “Homebuyers are no longer hunting for properties alone like a tiger but rather in a pack, like lions,” he says.
“Escalating property prices in the past few years has made it more difficult than before for individual middle income earners to buy a property. We may soon see marriage proposals that pop this question ‘would you like to buy a house with me?’ (instead of the usual ‘will you marry me’),” he tells TheEdgeProperty.com.
He notes that purchasing a house through a joint ownership is the faster route to owning a property as it leverages on the incomes of the joint owners to get a higher margin of financing.
“And if they are young owners, that will allow for a longer tenure and a lower rate of monthly instalments,” he adds.
There are three main types of joint ownerships: couples (married and unmarried), family members, and friends or investment partners.
Tan says every joint ownership has its problems but the best form is through business entities of which unanimous consent is not required and solutions are purely commercially driven and there are no emotions involved in the decision-making process.
VKA Wealth Planners head of financial planning Lawrence Seow emphasises that even though joint ownerships will make house buying easier, one needs to plan ahead before committing themselves into a property purchase.
“If you are not careful and do not think things through, the financial burden will affect all parties of the joint ownership. Most of the time, joint ownerships become relevant if the owners are married couples or those who have strong relationship ties and trust such as parents and siblings,” he explains.
However, he notes that if the property is for investment, sometimes conflicts happen as individuals, parents, siblings and relatives have different financial needs and objectives.
“The parents may be looking for short term gains due to their retiring age, while the siblings may want a longer-term investment on capital appreciation to grow their wealth. All this pull and push factors make the investment decision a difficult one to make,” Seow adds.
As for taxes, the main advantage would be if there was rental yield, where the taxes can be shared equally among the various parties.
“For example, if the retiree does not earn any income, the burden of paying taxes will be lesser compared with one whose income falls under the maximum tax bracket,” he explains.
Both legal and financial consultants concur that the biggest problem with joint ownerships is there is no one proper exit strategy which could protect the rights of the owners.
“The exit strategy is important. Joint owners must agree on a solution in the event one owner is unable to fulfil an obligation. Basically, we must start with the end in mind to prevent unnecessary dispute in the future,” Tan explains.
When there is conflict, it would be difficult to set aside differences and try to remain objective. Thus, the decision-making may not be unanimous and done out of emotional stress.
For any form of joint ownership, Seow advises the owners to seek legal advice and to sign a formal agreement which contains the terms and conditions to protect their rights.
In establishing a joint-ownership relationship, he notes that understanding one’s financial needs and plans are important to establish a clear and definite goal, such as expected returns and debt-to-income exposure of the joint owners.
“Without a common objective, it is going to be difficult to weather through the tough times. Joint owners also need to create an exit mechanism in case they are faced with unexpected events such as death, illness, recession, retrenchment or even strained relationships,” he adds.
This story first appeared in TheEdgeProperty.com pullout on Aug 5, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free.