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Is using EPF contributions a solution to owning a home?

Employees’ Provident Fund (EPF) money is best left for our retirement. But is it safe? Yes, unless Malaysia encounters some unforeseen circumstances where even the EPF has to be disbanded. Otherwise, it is safer left in our EPF account rather than in any bank, even if it’s the largest bank in the world.

Then, the second question, “You think EPF returns are better than outside?” Briefly, it should be. For the risks versus returns assessment, the EPF carries a rating of good, if not excellent and definitely not bad.

However, the following is an interesting proposition.

According to an article in FreeMalaysiaToday.com, deputy president of the Malaysian Institute of Professional Real Estate Agents and Consultants, See Kok Loong said that the government’s one million homes in 10 years is not a solution for the B40 and M40 groups.

See said that B40 and M40 groups were unable to own homes due to their low real residual income.

He cited a study by Khazanah Research Institute which showed that real residual income for those earning a household income of RM2,000 and below per month was only RM76.

He said, “How can you pay instalments with RM76 per month? No bank would want to give you a loan.”

He proposed that EPF members be allowed to draw from their monthly contributions to pay for monthly instalments. This allows them to own a property and have higher real residual income without having to pay rental. He gave examples of some calculations.

“The B40 median household income is RM3,000 per month, so their monthly contribution to EPF is RM720. With the RM720 at an interest rate of 4.4% and a tenure of 25 years, the member is eligible for an RM135,000 loan.”

“For the M40, the median income is RM6,275 per month. Their contribution is RM1,443 per month and with an interest rate of 4.4% and tenure of 25 years, they will be eligible for a loan of RM270,000.”

Actually, it would be good to know a little about the kind of property an EPF member can buy for RM135,000 and RM270,000.

If the property options are really good – features, size and location – using EPF contributions should be seriously considered. The reason is because a piece of good property will always be a good hedge against inflation.

Usually, capital appreciation will beat inflation, and the return on investment will be in the double digits too!

Whether to use our EPF money or not is a big decision to make. Perhaps more discussion, consultations and negotiations are needed before any decision is made.

Source: Free Malaysia Today