By Tan Yin Liang
Purchasing a property and obtaining a bank loan for it
pretty much depends on your DSR (debt servicing ratio).
A common complaint that we often hear from Malaysians
nowadays is that house prices are skyrocketing and they don’t know if they
qualify for a bank loan.
Before
buying a house, most people want to know how much they can borrow.
Many,
including professionals such as engineers and doctors, have had their application
for bank loans rejected despite having a sizable income/salary level.
Obtaining
a property loan is undoubtedly the biggest concern or in some case, the biggest
headache for a property buyer in Malaysia.
We
spoke to Datuk Dr. Elamaran Sabapathy, an accountant and property developer on this issue, to get answers
on how a person’s DSR affects his or her loan application.
“There
are a few factors that determine whether your loan application is approved or
rejected and it all boils down to your DSR,” said Datuk Dr. Elamaran.
“How
much a bank can led you depends on these key factors,” he explained.
“The
most important factor is your DSR. Then comes an individual’s risk profile and
the property valuation,” he said.
“After
that comes the maximum loan-to-value ratio or margin of finance that the bank
is willing to give you.
“In
practice, banks use refined rule sets during credit approval and it can be said
that credit policies differ greatly from one bank to another. Even maximum
borrowing amounts can differ by a significant margin between different banks.
“The
focus for a buyer should be his or her DSR.
Datuk
Dr. Elamaran explained that DSR (Debt Servicing Ratio) shows how much of a
person’s income is used to service debt installments, and is represented as a percentage
(%) of income.
He
said a component looked into by banks is the commitment/income indicators.
“There
can be major differences in the final DSR amount that is calculated between different
banks.
“This
is because every bank has their respective calculation methods for income and commitment
recognition
“For
example, one bank may base their DSR calculation on gross income of an
applicant while other may base it on net income.
“Once
the DSR has been determined, every bank will have their respective guidelines
for maximum allowable DSR threshold which is often pegged to the income level.
“There
are also other factors that will count in such as qualifications and age,” he
said.
“Basically,
to sum it up, an applicant’s DSR shows whether he or she is in a healthy cash flow
position and whether they can afford to pay the monthly installments.
“For
example, a person who earns RM15,000 per month but has fixed commitments
(existing loans) that tops almost 2/3 of his salary might not be in a
very solid position to get a property loan with monthly installments cost over RM4,000 a month.
“What
the banks are looking for, in simple terms, is someone who earns a lot but
spends very little amount of that servicing the installments of existing loans,” added
Datuk Dr. Elamaran.
