DSR is a key factor in obtaining a property loan

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.