Buyers used to need 10% down, and Sean needed nearly RM50,000 to buy his first RM300,000 property. Today developers offer discounts of at least 10%, cash backs and RM500 booking fees, and many young buyers take that to mean property needs no money at all.
Is a no money down deal really free of money, and who can use one?
“You still need money even though it's a zero money down deal.”
Only by the end of the deal. You still need cash to get it started and the income to qualify for a loan at the right margin; the "zero" appears only once the bank releases the loan and refunds what you paid.
Why
Subsale deals still need 10% upfront
In a subsale, the deal rests on the gap between the bank's valuation and the price, so that a 90% loan covers the whole purchase. You still pay a 2% earnest deposit and the rest of the 10% at the SPA, refunded only after the loan is released, and you usually cover any extra RPGT the seller pays.
Developers want more than RM500
Established developers usually ask 1% to 3% upfront, often RM5,000 to RM15,000. It is refunded once construction reaches a stage the bank pays for, such as when the foundation is done.
It all depends on a 90% loan
These deals work only if your age, income and record get you a 90% loan. From the third property the margin drops to 70%, which is why discounts of 25% to 30% and cash backs appeared: they fill that gap.
Infinite returns didn't save the old deals
About 11 or 12 years earlier, Sean saw investment clubs sell bulk-purchase units on "infinite returns", since any return divided by zero capital is infinite. None of those properties succeeded.
What to do
- Keep cash for the booking fee, earnest deposit and balance of the 10%, even when a deal is billed as zero down.
- Check that you qualify for a 90% loan before relying on a discount or cash back.
- Decide in advance what the capital you keep will do, such as investing it, rather than letting it fund your lifestyle.
- Be wary of anyone promising several properties on a fresh graduate's salary.
Editorial Note: Summarised from Sean Tan's full episode. The quoted answer is in his own words; the rest is our paraphrase. Figures reflect the recording date, so check current rates and rules before acting on them.
YOU STILL NEED MONEY FOR NO MONEY DOWN DEALS
Sources & Verification Data
Summarised from Sean's full English captions for this July 2021 episode. The quoted answer is verbatim; everything else is paraphrased. Loan margins and developer practices are as described in 2021.
