Parents who bought homes decades ago, such as a PJ terrace bought for RM120,000 and now worth about RM1.2 million, can afford to help their children buy at today's prices. Sean has heard from children who resent paying for a home their parents chose, and from one who wanted his parents to withdraw their EPF for his second home.
Should parents buy property for their children, and should children ask them to?
“Be accountable for whatever decisions that you make.”
Parents can help, but use it to teach: pay the down payment and let the child pay the instalments, as savings for the future. Children should stand on their own feet; borrowing a sum and repaying it is fine, but asking for parents' savings to invest is not.
Why
Paying the instalment teaches responsibility
A friend earning RM4,000 to RM5,000 and living with his parents had a unit bought in his name, the parents paying the down payment. Already paying close to RM2,000 a month for a car, he resented the instalment, but it taught him that commitments must be paid.
Handouts breed entitlement
Sean knows a family where each of six children was given a home. They had no idea what their RM1.6 million semi-D costs, about RM5,000 to RM6,000 a month over 35 years, and came across as arrogant.
Parents' savings aren't yours to risk
If you want your parents' EPF, ask whether you can promise them the 5.5% to 6% a year it earns. Rates, bank rules and government policy can all change, and if the deal fails, the loss falls on their retirement.
Know what a home costs to carry
Sean's rule of thumb: every RM100,000 of loan costs about RM500 a month over 30 years, so a RM1 million condo means RM5,000 a month and an income near RM15,000. A peer on RM6,000 who owns one is most likely being helped.
What to do
- Parents: if you help, explain why, and present the property as long-term savings rather than a gift.
- Children: if you borrow from your parents, borrow a fixed sum and repay it with interest once you can.
- Don't ask parents to withdraw EPF or other retirement savings to fund your investment.
- Buy within your own means, using the RM500-per-RM100,000 rule to check the instalment.
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.
Should parents buy property for their children?
Sources & Verification Data
Summarised from Sean's full English captions for this November 2019 episode. The quoted answer is verbatim; everything else is paraphrased. The captions are unclear in places, so only clearly stated points are included.
