Sunday, April 16, 2017

Property Investment - Loan Compression Strategy?

A lot people want to make money out of property market due to its 'easiness' and 'do nothing' but via rental and capital appreciation. However, there's a guru shared in FB that the one should try to avoid Loan Compression.

What is "Loan Compression"? Do you know what the consequences are if the local banks found out?

It means when you are greedy wanting to buy 3 properties at the same time knowing that your income can only support 1 unit, u are trying to trick different banks by submitting different applications for your 3 separate unit loans, and when both bank gives loan approval, u sign at the same time *(hoping that the bank won’t check your CCRIS before releasing your loan) and you've successfully tricked the bank by buying 3 property at the same time which your income supposedly only able to afford 1 unit.

Everybody knows in year 2011 Bank Negara had imposed a ruling of MoF (Margin of Finance) 70% or LTV (Loan to Value) 70% for 3rd property onward. (Which was meant to bring down household debts, reduce gearing, and control housing prices).

When one is being greedy, in order to buy more at the same time with 90% loan young innocent individuals are advised by so called expert Property Guru to Multiple Submission using "Loan Compression" technique.

This is based on true story where a local financing expert property guru teaching an innocent lady to execute Loan Compression.

Last night a little naive and innocent lady came to me and ask for this ethical FB guru advise that whether what she is doing now being rational or not. She paid money to join a class conducted by a Property Guru and join them into purchase of a RM1million property with rebates up to 20%.
(If she can get a loan up to 90%, she is able to Cash out RM100k from this purchase, because developer mark up SPA giving higher rebates).

As a matter of fact, this little lady is a salary earner only getting a paycheck of RM8,000 a month.
She was advised by the property guru to WHACK x5 units at the same time (RM1mil x 5 = RM5million portfolio = RM4.5mil loans = RM500k Cash Out).

Using Loan compression technique trying to deceive the banks by submitting application into 5 different banks hoping that all loans will get through so that she will Cash Out RM500k with a RM4.5million loans to repay, a monthly installment of up to RM25,000 *(plus maintenance = RM28,000 TOTAL).

Banks before releasing/disburse the loan to the developer, the credit/risk department will once again check the applicant ccris, and all the loans will reflect in the ccris if Loan Offer signed. Once the bank sees there are x5 loans under ccris with a total of RM4.5mil loans, it will trigger an "ALERT" and Then the Risks & Investigation Officer will:

1.    Terminate the applicant loan acceptance (and put the individual name into Special Attention Record) within all the banks (Internal Systems) in future she will likely not being able to get loan from this bank anymore.
2.    The bank will recall the loan acceptance (consider nothing happened). LUCKY case.
3.    The bank will INVESTIGATE this individual by interviewing the applicant to justify what are the loans. Once found out, the bank will REDUCE THE LOAN MARGIN to 70% and applicant requires to pay additional differential of 10% to the developer (because got 20% rebates off spa initially).
4.    If the loan has disburse/drawdown to the developer, and after few months Bank's risk dept will random pick applicants to check their ccris, if found out there are multiple loans in ccris, banks will investigate the applicant to justify the loans. If cannot justify, the banks will RECALL and REDUCE the margin to 70%. Hence applicants need to top up the 10% to BANK, because bank has release the loan money to developer.

If the purchaser cannot afford to pay and bail out, then BANKRUPTCY is her only option!


nitin singh said...

Thank you for sharing this information. It has helped me to know more about
capital gains tax on real estate

sups shelar said...

Thank you for sharing such great information.
It is informative, can you help me in finding out more detail on
home loan interest calculation.

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