October 2007 Part B Question 4 a. Discuss three reasons why people buy houses. i.

Long term capital growth Buying a house will give people advantage for long term capital growth. House value is not only preserved by also steadily increasing in value. The price of the house always increases from time to time, so from that people that buy a house will get higher value if they buy a house. For example, the price of the house in 2007 is RM 100,000 but after five years the price of the same house increases to RM 200,000. ii. Reasonable income yield If the house is being rented to somebody else, the rental income is able to partially cover monthly mortgage with hopefully with some extra left. It can help the owner of the house to pay the monthly mortgage using the rental income that he or she gets. iii. Real return above inflation rate The rate of return that we get compared to the inflation rate is normally higher than the inflation rate. Its mean that the value or price of the house always higher.

b. Buying a house can be expansive. Besides price of the house, explain three other additional fees and expenses that are incurred in buying a house. i. Down payment Generally if we want to buy a house, we need to pay a booking fee of 2% or 3% of the purchase house. This is non-refundable; it can be refunded only if a persons loan application is rejected by a bank. In addition, the bank usually finances up to 90% of the price of the property. These mean that we have to pay at least 10% in cash for the down payment. ii. Stamp duty Stamp duty is levied on the document of transfer that is the Memorandum of Transfer if the title has been issued, or the Deed of Assignment of the Principal Selling and Purchase Agreement (SPA) if the title has not been issued, the stamp duty is based on the purchase price of the house which are 1% on the first

RM100, 000, 2% on the next RM400, 000, 3% on the next RM 1,500,000 and 4% on the remainder. iii. Legal fee The first Schedule of the Solicitors Remuneration Order 1991 set out the fees to be collected by lawyers for work done in handling the sale or purchase of house based on the purchase price is 1% on the first RM100, 000, 0.5% on the next RM4,900,000, and 0.25% on the remainder. c. In your opinion, what could this family do to keep their house cost down? Suggest any 5 ways to do this. i. ii. iii. iv. v. Refinancing of the house loan. Buying a low cost house. Buying a second-hand house. Buying a house at sub urban area. Buying leasehold house.