Here is a question from Max: 

Hi, I’m Max, currently 25 years old and I earn a monthly salary of RM 3,000. 

I had recently come across a decent unit located near to my workplace. The unit is next to a LRT station and a shopping mall. It is a 600 sq. ft. unit which asks for RM 230,000. I checked the rental rates for similar property units range between RM 1,000-RM 1,300 a month.

As a first-time home buyer, I have two questions: 

1. What is the estimated initial cost to buy this property unit? 
2. How does zero down payment work? Can it lower my upfront cost? 

Here are my responses: 

The Initial Capital Required

Let’s assume that your decent unit is a residential property. Therefore, you, as a first-time home buyer, would be required to place a 10% down payment, to pay for 5 different types of transaction costs and set aside some cash for renovation and refurbishment costs and finally, at least 12-months worth of your mortgage payments. So, all in all, the ideal initial capital for your RM 230,000 unit is:

To be safe, it is ideal to set aside about RM 60,000-RM 70,000 in cash first if you wish to buy a property that is priced below RM 250,000. 

What About Zero Down Payment (ZDP)? 

And how does it work?

Let’s say, you agreed to purchase your decent unit at RM 230,000. Basically, you should state RM 230,000 as its official transaction price for your unit in the SPA. This allows you to obtain a mortgage amounting to 90% of your unit’s price that is stated in the SPA, which works out to be RM 207,000. 

But instead, you choose to convince your seller to inflate the unit’s SPA price. In your case, you and your seller agreed to declare RM 260,000 in the SPA, instead of the actual price of RM 230,000. By doing so, it would allow you to apply for a mortgage worth RM 234,000, which is 90% of RM 260,000. As a result, you may have purchased the property with ‘Zero Down Payment – ZDP’. 

You Still Need Money to Do ZDP 

In order to perform this ‘illusion’, you need to first place 10% of the inflated SPA as your down payment. This works out to be RM 26,000. In addition, you would need to pay higher legal fees, stamp duties and mortgage payments as all these are based upon the inflated SPA price of RM 260,000, not RM 230,000. Once its mortgage is disbursed out, you will then have the RM 26,000 returned to you in the form of a ‘rebate’ and thus, completing the illusion. 

So, you’ll need more money and agree to incur more costs to pull off this magic trick. 

But, is this witty? 

Is Max considered to be smart if he uses ZDP to buy his decent unit? 

Well, to answer this, I believe Max should consider the following: 

#1: Financial Burden

First, Max mentioned that his monthly salary is RM 3,000. The mortgage for the unit works out to be RM 800 a month (no ZDP) or RM 900 a month (ZDP). So, in his case, I would estimate his property-related expenses to be around 30%-35% of his monthly salary. While Max could rent it out for RM 1,000+ a month, there is a possibility for Max to fail in securing tenants for his unit or to fail in securing his rental income consistently from his tenants. 

In any of the two cases, Max would still be required to pay his mortgage and for all other property-related expenses promptly. If Max has other loans such as his car loan and PTPTN loan, his failure to generate income from this property shall add to his financial burden. 

#2: Upside Down Loan

Second, what if Max’s decent unit falls in price to RM 200,000 in the future? 

So, if Max purchased his property with ZDP and a mortgage worth RM 234,000, it is possible for him to owe an outstanding mortgage, which is greater than the actual value of his property. Let’s say Max’s outstanding mortgage stands at RM 225,000. If Max decides to sell off his property at RM 200,000, Max would need to fork out another RM 25,000 in cash to fully settle his mortgage. 

The question is – ‘Where would Max get his RM 25,000 if he needs to do so?’ 

#3: Legitimacy Issues 

Third, is ZDP a legitimate way to beat the system when purchasing a property? 

Well, for certain, if Max puts down the 10% down payment, he can own his unit legitimately. Why bother going through the whole magic trick and being witty if Max could buy a piece of real estate legally in Malaysia? Is it worth it for Max to put himself into this ‘legitimacy issue’ in the name of not placing down the 10% required for a property? 

If Max has the wits to beat the system, why not use it on increasing his financial wealth, raising his income to RM 5,000, RM 7,000 or RM 10,000 a month? I find that raising income is definitely a smarter and legit way to buy a property. So, in essence, why bother with ZDP and mark-ups? 


Regardless of this property deal, I believe Max should build on his finances first. I don’t think Max needs to rush into it as he is young. I’m positive that he would eventually increase his income and build upon his initial capital over time. It is a good thing to start thinking about property investing at a young age but it could be detrimental if Max pursues this property unit hastily without proper means. 

In short, I think it is okay to not buy a property if one cannot afford it. It is much better than trying to buy one with magic tricks.

Ian Tai
Ian Tai

Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with Co-Founded, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

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