THINGS YOU SHOULD SPEND YOUR PROPERTY CASHBACK AND REBATES ON
As a property buyer, I’m sure you are familiar with developers giving out attractive packages to attract home buyers. Some even have up to 30%-40% rebates and cashback.
WHAT IS A REBATE OR CASHBACK?
The term rebate or cashback in the property market is referring to a form of return in value after purchasing the property. This is different from the general rebates or discounts you see in normal retail setting because in property, the transaction involves 3 parties - the developer, buyer and banker. Below is a simple example on the difference between a discount and rebate.
EXAMPLE OF DEVELOPER GIVING OUT A 10% DISCOUNT ON THE PROPERTY
SPA Price = RM500,000
Discount = 10%
New SPA Price = RM450,000
Downpayment = 10% SPA Price = RM45,000
Loan Amount = SPA Price X 90% = RM405,000
Loan Monthly Repayment 30 years (4.2% interest rate) = RM2,025/month
EXAMPLE OF DEVELOPER GIVING OUT 10% REBATE ON THE PROPERTY
SPA Price = RM500,000
Rebate = 10%
New SPA Price = RM500,000 (remains the same)
Downpayment = 10% SPA Price = RM50,000
Rebate 10% = RM50,000
Downpayment = RM0
Loan Amount = SPA Price X 90% = RM450,000
Loan Monthly Repayment 30 years (4.2% interest rate) = RM2,025/month
As the example shown, with the discount, the buyer will need to fork out an additional RM45,000 initial cost for the down payment. But this would bring the monthly repayment lower to RM2,025 a month. Rebates can be helpful to ease upfront down payment by costing into the value of the property.
THE OVERLY USED AS A MARKETING
Problem arises when these cashback is overly used as a marketing scheme by developers to entice people to buy a property just for the cash given. This will have a huge impact on the actual value of the property and negatively impact home buyers as many may not have the financial literacy to mange the fund - often mistaken as free money, not realizing it has been factored into their loan. Below shows another example of how much cash is received by buyers upon purchasing a property.
The buyer receives and additional cash return of RM160,000 for their purchase of the property. Many people mistake this as ‘free money’ from the developer, but in actual fact this cashback is costed into your loan. This may not be a bad thing if buyers have the knowledge to leverage the approach. Here, we will share with you 4 things you should only spend your cashback or rebate from the developer.
EXAMPLE OF DEVELOPER GIVING OUT 30% DISCOUNT ON THE PROPERTY
SPA Price = RM800,000
Rebate = 30%
New SPA Price = RM800,000 (remains the same)
Downpayment = 10% SPA Price = RM80,000
Rebate (1) 10% = RM80,000
Downpayment = RM0
Additional Cash Returned to Buyer = RM160,000
Loan Amount = SPA Price X 90% = RM570,000
Loan Monthly Repayment 30 years (4.2% interest rate) = RM2,025/month
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