Sunday, December 11, 2011

Property (Mortgage) - Definition and Types of Mortgage Financing

1. Finance is the study of the process, institution, market and instruments used to transfer money and credit between individuals, business and governments
2. Mortgage financing plays important role in property development which broadly divided into:
a. Financing project
b. Financing the end user or buyer property buyer
       i. What is project financing? - The management of adequate funds to finance the construction or development of a specific project.
         ii. Loan arrangement in which the repayment
3. There are three types of mortgage financing which are as follows:
A. Stock finance - at early stage of development
i. Stock finance referred as Pre-Bridging Finance or Pre-Development Finance. 
ii. The finance is based on land property.
iii. It is paid after a progress of stage is completed.
iv. One of the financial institutions which are willingly to give the finance is Agro Bank.
v. It is essential for financing the purchase of land.
vi. This type of finance is of limited scale, high interest rate and is rather selective because of the high risks involved.
vii. This is the reason for why many financial institutions are unwilling to grant long term loan to the developer at the initial stage of a project.
B. Bridging finance - for development
i. A term implies that a fund required to bridge the shortfall between the realization of adequate funds from partial sales of the project and the initial expenditures for construction that sales have either yet to be launched or is sufficient
ii. The finance is based on construction costs.
iii. Bridging finance means extending finance to an individual or an organization involves in the building industry
iv. Bridging finance is given only after planning approval has been obtained and expired after the construction works are finished
v. This type of finance is usually extended by financial institutions as construction loan.
vi. It is usually granted on a short term basis to finance site work construction, infrastructure and the initial stage of the main building operation.
vii. Types of Bridging Finance
      1. Direct loans
   a. These are bridging loans obtained in total amount from a single financial institutions, commercial bank or insurance company.
    b. Normally the amount of loan obtainable is small and has a low risk of failure
2. Syndication Loans
a. A borrower approaches an agent to raise a certain amount of loans and call in a few other banks or financial institutions to participate
b. Normally exercised for a very large project which involves a large sum of money
c. Usually the merchant banks will acts as agents while commercial banks, financial institutions and insurance companies becomes the lender
d. Merchant banks take commission and it does trading. It helps managing the flow of the money.
e. These banks do not care about the saving as it provides services.
f. The banks teamed up to help a big project. They will invest in term of share.
g. Usually, the merchant banks act as estate agent.

C. End finance - for buyer to purchase house
i. It is available in 2 ways:
1. Directly from the financial institutions
2. Indirectly from the financial institutions, that is through the developer
ii. End Finance is normally in the form of mortgage loans granted on a long term basis that is ranging from 10 to 30 years, maximum 65 years
iii. The property to be mortgaged should be freehold or leasehold.
iv. Margin of financing is assessed on
1. Types of property
2. Location of property
3. Age of the borrower
4. Income of the borrower
v. It is a finance given by the financial institutions to individuals in order to buy a house.
vi. Designed to assist qualified purchasers in obtaining bank loans to partially finance property purchased.
vii. Is provided once a house has been advertised for sale.
viii. Normally ranges from 70% - 90% of the purchase price, in some instances even up to 100% of the purchase price.
ix. End Finance is granted to the purchaser so as to enable them to pay in successive stages to the developer when houses are under construction.
x. Repayment of end finance is normally by equal monthly installment to cover the interest charges.
xi. The payment is comprises of interest, tax and MRTA, an insurance which is safeguarding the interest of house buyers.
xii. This monthly installment should not exceed 1/3 of the borrower household income.
xiii. The Bank Negara has kept all the transaction records of a person as it acts as a central institution.

Monday, December 5, 2011

Key Contract Clauses that Affect Vendor and Purchaser

Clauses affect vendor
Clauses affect the purchaser

1.       Agreed to sell the property (the said property) free from encumbrances and vacant possession
2.       Agreed to the sell the 'Agreed Sale Price' as specified in the schedule attached in the agreement
3.       Upon execution of sale the vendor shall execute and deliver a valid and registrable memorandum of transfer.
4.       Vacant possession of the said property shall be delivered by the vendor to the purchaser upon full payment of the purchase price
5.       The vendor shall be responsible to submit the necessary returns any tax shall be levied
6.       The vendor shall pay the stamp duty registration fees and solicitors cost if any
7.       The vendor shall settle the quit rents, rate assessment and other outgoings
8.       The proper time for deposit to be collected


1.       Agreement to purchase - the purchaser agreed to purchase
2.       Purchase price - shall be the sum specified in the agreement
3.       Mode of payment (cash, loan, etc.) - the balance of the purchase price shall be paid via solicitor within period specify in the agreement
4.       Release of purchase price - shall be released by the solicitor to the vendor on presentation of the transfer
5.       Specific performance - the purchaser performing and observing the terms and conditions in the agreement
6.       Acceptance - deemed to purchase with full notice in all respect of the actual state and condition of the said property
7.       Costs - the costs of and incidental to the agreement including the stamp duty registration fees and solicitors costs shall be duly paid by the purchaser
8.       Notice - shall be sufficiently served, usually sent by registered letter
9.       Time - shall be of the essence of this agreement