Of the various real estate-related incentives unveiled in Budget 2019, what really stood out was the setting-up of property crowdfunding platforms which will ultimately serve as an alternative source of financing for first time home buyers.
Such financial innovation is touted to be the first in the world – and if successful – will transform the affordability of home ownership for first-time home buyers in Malaysia.
In the words of Finance Minister Lim Guan Eng, this initiative reflects the government’s willingness to explore new, technology-enabled and innovative mechanisms to solve the country’s housing woes.
The first exchange is expected to go live in the first quarter of 2019 after all necessary approvals are obtained from the Securities Commission which will regulate the platforms under its peer-to-peer financing framework.
However, barely three days after the Budget 2019 announcement, the EdgeProp Sdn Bhd rolled out FundMyHome.com in the quest “to solve market inefficiencies through PropTech (a sub-sector of FinTech).
Essentially, FundMyHome acts as an intermediary connecting three parties, namely, the homebuyers, investors and property developers. The property developers put a wide range of properties up for sale via the platform with prices up to RM500, 000.
FundMyHome then helps facilitate the home buyers to purchase these properties that are partially funded by the investors. In a nutshell, its mission is enabling more first-time home buyers to own a home or invest in real estate without being subjected to the hassle of conventional financing means.
Buyers pay a one-off 20% of the property price to own the home of their choice for a five-year period, choosing from a wide array of high-rise and landed homes of different prices and locations showcased on FundMyHome.com.
Moreover, buyers may also choose to rent their property out, thus having the benefit of earning rental income.
The balance 80% of the cost of the property is contributed by participating institutional investors who share the returns from changes in the future value of the home.
FundMyHome defines the institutional investors as “including banks, funds and the likes who typically have a long-term investment horizon and are looking for an asset with moderate risk and reasonable returns.”
“They want to invest in the Malaysian residential market without the hassle of managing individual homes or collecting monthly repayments,” the P2P platform operator points out, noting that its platform “will be opened to individual investors by early 2019”.
With regard to property selection, FundMyHome says properties offered have been selected for their investment potential, drawing on the extensive research and information resources of EdgeProp.my, Malaysia’s foremost property website.
While the intention does seem noble, the property crowdfunding platform has come under criticism for being hastily rolled out and “falls remarkably short of its purported priority of providing secure and stable long-term homeownership to aspiring first-time homeowners”.
While the prospect of moving into a, say, RM250,000 house – for five years – instantly with only a down payment of RM50,000 (or 20%) might seem alluring at first glance, the Agora Society Malaysia raised concerns that first-time homeowners may be obscured from the scheme’s long-term implications.
“For a start, buyers do not have full ownership of the property, and their rights as an owner are only fully realised once they have fully paid for the property after the initial five-year period,” claimed the group made up of loose network of individuals who believe in the principles of democracy and good governance.
“According to our calculations, first-time homeowners intending to stay in the property for more than five years will be financially worse-off by the end of year five.”
Interestingly, Kenanga Research analyst Sarah Lim also raised questions on the P2P home financing scheme:
- Will there be a central body to manage the capital recovery process or will it be left up to the individual developers?
- What happens if too many of these buyers are unable to re-finance either by conventional or P2P lending after the five-year period – will it create another supply overhang in the market?
While everyone tends to look at the potential upside if property prices would to appreciate, it is prudent to also manage the ‘worst-case’ scenario, suggests Lim. For example, what happens if the buyer is unable to secure re-financing or sell the property and how will the buyer be managed out of the house, or which party will manage this part of the process?
The Kenanga Research analyst also touched on financial discipline. Given that parents of young first-home buyers can chip in to fund the first 20% so that their children can have a roof above their head under the P2P scheme, there is a question mark if the individual have the financial discipline to re-finance the home after five years have lapsed, particularly if the capital appreciation is not as expected?
“Based on today’s standards, if one can save up to 20% of a RM400,000-RM500,000/unit house value which is equivalent to RM80,000-RM100,000 in down payment, they would have the credit-worthiness to get the 90% margin of financing from a conventional bank as a first-time house buyer,” rationalises Lim.
Investors aside, the analyst also questioned the quality of featured properties. “If the developer takes the upfront margin risks, the developer might not want to feature its best-selling projects, which mean buyer’s interests on these properties may not be optimised,” she reckoned.
On the bigger picture, Lim concluded that the P2P lending structures are better suited for property investors rather than for genuine home buyers.
“Nonetheless, this could be a potential swing-factor for the sector, depending on how extensive this scheme will be, and thus, more details are required before we can determine the efficacy of this scheme,” she opined.
“It is hoped that the SC will be able to address the above concerns as it would have a ripple-effect on the real estate sector in the near future.”
To address the various criticism (and scepticism) levelled at the crowdfunding initiative, the government will be engaging with stakeholders like the National House Buyers Association (HBA) before implementing the home financing exchange platforms,
He said it is normal for such property crowdfunding exchanges to meet with scepticism as they are something new. But if it materialises, it will be the first of its kind in the world.
“It is good for HBA to say something about it and not just accept the whole idea based on two paragraph of words from the Budget 2019 speech,” Finance Minister Lim Guan Eng told a press conference after the launch of the FundMyHome.com portal recently. “We will have a dialogue with stakeholders like HBA to explain what it is about.”