‘Untested risk’

Mixed reaction to crowdfunding platform for first-time house buyers

PETALING JAYA: Plans to resolve affordability issues among first-time house buyers using a crowdfunding platform as an alternative source of financing has been greeted with curiosity and doubts.

The Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) said the idea is innovative – a blend of new technology and financing. But some initial and pertinent questions have popped up.

“If buyers have problems paying a 10% down payment, it would be a challenge for them to fork out 20% of the purchase price.

“So will he be able to get a loan for this 20%?” asked PEPS head of current affairs, research and communications sub-committee Datuk Siders Sittampalam.

“Assuming he is able to get financing, will he be able to charge the property to the bank that is lending him that 20%? As for investors who are helping with the balance 80%, how will they get their returns?”

Siders said innovative and creative though the idea may be, the entire premise seemed to hinge on property prices going up, that prices of the houses funded in this 20:80 structure would appreciate.

“Over the longer term of 10 to 15 years, that has shown to be the case in Malaysia, although in some countries, prices of properties have known to have fallen and remain weak for a long time.

“Will developers guarantee returns because the whole premise seems to hinge on capital appreciation of the properties,” said Siders, who is also PEPS past president.

Also, what would be the returns, considering the price range that falls into this crowdfunding? Siders asked.

In the event house prices drop for whatever reason, there would be losers, Siders said.

So the next question is, who is the sure winner – the developer, the house buyer or the investor?

Siders was responding to questions pertaining

to the crowdfunding platform unveiled by Finance Minister Lim Guan Eng during last Friday’s Budget 2019.

It has now been revealed that the crowdfunding platform FundMyHome.com is a private-driven platform by the Edge Media Group.

A source said it is a bold idea and while it would help Malaysians to own properties, this is a “new untested risk”.

The source added that the Securities Commission’s involvement in overseeing the advancement of crowdfunding initiatives should not lead anyone to drop their guard in an environment of new and untested risk.

The source also pointed out that the crowdfunding idea should not be used as a tool to resolve the country’s residential overhang totalling about RM22bil nor should it be used as a tool to resolve the country’s high house prices.

Those who took the risks to build and benefited from it should not run to different quarters especially the tax payers.

Bruce Lee, a property consultant from VPC Asia-Pacific in Johor said: “The investor will earn a ‘main’ return on the capital appreciation of the property because it involves ownership, and perhaps, ‘a secondary income’ from the monthly rental.

“It is not comparable with the German’s crowdfunding model that merely focuses on the refurbishment of heritage buildings for rental income as a main return to the investors because it does not involve ownership of the property,” said Lee.

He was referring to a German scheme where investors pool their resources together to refurbish buildings and get a yearly return with the option to extend their investment for a second year.

Lee said it may turn out to be an efficient and cost-effective because it by-passes the existing banking system.

Under the scheme, buyers can own a property by paying 20% of the price.

The balance 80% is funded by participating institutions, namely Maybank and CIMB, who then share the returns from changes in the future value of the property, according to a Kenanga research report.

The report said some 1,000 units priced below RM500,000 have been completed or are nearing completion from nine developers, namely EcoWorld, UM Land, IOI, Mah Sing, PKNS, PNB Development, Sunway, Trinity Group and UEM-Sunrise.

After five years, the house buyer can choose to sell or stay.

Those who opt to stay can continue to refinance their home via a FundMyHome.com, or with a normal bank mortgage.

This is the first time the country is launching a scheme that connects buyers and institution investors.

Kenanga research said: “This could result in some near-term boost to the sector’s sentiment, but the scale of how this will be done will determine the longer-term health of the sector and (it can also) potentially create a systemic risk in the property and banking sector.”

Maybank Research said the scheme is expected to be a game changer.

“In our view, the new platform would help the developers to achieve better property sales and reduce their unsold properties,” Maybank said.