‘Untested risk’

Mixed re­ac­tion to crowd­fund­ing plat­form for first-time house buy­ers

The Star Malaysia - StarBiz - - Front Page - By THEAN LEE CHENG leecheng@thes­tar.com.my

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.

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