Hous­ing still a clouded is­sue

Whether crowd­fund­ing can be a so­lu­tion re­mains to be seen. >

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

AMONG the prop­erty-re­lated mea­sures in Bud­get 2019, the at­ten­tion grab­ber has been the prop­erty crowd­fund­ing plat­form. The gov­ern­ment’s will­ing­ness to ex­plore tech­nol­ogy-en­abled plat­forms as an al­ter­na­tive source of fi­nanc­ing for first-time house buy­ers gen­er­ated strong emo­tions.

The launch of FundMyHome two days later height­ened ex­cite­ment, with even the for­mer Prime Min­is­ter Datuk Seri Na­jib Tun Razak – de­spite his many per­sonal woes – pitch­ing in.

The scheme en­ables buy­ers to be­gin the house own­er­ship jour­ney with 20% of the house price. The bal­ance 80% will be ful­filled by po­ten­tial in­vestors via a peer-topeer prop­erty crowd­fund­ing ex­change.

The fi­nan­cial in­no­va­tion, said to be the first in the world, is ex­pected to be­gin in 2019.

Ac­cord­ing to re­search house Ke­nanga, this scheme could be a swing-fac­tor for the sec­tor. May­bank Kim Eng calls it “a game changer” and it will help de­vel­op­ers to achieve bet­ter sales and re­duce un­sold units.

Since Jan 1, 2014, sales have slowed af­ter the ban­ning of the highly-pop­u­lar in­ter­est bear­ing scheme.

But it was from 2016 that de­vel­op­ers be­gan to whine and howl as in­ven­tory built up and un­billed sales de­creased.

The crux of to­day’s hous­ing woes is high house prices and low house­hold in­come.

Some de­vel­op­ers have low­ered prices, but the move is not enough to sup­port de­mand while rais­ing in­come will take time.

The crowd­fund­ing plat­form, an al­ter­na­tive source of fund­ing, cir­cum­vents strict lend­ing guide­lines and is a lot sim­pli­fied than the tra­di­tional way of fund­ing.

Who are its tar­get au­di­ence?

It is open to first-time Malaysian house buy­ers 18 years and above. It con­nects buy­ers with in­sti­tu­tional in­vestors. Par­tic­i­pants, or buy­ers, can own a house by pay­ing 20% of the price. The bal­ance 80% is funded by par­tic­i­pat­ing in­sti­tu­tions like May­bank and CIMB.

Who is the main driver?

Malaysia’s first pri­vately-driven house buy­ing crowd­fund­ing plat­form FundMyHome is driven by the EdgeProp Sdn Bhd, a sub­sidiary of The Edge Me­dia Group. The Se­cu­ri­ties Com­mis­sion (SC) will re­view the pro­posed struc­ture and guide­lines to fa­cil­i­tate its estab­lish­ment.

How does it work?

A one-time pay­ment, amount­ing to 20% of the house price is re­quired. The buyer need not pay any­thing for five years. The re­main­ing 80% is funded by in­sti­tu­tional in­vestors.

The buyer can rent-stay dur­ing the five years. Six months be­fore the fifth-year ends, the prop­erty is val­ued in­de­pen­dently to de­ter­mine its mar­ket price. So far, there is no men­tion of who pays for the val­u­a­tion re­port. The buyer can opt to sell or re­fi­nance the house.

If the price has ap­pre­ci­ated, the de­vel­oper takes the first bite of 20% of the gain. The bal­ance is shared be­tween buyer and in­vestors.

If the price has de­creased, the buyer bears the first 20% be­fore it hits the in­vestor.

If he wants to go through with the deal, he can roll over the scheme again through the por­tal, or buy up the re­main­ing 80% at the then-pre­vail­ing mar­ket price.

What is the role of May­bank and CIMB?

They con­trib­ute to the 80% of the home price, so they share the re­turns, or losses from the changes in the fu­ture value of the house. They may play the role of fi­nancier if the buyer de­cides to re­fi­nance the house af­ter five years.

Who are the in­vestors?

For now, there are only in­sti­tu­tional in­vestors. The an­nual re­turn is 5%, with cap­i­tal gains af­ter five years when the prop­erty is sold or re­fi­nanced.

If price de­pre­ci­ates, the buyer is the first to bear the loss.

Who are the de­vel­op­ers?

About 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.

How is it that FundMyHome can be launched just two days af­ter Bud­get 2019?

In an open let­ter to for­mer Prime Min­is­ter Na­jib, EdgeProp Sdn Bhd chair­man Tong Kooi Ong said the com­pany had “thought long and hard in the past few years about find­ing a so­lu­tion to help Malaysians, es­pe­cially those with young fam­i­lies, who de­sire to own a home in­stead of rent­ing.

“Af­ter crys­tallis­ing our idea, we took it to the gov­ern­ment and have been en­gag­ing the var­i­ous reg­u­la­tors in the past sev­eral months, cul­mi­nat­ing in hav­ing the idea in­cluded when the bud­get was tabled in par­lia­ment on Nov 2.

“FundMyHome does not re­quire reg­u­la­tory ap­proval as the fi­nanc­ing of the scheme is open only to in­sti­tu­tions and not the re­tail pub­lic. Ap­proval for re­tail pub­lic par­tic­i­pa­tion as in­vestors will be re­quired and we will work with reg­u­la­tors to have this done by the first quar­ter of 2019.”

May­bank’s rent-to-own scheme HouzKEY has been com­pared with FundMyHome. Un­der HouzKEY, the bank owns the house.

If there is re­pay­ment is­sue, it is the bank’s prop­erty and re­mains so un­til the cus­tomer “mi­grates” to be­ing a May­bank mort­gage cus­tomer.

Cus­tomers en­ter this rent-to-own scheme with the aim they will be the owner later on, although some may de­cide not to.

Di­vided views

Views are clearly di­vided. Ir­re­spec­tive of which side one is on, al­most ev­ery­one is wait­ing for the de­tails in an­tic­i­pa­tion.

Suresh (not his real name), a 20-some­thing earn­ing about RM3,000 a month awaits in ea­ger an­tic­i­pa­tion.

He has set his sight on a house which cost about RM500,000. If he were to be guided by the three­times-his-in­come cal­cu­la­tion (3,000 x12x3) he can only buy a RM108,000 unit. Even a pub­lic hous­ing apart­ment costs more than that to­day.

He has the ini­tial 20% of RM100,000 for the RM500,000. His fa­ther will help him.

Af­ter five years, his fa­ther reck­ons his son’s salary would dou­ble or triple.

“If it does not, there must be some­thing wrong,” says his fa­ther.

Jo­hor Baru-based VPC Malaysia prop­erty con­sul­tant Bruce Lee says the model is “more ef­fi­cient and cost ef­fec­tive be­cause it by­passes the bank­ing sys­tem.”

A draw­back is own­er­ship. “It is dif­fi­cult to de­fine who is the owner,” says Lee.

In­sti­tute for Democ­racy and Eco­nomic Af­fairs (Ideas) fel­low and econ­o­mist Carmelo Fer­l­ito says the scheme has to be un­der­stood as an in­vest­ment scheme, not an own­er­ship fa­cil­i­ta­tor.

“So far, the prod­uct has been mis­mar­keted. Peo­ple has to un­der­stand that they do not be­come owner with 20%. They still need to get the money to pay the re­main­ing 80%, af­ter five years, if they want full own­er­ship,” he says.

“It is nec­es­sary to present the prod­uct for what it is, and there is a need to help peo­ple to un­der­stand the scheme and what they will face (later on).

“The gov­ern­ment should also clar­ify the le­gal and in­sti­tu­tional frame­work sur­round­ing the scheme,” Fer­l­ito says.

He di­vides three groups who are for it.

“Those with a high propen­sity for risk. The scheme is an in­vest­ment scheme, rather than an own­er­ship. The sec­ond group are those who are un­able to get a loan now, but they have pos­i­tive ex­pec­ta­tions for the fu­ture and they be­lieve they will be able to do so in five years.

“The third group are spec­u­la­tors who may be in­ter­ested not only in buy­ing the 20%, but also in fi­nanc­ing the 80%. They are bet­ting on mar­ket evo­lu­tion,” Fer­l­ito says.

The As­so­ci­a­tion of Val­uers, Prop­erty Man­agers, Es­tate Agents and Prop­erty Con­sul­tants in the Pri­vate Sec­tor Malaysia (PEPS) says the en­tire premise of the scheme makes cap­i­tal ap­pre­ci­a­tion a fact.

“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,” says PEPS pres­i­dent Datuk Siders Sit­tam­palam.

In­stead of view­ing a house as a ba­sic need, to pro­vide a roof over one’s head and to house the fam­ily, it has be­come an in­vest­ment tool of­fer­ing a 5% yield for in­vestors with fur­ther po­ten­tial up­side, says Siders.

A source says the scheme smacks of “new untested risk”.

“When a de­vel­oper takes the risk

to build, whether it is res­i­den­tial or com­mer­cial space, he must also bear the risk. In­stead, what we are see­ing is the pro­posal to have an al­ter­na­tive way to fund a pur­chase with­out ad­dress­ing the fact that house prices are too high.

“In­stead, it is cre­ated to help a group of peo­ple who can­not get a nor­mal hous­ing loan to buy and this is were the ‘untested risks’ come in,” the source says.

May­bank Kim Eng Re­search says the crowd­fund­ing plat­form would help to boost sales and would be a cat­a­lyst for the sec­tor over the short-term.

RPGT a damper

While the FundMyHome plat­form has whipped up a whirl­wind, the rise in real prop­erty gains tax (RPGT) is ex­pected to be a damper on the mar­ket.

Siders says rais­ing the RPGT is “not send­ing the right sig­nal to the mar­ket. If you are buy­ing a prop­erty for own oc­cu­pa­tion, you will not be both­ered but this will dis­cour­age in­vestors,” he says.

There are two is­sues. First, the need to re­duce the huge over­hang of RM22­bil. Sec­ond, the RPGT frus­trates the in­vestors’ mar­ket. Over the longer term, there will be less units for rental, which af­fects the rental mar­ket.

Siders says the ra­tio­nale be­hind RPGT is to curb spec­u­la­tion.

“We have got­ten rid of that with the re­moval of in­ter­est bear­ing schemes, so there is no need to fid­dle with RPGT,” he says.

May­bank Kim Eng says they were “neg­a­tively sur­prised” by the im­po­si­tion of an ad­di­tional 5% on RPGT for the dis­posal of prop­er­ties/shares in prop­erty hold­ing com­pa­nies af­ter the fifth year.

It says the ad­di­tional 1% in stamp duty on the trans­fer of prop­erty val­ued at more than RM1mil is milder-than-ex­pected and it should not af­fect for­eign buy­ing in Malaysia sig­nif­i­cantly.

Ke­nanga says “such mea­sures (RPGT) do cast a slightly neg­a­tive sen­ti­ment on prop­erty in­vest­ments, par­tic­u­larly for the higher-end mar­ket which are typ­i­cally for­eigner/ in­vestors-driven and this mar­ket has been rather soft for quite a few years now.”

Out­look for 2019

An­a­lysts and prop­erty con­sul­tants con­cur there will not be many changes in terms of the mar­ket pick­ing up next year, although po­lit­i­cal sen­ti­ment re­mains largely pos­i­tive.

“The fo­cus will re­main on af­ford­able hous­ing. Bank Ne­gara is set­ting up a RM1­bil fund to help those buy­ing houses cost­ing RM150,000 and below. So the gov­ern­ment is se­ri­ous about help­ing. At the same time, re­al­ism and re­al­ity has set in.

“Prices are no longer set by de­vel­op­ers. The mar­ket is set­ting the price now,” says Siders.

The mar­ket will read­just given time. This will not be easy, but give it time, he says.

As to whether the bud­get is good for the sec­tor, the gen­eral con­sen­sus is that “it is as good as it can get.”

Sky high: The crux of to­day’s hous­ing woes is high house prices and low house­hold in­come. Some de­vel­op­ers have low­ered prices, but the move is not enough to sup­port de­mand while rais­ing in­come will take time. Fer­l­ito: The gov­ern­ment should also clar­ify the le­gal and in­sti­tu­tional frame­work sur­round­ing the scheme.Siders: Prices are no longer set by de­vel­op­ers. The mar­ket is set­ting the price now.

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