Novel Home Financing Scheme Will Work Says Edgeprop S Tong

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The Edge Media Group chairperson Tong Kooi Ong said his first-of-its-kind home financing scheme will “definitely work” despite scepticism surrounding the idea
He said this morning’s FundMyHome launch event in Semenyih, where three homebuyers were handed mock keys to their new homes, is the proof of this point. “I think the first impression by everyone is the same impression that the prime minister had, right? If it is too good to be true, it cannot be true, right? I think some of you (reporters) still think like that
“The team (at The Edge Property Sdn Bhd) is going to spend most of our time just trying to explain how it works, but it’s definitely not too good to be true. It works
“The whole purpose of today was to show that we actually have real buyers and real financiers. It’s done; that was the reason for this morning,” he told reporters
He was speaking after the launch and product briefing for GoFundMe at Eco Majestic in Semenyih today, which is an online platform that would help match properties available for sale, first-time homebuyers, and potential investors
Subject to Securities Commission approval expected early next year, the platform would also allow public investors to participate in the housing market for as little as RM5,000
This was mentioned in Finance Minister Lim Guan Eng’s budget speech on Friday
Lim said this “property crowdfunding scheme” would provide first-time home buyers with an alternative source of financing, and it would be regulated by the Securities Commission under a peer-to-peer financing framework
Tong (photo) admitted that the FundMyHome platform is not for everyone, and there are situations where a traditional mortgage or public housing scheme would work better.Instead, the FundMyHome platform is aimed at potential homebuyers who could not afford or qualify for a bank loan, but still, want equity on the houses they buy
Below are some of the salient points regarding the FundMyHome platform:About 1,000 properties from nine participating developers are available at launch, all costing less than RM500,000 each.
 House buyers have to fork out 20 percent of the property price plus fees such as legal fees – whether out-of-pocket or through a five-year bank loan. The remaining 80 percent would be funded by various investors. Home buyers can also opt for drawing from their Employees Provident Fund (EPF) account.
 The buyer would have 20 percent equity in the property, while the remaining 80 percent can be divided between various investors. Subject to approval by the Securities Commission, the latter can be traded in an exchange like other securities.
 The scheme is private sector-driven and would not receive government funding.
 For buyers:Malaysian residents aged 18 years old above who are first time home buyers would qualify, provided that they are not bankrupt.
 The buyer will have full title and ownership of the property, but only for five years. The title would also be charged to the investors (instead of a bank).
 The buyer will have full use of the property during the five years, including to renovate the property, and to rent it out.
 Tong argued that a five-year loan for 20 percent of a property is more affordable, as opposed to a 30-year loan for the entire property and its investment value. He touted FundMyHome as a way to decouple a property’s function as a shelter, and as an investment.
 Six months before the end of the five-year tenure, a valuer would be sent to appraise the value of the property. The buyer would then have to option to sell the house at prevailing market rates and take 20 percent of the proceeds, or keep the house.
 If the buyer opts to keep the house beyond the first five years, they may opt to refinance it as a traditional home loan, or roll-over their FundMyHome financing. If the latter option is chosen but investors refuse to continue financing the property, however, the property would have to be liquidated. Again, this would be at prevailing market prices, rather than the prices at the time of purchase.
 Tong said there may be issues with the scheme and the Real Property Gains Tax, and this will be raised with the Ministry of Finance.For investors:For now, only institutional investors may participate. These are currently Maybank and CIMB Bank, though more are expected to join.
 Subject to approval by the Securities Commission expected early next year, members of the public can also participate as individual investors. The minimum investment is RM5,000.
 Investors can expect an annual return fixed at five percent per annum, plus capital gains after five years when the property is sold or refinanced if the property appreciates by more than 20 percent.
 Again subject to approval by the Securities Commission, an exchange would be set up so investors can buy and sell equity in the properties. This means investors don’t have to hold onto the equity for the entire five-year period.
 The mechanism for the exchange and the public investment aspects of the scheme is still in the works.For developers:Developers will receive 80 percent of the property’s purchase price upfront.
 The developer would have to set aside 20 percent of the property’s original purchase price in an escrow account. This account will be used to provide annual returns to investors.
 When the property is sold or refinanced after five years, the developer is entitled to the first 20 percent of any price appreciation. Any profit in excess of that is distributed between the original homebuyer and investors.
 This means that developers will earn less than the property’s original purchase price if the property depreciates, or appreciates less than 20 percent after five years.
 Tong said this mechanism is meant to encourage developers to only list quality properties that would appreciate in value over time on FundMyHome, and deter them from artificially inflating the price. He argued that this is a reasonable proposition for developers as a way to increase sales, in lieu of offering discounts to buyers. -Mkini

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