FundMyHome - Malaysia's new property crowd funding review
Hot on the heels of the 2019 Budget speech, the EdgeProperty together with the Government, developers and 2 major Banks (Maybank and CIMB) announced a new scheme to "crowdfund" property purchases called FundMyHome
So let's break it down in point form:
Example:
Option 1 - After 5 years, I decide to sell the place. The market value is now RM600K, so there is a profit of RM100K, wah! Happy! But wait! The profit share I get is only RM20k (not forgetting the new 5% RPGT, so the tax is 1k, net is 19k). The investors get the lion share amounting to 80k. So in essence, I've paid out 100k to live in a place for 5 years (20k rent per annum) and get back some equity gain of 19k, so I've paid net 81k rental for 5 years for a unit.
Option 2 - After 5 years, I decide that I love the place so I want to buy it. Now the market value is 600k, that means to get a loan, I have to fork out another 60k as a 10% downpayment and obtain a RM540k loan now (from Maybank or CIMB because I'm sure you're locked in with them) for the next 25 to 30 years at an estimated monthly repayment of RM2800 ! So I'll be out of pocket for RM160k and my loan repayment is higher - whereas if at year 0, I used the 100k as a downpayment, my loan would be at 400k at a monthly repayment of RM2080.
Option 3 - I rent out the place, for a 500k unit, maybe I can get a rental of about RM1.2k per month if it is a decent enough condo. Over 5 years assuming full occupancy, I would have collected rental amounting to RM72k - that is still a net cash outflow of 28k because I've had to fork out 100k upfront for the right to rent this place out. As with the case in option 1, now I sell at 600k, I get 19k back only! Overall, I am at a loss of 9k after 5 years.
Honestly, I can't see any way where this is beneficial to the house buyer! It benefits the developers who are can sell off their units and to the banks who are funding this scheme.
The only upside I can see is that if you have a lot of cash but can't get loans either because you're retired or your income documents are insufficient, AND you want to create a multiple unit property portfolio quickly - say you have 300k, instead of buying 1 apartment at 300k to rent out, you can leverage this scheme to buy / control RM1.5 million worth of property.
So I guess if you can find units with a high rental return of 5% or 6% - you could possibly turn a profit just on the rental alone and with some upside on capital gain although it won't be much.
Ultimately, is this a good scheme? If it is meant to help lower income people to buy homes, the answer is NO. It helps the developers, the banks and people who want to expand their rental portfolios - and the risk is overly weighted on the individuals because they take the burden of looking for tenants and collecting rent and take all the risk on the capital loss while only getting 20% of the gain!
All I can say is tread carefully and only get into this scheme if you have enough cash to 'play' with this.
If you are short of money but need to buy a home to live in, this is NOT FOR YOU. You will get burned. I suggest that you rent a cheaper place, save your money up + use your EPF account 2 to gather 15% to buy a place the normal way (10% for downpayment, 3% for legal fees & stamp duty and 2% as a cash buffer for moving costs etc).
So let's break it down in point form:
- It's not a traditional purchase transaction.
- "Buyers" put down 20% of the property price.
- For the next 5 years, they can stay in the property or rent it out - there are no details on any restrictions on renovations or major structural changes. You can renovate. There is nothing more to pay, no rent no interest.
- 80% of the remainder is funded by the 2 banks (hence, where is the 'crowd' in this so-called crowdfunding scheme?)
- At the end of the 5 years, the buyer can either sell the unit or take up a normal mortgage to purchase the unit in the conventional sense
- If he sells it and there has been an increase in value - he gets to keep 20% of the profit while 80% goes to the 'investor'.
- If he sells it a lower price, the buyer bears the whole loss!
Example:
- I want to buy a unit priced at RM500,000
- I need to pay upfront RM100,000
- Maybank & CIMB come up with the remaining RM400k to the seller (conveniently the developers who are close to the Edge, LOL ahem I'm too cynical)
- Over the next 5 years, the 100k paid by me is considered as a 5% per annum return on investment for the 400k (it more or less works out to be similar to cost of funds for the banks)
Option 1 - After 5 years, I decide to sell the place. The market value is now RM600K, so there is a profit of RM100K, wah! Happy! But wait! The profit share I get is only RM20k (not forgetting the new 5% RPGT, so the tax is 1k, net is 19k). The investors get the lion share amounting to 80k. So in essence, I've paid out 100k to live in a place for 5 years (20k rent per annum) and get back some equity gain of 19k, so I've paid net 81k rental for 5 years for a unit.
Option 2 - After 5 years, I decide that I love the place so I want to buy it. Now the market value is 600k, that means to get a loan, I have to fork out another 60k as a 10% downpayment and obtain a RM540k loan now (from Maybank or CIMB because I'm sure you're locked in with them) for the next 25 to 30 years at an estimated monthly repayment of RM2800 ! So I'll be out of pocket for RM160k and my loan repayment is higher - whereas if at year 0, I used the 100k as a downpayment, my loan would be at 400k at a monthly repayment of RM2080.
Option 3 - I rent out the place, for a 500k unit, maybe I can get a rental of about RM1.2k per month if it is a decent enough condo. Over 5 years assuming full occupancy, I would have collected rental amounting to RM72k - that is still a net cash outflow of 28k because I've had to fork out 100k upfront for the right to rent this place out. As with the case in option 1, now I sell at 600k, I get 19k back only! Overall, I am at a loss of 9k after 5 years.
Honestly, I can't see any way where this is beneficial to the house buyer! It benefits the developers who are can sell off their units and to the banks who are funding this scheme.
The only upside I can see is that if you have a lot of cash but can't get loans either because you're retired or your income documents are insufficient, AND you want to create a multiple unit property portfolio quickly - say you have 300k, instead of buying 1 apartment at 300k to rent out, you can leverage this scheme to buy / control RM1.5 million worth of property.
So I guess if you can find units with a high rental return of 5% or 6% - you could possibly turn a profit just on the rental alone and with some upside on capital gain although it won't be much.
Ultimately, is this a good scheme? If it is meant to help lower income people to buy homes, the answer is NO. It helps the developers, the banks and people who want to expand their rental portfolios - and the risk is overly weighted on the individuals because they take the burden of looking for tenants and collecting rent and take all the risk on the capital loss while only getting 20% of the gain!
All I can say is tread carefully and only get into this scheme if you have enough cash to 'play' with this.
If you are short of money but need to buy a home to live in, this is NOT FOR YOU. You will get burned. I suggest that you rent a cheaper place, save your money up + use your EPF account 2 to gather 15% to buy a place the normal way (10% for downpayment, 3% for legal fees & stamp duty and 2% as a cash buffer for moving costs etc).
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