FundMyHome will not lead to a subprime crisis

This article first appeared in The Edge Financial Daily, on November 16, 2018.

Tong (left) at the media question-and-answer session on FundMyHome with EdgeProp managing director and editor-in-chief Au Foong Yee yesterday. Photo by Suhaimi Yusuf

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KUALA LUMPUR: The FundMyHome platform, which provides an alternative form of financing for first-time homebuyers, will not lead to a subprime crisis and would in fact have the reverse effect, EdgeProp Sdn Bhd chairman Datuk Tong Kooi Ong said.

Tong, who is also chairman of The Edge Media Group, said it is “impossible” for the financing mechanism to cause a subprime crisis.

“A subprime crisis happens because people who cannot afford to borrow or repay their loans take on debt. The buyers under FundMyHome do not take on debt and there are no mortgages to pay, so it is actually impossible,” he said at a media question-and-answer session yesterday.

“In fact, the reverse would happen. FundMyHome actually reduces debt rather than increases it,” he added, addressing criticism of the scheme since it was launched by Prime Minister Tun Dr Mahathir Mohamad on Nov 4.

Tong explained in detail the workings of the mechanism of FundMyHome, which is targeted at Malaysians earning RM4,000 to RM5,000 per month who are currently renting or living with their families.

Under the scheme, buyers would have to pay 20% of the price of the property and the platform would assist in connecting the buyers to the participating institutions — the investors — which will be forking out the remaining 80% of the property’s price.

A buyer can either use his savings, apply for a personal loan or borrow from family members or friends to come up with 20% of the property’s price, and once the buyer pays that portion of the property’s value, he will get full utilisation of the property.

The buyer and investors will be locked up for a five-year period, after which the buyer can opt to either sell the home, buy the remaining portion that he does not own or refinance the home via FundMyHome.

Tong said buying a home through FundMyHome is definitely better than renting. That is because a person renting would have nothing to show after the five-year period, while purchasing property through FundMyHome will leave the buyer with 20% ownership of the property.

Buyers can also opt to take a personal loan to fund 20% of the property. Although buyers would have to service their loans monthly, it is still better than renting as they would own 20% of the home at the end of the five-year period.

In fact, the equity owned by the buyer can be put towards the down payment on the home at the end of the five-year period, helping the buyer to entirely own the property.

In some cases, however, taking on a mortgage would be better than purchasing a property through FundMyHome, such as in the event that the price of the property appreciates by more than 17%.

During the session, Tong also allayed concerns about FundMyHome encouraging speculation.

He said the alternative financing avenue is only open to first-time homebuyers, noting that the five-year lock-up period prevents purchasers from flipping their properties.

The question of affordability for the bottom 40% household group was also raised, to which Tong noted that FundMyHome is targeted at addressing the issue of houseownership among a specific portion of the middle 40% — young Malaysians who are just starting out in their careers but may not have the income to qualify for a mortgage.

“We are trying to help people who are young and starting their careers who want to own a home. The new digital economy also means that many will be working without a fixed income, which means that they may not necessarily have the fixed income that would make it easier to secure a mortgage.

“That is the target group that we are trying to help. We can’t possibly help the poor with this mechanism, because that’s what the government is here to do. That is what social housing is for,” he said, adding that there needs to be other solutions to address the issues faced by the different segments of society.

On criticism that FundMyHome only benefits property developers, Tong said they are actually the ones at risk under the scheme.

He pointed out that the developers actually collect only 80% of their sales proceeds and put aside 20% of the selling price to provide returns to the investors.

“The developers only get back the 20% that they forgo at the beginning if the price of the property goes up. And even if it increases beyond 20%, the developer does not get more. So, it is difficult to see how this scheme is meant to benefit developers,” said Tong.