FundMyHome will not lead to a subprime crisis, says Tong

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KUALA LUMPUR (Nov 15): EdgeProp Sdn Bhd chairman Datuk Tong Kooi Ong said 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.

At a media question and answer session earlier today, Tong said it would be "impossible" that the financing mechanism could cause a subprime crisis.

"Subprime 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's actually impossible.

"In fact it's the reverse. FundMyHome actually reduces debt rather than increase debt," he told the media.

During the session today, Tong explained in detail how the mechanism under FundMyHome works, 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 institutions — the investors — which will be forking out the remaining 80% of the property's price.

Buyers could either use their savings, apply for personal loan or borrow from family members or friends to come up with 20% of the property's price, and once the buyers pay their portion of the property's value, they will get full utilisation of the property.

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

During the session, Tong also addressed other criticisms on FundMyHome, including comments from certain parties that it would encourage speculation.

He said the concerns on speculation are already addressed, as the alternative financing avenue is only open to first-time homebuyers and also pointed out the five-year lock-up period which prevents purchasers from flipping properties.

The question of affordability by the B40 group was also raised, to which he pointed out that FundMyHome is targeted at addressing the issue of house ownership among a specific portion of the M40 group — 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 that 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 parts of society.

He also addressed comments that have suggested that FundMyHome would benefit developers, with Tong saying that developers are actually the ones at risk under the scheme.

He pointed out that 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 increase beyond 20%, the developer does not get more, so it is difficult to see how this scheme is meant to help developers," said Tong.