This article first appeared in The Edge Financial Daily on November 14, 2018

PETALING JAYA: The Real Estate and Housing Developers’ Association (Rehda) has proposed a residential real estate investment trust (REIT) to provide public rental housing for the bottom 40 (B40) income group as an alternative solution to home ownership.

The association’s research arm, Rehda Institute, disclosed yesterday that it is in the process of formalising the proposal with the assistance of investment banks and accountants.

“Once we have formalised it, then we will be making submissions to the two ministries (housing and local government, and finance). If they are agreeable, then the next step is to go to [the] Securities Commission [Malaysia],” Rehda Institute chairman Datuk Jeffrey Ng told reporters at a conference on Budget 2019 organised by the institute.

Ng, who is also the chairman of the Malaysian REIT Managers Association (MRMA), said that the process of formalising the establishment of the REIT would be handled by the MRMA and Rehda.

He noted that despite the government making certain allocations to provide financial assistance for households earning no more than RM2,300 monthly to purchase a house priced below RM150,000, affordability was still an issue due to other financial commitments.

As such, providing more homes for them through public social rental housing could be a way to improve their livelihood, rather than encourage them to purchase the house.

Ng said under the proposed REIT scheme, the government can provide land for social or public rental housing in suitable locations in urban centres, and the REIT undertakes the project at its own cost.

The REIT will also be given the right to rental returns from the development for 30 years at prefixed rental rates.

Asked if the proposal would include a rent-to-own scheme, Ng said there are existing government agencies that already run such a scheme, and that the REIT scheme would apply only to rental units.

He said this new scheme differs from existing public housing schemes, as the focus of the REIT is rentals for the B40 group.

In his opening speech at the conference, Ng said the recently announced FundMyHome scheme could be a game-changing way to own a house as it brings together the homebuyers, investors and developers under one platform.

However, he said the B40 group may not be able to pay the 20% down payment required.

“Based on our research [on] the B40 group earning less than RM2,300 a month, it is clear that the majority of this group may not be able to buy [homes]. Rehda is proposing that a core segment of this group can only rent through the REIT’s developments,” he said.

According to him, a 10% down payment is already a huge hindrance to home purchase for most first-time buyers.

Khazanah Research Institute director Dr Suraya Ismail, who also spoke at the Rehda event, concurred with the need for more rental housing.

“I’m wondering who can afford the 20% down payment? Household debt is very high. We should encourage those who can’t afford home ownership to rent instead. Rent first. When they have enough income then they can consider buying,” she said.

FundMyHome is a scheme developed by EdgeProp Sdn Bhd to address homeownership rates among members of the B40 and M40 segments of society.

The scheme covers properties priced between RM300,000 and RM500,000, with potential homeowners required to pay a 20% (RM60,000 to RM100,000) down payment, with the remaining 80% funded by institutional investors. After five years, the homeowner has a choice to either sell the property or refinance the 80%.