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One of the most common and current hurdles leading to home ownership is the high rate of loan rejection by banks across the country. It has been reported that some key developers have quoted that the rejection rate could be as high as 60%.

In early January this year, the new Housing and Local Government Minister YB Zuraida Kamaruddin had announced that the government has targeted to build one million affordable homes for the B40 groups over a period of 10 years, which roughly translates to about 100,000 homes offered yearly.

Hence, there would be many future homeowners looking at mortgage options as well as alternative forms of financing throughout the said 10-year span.

The Chairman of the Securities Commission, Datuk Syed Zaid Albar and the Minister of Finance, YB Lim Guan Eng on 17 May 2019, announced a new Property Crowdfunding Framework (PCF) which is purported to be one of the most innovative and one of the first in the world.

PCF may allow investors to place larger capital into the real estate market, particularly if they see high potential gains in the next three to five years especially because the entry level is much lower now, due to the current property overhang situation in Malaysia.

PCF allows investors to partner with first-time homebuyers and share the return on investment (ROI) if and when property prices increase after a five-year period. Homebuyers also stand a chance to gain returns by minimising their risk when buying their first property.

Theoretically, this should motivate prospective homeowners to own a home and re-ignite the housing market (both primary and secondary) as it encourages more homeownership transactions which may lead to a positive spillover effect for the economy, as the property industry impacts at least 140 upstream and downstream industries.


Process of PCF

According to the Securities Commission (SC) of Malaysia, instead of seeking traditional mortgage financing from banks, homebuyers can now opt to fundraise up to 90% financing of their new homes through financing from relatively large numbers of investors, via online platforms publicising and facilitating such transactions.

As of now, SC is in the process of inviting suitable platform operators to facilitate the alternative fundraising scheme (PCF). Investor members would soon be able to browse through a list of properties offered on a platform to find opportunities that meet their investment criteria, for example, desired location, property type, property budget, estimated returns as well as the background of the prospective homebuyers.

Investors may place an investment sum, which is then held by the platform operator until the fundraising target is achieved. Key benefits presented to investors include; being able to take advantage of the low initial capital or low deposit required and seamless investment process to achieve a high level of investment diversification and minimise risks.

Simultaneously, the said investors can retain control of their respective investments without incurring the charges associated with fund-based investing and would be able to exit their investment by disposing their investment portion to other willing investors within the secondary market.

On the other hand, whilst prospective home buyers may have the initial capital for payment of the deposit or down payment for the purchase of a property, they would typically need to secure further funding for the balance of the purchase price. What this means is, first home buyers and investors would be able to co-invest together for the purchase of a home for a period of 5 years.

The PCF scheme also hopes to inject some excitement in the sub-sale market as many property buyers may prefer to purchase their first homes through the primary market to take advantage of the current Home Ownership Campaign (HOC) by the government and the Real Estate and Housing Developers Association of Malaysia (REHDA).


Conclusion

PCF is an alternative financing option offering up to 90% of financing for first time home buyers. This alternative method offers an additional solution to the current traditional mortgage process of funding property purchases.

Properties that are entitled to the scheme should be priced at RM500,000 and below, with a certificate of fitness applicable to both primary and secondary market property offerings.

Adding to that purchasers should take note that upon successfully securing a property, one would need to occupy the property for at least five years. Once the said period ends, owners should have a pre-planned exit plan, for example, to sell one’s property at a targeted price.

As the SC is currently inviting interested parties to become platform operators to operate this new PCF scheme, we look forward to oncoming updates on this.

This article is contributed by former REHDA Institute general manager and property investor David Shieh Chong.

David Shieh Chong is an avid property investor who manages and co-owns more than ten properties, since 2009. He is passionate about real estate and relaxes during the weekend by viewing properties and keeps abreast with the property sector.

A corporate lawyer by profession, he has experience on various aspects of real estate, including in government real estate promotion at Malaysia Property Incorporated (under Economic Planning Unit Minister), real estate agency work and also has worked with top property developers at the Real Estate and Housing Developers Association (REHDA) Institute.


Would you be interested in purchasing a property through Property Crowd Funding? Do let us know in the comments section below!


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Thanks for sharing and yes, welcome final announcement from SC