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Home Ownership Schemes that Should be Reintroduced

Due to the COVID-19 pandemic, the real estate sector has taken a drastic hit. Property developers have begun to look for alternative means to selling homes as visits to showrooms drop and monthly incomes take a hit.

Amidst all this, there have been calls from the market leaders to bring back property buying schemes that may help in boosting the real estate sector again – namely the Developer Interest Bearing Scheme (DIBS).

For many who are new to the real estate market, DIBS was a controversial scheme that was introduced to the market in 2009 and then removed in 2014. The reason for its removal lay in the fact that many aspiring property investors took this opportunity to buy and flip multiple properties upon their completion, causing real estate prices to inflate unnaturally.

How Did DIBS Work?

The DIBS scheme was one whereas the name indicates – the developer pays for the property’s interest rates – during the construction period. While the buyer still has to foot the 10% downpayment and all the other relevant fees such as the Stamp Duty and Sales & Purchase agreement fees, having the developer bear the interest rates during construction still saved them a hefty sum of monthly repayment during the construction period.

Why Was DIBS Stopped?

The scheme was ultimately ended by Bank Negara Malaysia (BNM) as its negative impact became evident. What negative impact? Upon performing some calculations, it came to light that property buyers were ultimately paying more in the long run for the property as compared to market price, which in turn translated to higher property prices – and an unnaturally inflated market by approximately 20% to 25%. While the prices have eventually levelled over the years, it still caused an unhealthy inflation for a brief period of time.

The Call to Bring DIBS Back

In light of the current COVID-19 pandemic, more and more property market leaders have been calling for the DIBS scheme to be returned to the market as it will benefit both the economy and genuine home buyers.

Stricter rules and regulations will need to be put in place, but if properly implemented, bringing back DIBS will bring the below benefits:

i. Clear property overhang
ii. Enable genuine home buyers to purchase a home
iii. Stimulate the economy

Image source: unsplash.com

i. Clear Excess Property Supply

According to the National Property Information Centre (NAPIC), the property overhang in Malaysia has been on the rise since the year 2014, and has increased by 281% from 2014 to 2018. In September 2019 alone there was an overhang of 31,092 units, which is 977 units more as compared to the second quarter of 2019.

In light of the pandemic and poor economy, it then only makes sense that implementing DIBS for selected properties – especially those with a clear excess in the market – will not only help to clear the market of the property overhang dilemma, but also help to stimulate the property.

ii. Enable Genuine Homebuyers to Purchase A Home

According to Maslow’s Hierarchy of Needs, having a home is one of the human’s most basic needs. Hence even with the ongoing pandemic, a home buyer in need of a home will not stop looking for a good deal. In fact, they may even be looking harder for a better deal.

What better way to stimulate the market, help the economy grow, and clear out some excess stock at the same time than to throw them a few great deals? The DIBS scheme will certainly be one such move.

iii. Stimulate the Economy

And taking into account the above two points, by bringing the DIBS scheme back, not only will there be many new happy homeowners in Malaysia, but the market will also benefit from clearing out some of its excess stock while stimulating the economy.

However, only time will tell if the government decides to bring the DIBS scheme back or not. So what other moves have the government implemented to bring the real estate market back on track?

Home Ownership Campaign (HOC) to continue until 31 May 2021

The Home Ownership Campaign (HOC) which was supposed to have ended on 31 December 2019 has now been continued to 31 May 2021.

In June 2020, our current Prime Minister Tan Sri Muhyiddin Yassin re-introduced the Home Ownership Campaign that could potentially save us thousands of ringgits worth of savings within the next few decades to come.

If you are not already familiar with what the Home Ownership Campaign (HOC) constitutes, it is a home buying assistant scheme that was created to help reduce the property overhang. Under this scheme, home buyers will get to enjoy 100% stamp duty exemption for properties worth up to RM1 million, while properties costing between RM1 million and RM2.5 million would be given a partial stamp duty exemption.

All the properties under the HOC scheme are also given a 10% price reduction, while its instruments on securing loans, such as on the legal fees and Sales & Purchase Agreement (SPA) are also given a stamp duty exemption for properties worth up to RM2.5 million.

Investing in HOC Property

With the current ongoing COVID-19 pandemic which has plunged the world into a global recession, now would be a good time to consider such schemes especially if you are considering raising a family despite the prospect of rising prices and less income; or if you are looking to sublet properties to tenants such as other families or students to earn a better living.

If you are into investment planning or just interested in subletting homes to new tenants, now may be a golden opportunity to do so. In fact, it can prove to be worth it to own even just a single home or property and you may wonder why. For starters, you will have the benefit of having long term capital gains which in layman term means that the value of the property will go up in a few decades like in the years 2030’s 2040’s or even 2050’s and you could probably sell the home for triple or quadruple the amount you originally buy it for.

Other than selling your home in the future for a big profit, the other obvious and popular method of profiting from your newly bought homes, possibly from the Home Ownership Campaign, would be to rent it out as mentioned before.

You can collect rent and re-invest into the homes to improve them when you furnish them more, fit them with better utilities like faster internet and more. Moreover, you could have the opportunity to multiply the profits if you own more homes for sublet as well as be able to furnish them.

Further Upgrading Your Home

Additionally, with the savings you enjoy under the HOC campaign, your new home can also be upgraded into a smart home with the use of smart plugs and mobile apps as a form of re-investment. Doing this might give any homeowner a great advantage over other homeowners who don’t adopt the latest tech trends that can be of most interest to the growing number of future Gen Z tenants, both local and foreign, within the next decade or so.

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If you are not familiar with the term ‘Smart Homes’, these are basically houses equipped with lighting, heating, cameras and other electronic equipments that can be controlled and monitored remotely with a mobile application or computer. For the simple homeowner who is not familiar with such tools, this means you can check if your tenants have left any appliances on while they’re away on a long vacation and turn them off remotely with a tap of a button on your phone, at your own convenience. Now that’s smart!

Overall, with a currently active home-buying scheme meant to alleviate our nations’ woes in regards to affordable housing, we would urge anyone with some experience with property development or management to do their homework on what the “new normal” would mean to you and to your possible tenants as well as the concept of smart homes.

It is an exciting experience to buy a new home either for yourself or for your financial stability, but it should not simply end there. In a post-COVID-19 world, innovation will always be a hot topic and what we really mean by this is that people and businesses will always look for ways automate processes and to generate value more cost-efficiently whether it would be by utilising mobile platforms such as Airbnb, establishing smart homes, utilising energy-efficient equipment, so on and so forth.

In conclusion, if you are in the market for a new home, now may be the best time for you to purchase one under the HOC scheme – or if the government decides to reimplement it, the DIBS scheme. With the new normal here to stay, it signifies that new beginnings are upon us and we must act accordingly.

(Written by Haris Nabil, Edited by G. Zizan, 2nd July 2020)


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