PETALING JAYA: Crowdfunding schemes that are an alternative to bank loans in funding a house purchase are investments and not home-ownership schemes.

Cagamas Bhd president and CEO Datuk Chung Chee Leong said: “I am not against crowdfunding. It can benefit some people and there is space for this form of funding.

“But the buyer must know that they are going into an investment scheme and are not actually buying a house.”

Chung said in a traditional bank mortgage, the buyer locks in the price but in the crowdfunding, like the one launched by the Edge Media Group, the buyer has to pay 80% of the-then market price five years after forking out the initial 20%. 

“A buyer must ask himself, if the interest rate goes up, what is the scenario? If there is a price decrease, what’s the scenario?” Chung said.

He said whether this would address home ownership is another question.

Chung said other than the traditional bank mortgage, crowdfunding was just another alternative, but a very niche one.

Besides these two forms of funding, the other forms of funding a house purchase include property trusts, mortgage trusts, borrowings or real estate investment trusts (REITs).

Khazanah Research Institute director Suraya Ismail said the new form of funding advocated by the Edge group has to be improved, and the government‘s proposed crowdfunding has to be considered carefully.

“When you co-own with a local council, it makes sense for the council to make sure you are not disadvantaged. A bank mortgage is the normal way. Now, you want to co-own with investors who want capital appreciation? It is a scheme that will push prices up,” said Suraya.

Which is exactly why this crowdfunding idea is the first in the world, Suraya said.

She said it is a scheme that is for the top 20% of the population and not for first-time buyers.

Finance Minister Lim Guan Eng while tabling Budget 2019 on Nov 2 said it was the first such platform in the world, The platform will begin next year despite mixed reactions from various quarters. It is also expected to attract other players to enter the market, with a possibility of it being extended to other segments of the property market instead of the present arrangement of being limited to first-time buyers and priced between RM300,000 and RM500,000, RAM Ratings head of agribusiness, real estate and construction rating Thong Mun Wai said.

“Our view is that such a channel is beneficial to the developer. We do not expect such channels to be a substitute to the traditional mortgage of owning a house,” he said.

If successful, such schemes can help developers boost sales and reduce the current inventory. However, there must be more transparency on the risks to be borne by each party.

“There has to be safeguards to protect buyers and investors,”Thong said.

Political secretary to the Finance Minister Tony Pua said the government proposed the scheme because it was felt that an alternative way to fund housing for first-time buyers were needed and also in view of the current changes in the financial world.

According to research house Kenanga, the scheme could be a swing factor for the sector. Maybank Kim Eng calls it “a game changer” and it will help developers achieve better sales and reduce unsold units.

Meanwhile, Rehda Institute (RI) chairman Datuk Jeffrey Ng said while it welcomes alternative financing schemes, he has proposed a residential REIT.

RI in July suggested a residential REIT in its Affordable Housing Report.

Ng said RI would continue to pursue this financial framework.

While the Edge Media Group’s Fund My Home is a hybrid ownership and property investment scheme, and is targeted at the Middle 40 or M40 segment to boost ownership from the demand side, a residential REIT is aimed at assisting the government to build up the supply of public social rental housing for the lower income group, the B40.

Ng said RI will submit a proposal to engage the Finance Ministry on this. 

https://www.thestar.com.my/business/business-news/2018/11/14/crowdfunding-not-homebuying-scheme/