Lacklustre interest in alternative financing led to its decline
By Yanika Liew
In 2018, former Prime Minister Tun Dr Mahathir Mohamad launched FundMyHome, a property crowdfunding (PCF) platform with the goal of assisting first-time homebuyers through non-traditional home loans from banks. The launch came with a push to embrace an increasingly digital age when crowdfunding was a booming opportunity, and as with all deals that are too good to be true, terms and conditions naturally apply.
Enshrined in Budget 2019, property crowdfunding platforms were meant to function as an alternative source of financing and are regulated by the Securities Commission. The government would allocate RM50mil to set up a Co-Investment Fund (CIF) to invest alongside private investors to aid homebuyers.
The FundMyHome platform allowed clients to buy their first home and occupy it for five years with a one-time payment of 20% of the purchase price while the remaining 80% was funded by the participating financial institution. After five years, clients will be able to choose to buy the house in full or sell it.
The attraction of owning property through FundMyHome comes from the potential increase in value. Usually, property prices increase over time, so owners can take advantage of the increase in value if they decide to sell. On the other hand, owners who stay on will need to match the market price of the house.
The excitement of a new financing option kept the property industry buzzing for months. But today, the FundMyHome website is inactive and its office is temporarily closed. But it is not the only one. The handful of other crowdfunding options that emerged in 2019 also suffered a similar fate. Property crowdfunding seems to be unsuccessful, despite the push from the government, property developers, banks and investors.
“The inherent issue with the PCF initiative is that the investors have disproportionate power over the first-time homebuyers,” policy researcher Dr Lim Chee Han said. As a founding member of Agora Society, Lim had spoken out against the initiative from the beginning.
“Their (investors) strong interest in the returns and their risk aversion may already be a bad starting point for any kind of fair deal to both parties. It is safe to assume, any gain from the property market price change is at the expense of the homebuyer, the latter has to face a larger sum to refinance after 5 years if they were to keep the property,” he said.
In recent years, the issue of housing overhang has been troubling developers and real estate practitioners. Findings from the Malaysia Institute of Estate Agents’ (MIEA) 2021 Property Market Report show the highest rate of overhang seen over the last five years, with only 39.3% of new residential properties launched in 2021 sold. Real Estate and Housing Developers' Association Malaysia (Rehda) Institute’s most recent Housing Forward report identified the slow release of unsold Bumiputera quota units as an issue and urged the government to buy such unsold properties.
“The housing developers may want to push sales using this PCF model, hoping to solve the overhang or unsold properties issue,” Lim said. “However, those property projects which have participated are not great and appealing enough to potential first-time homebuyers, one may check the locations, type and specifications of those properties, then they will understand,”
Mismatched target audience
Another issue Lim identified was the infeasibility of encouraging the proposed target audience from participating. “Given the PCF framework restricts the usage of PCF for only the provision to first-time homebuyers for residential properties worth RM500,000 or below, it may be targeting middle and lower-income households and new families who may face the typical issue of not getting bank loan approval. That also indicates that this group might have some financial risks.
“The requirement of 20% downpayment to secure the deal under FundMyHome is laughably naive when many of those first-time homebuyers are struggling to get even 10% for a conventional mortgage,” Lim said.
Dr Chin Hon Choong, who conducted a study looking into first-time homebuyer interests in using property crowdfunding, commented that this concept may not have taken off with the public due to a few factors.
“First, homebuyers’ awareness and knowledge on property crowdfunding concept and its application. As per informed by our respondents, we noticed that the majority are not aware of property crowdfunding. If they are aware, they are not able to differentiate between peer-to-peer lending and the equity-based crowdfunding concept,” Chin said.
Property crowdfunding, like crowdfunding in any sector, can be done through peer-to-peer lending and equity crowdfunding. Equity crowdfunding operates like investing in a business, where investors get a share in the business as it grows. Whereas peer-to-peer lending operates much like a loan, with investors’ money being given to a business with a specific amount repaid over a defined term.
“Second, in relation to the mechanism, after five years, owners would need to secure financial support to secure their homeownership. Why would I want to use a platform that ultimately directs me back to the conventional housing loan? Don’t forget that the house price increases over time. In order to make it attractive, then the platform may need to freeze the property value and with support from financial institutions that offer loans after 5 years.
“Third, there is a mismatch of commitment. To invest in a real estate development project, investors have three to five years of a lock-in period to put their money into the project. For a housing loan, the money may take 30-35 years long. Investors may not be so keen to lock their money in for such a long period.
“I believe the rationale of the five years for our Malaysia version of property crowdfunding is to attract investors. But this will not meet homebuyers’ commitment period and thus, there is a mismatch of commitment period that ultimately make the platform unattractive,” Chin added.
Where do we go from here?
While the concept of property crowdfunding seems to have been shelved for the moment, both Dr Lim Chee Han and Dr Chin Hon Choong agree that the model as a whole has the potential to provide financial aid to homebuyers. Property crowdfunding can be used in a way that is sustainable and protects homeowners first, but the core issue of homeownership in Malaysia has to be addressed before all else.
“Personally, I am very interested with the application of property crowdfunding in facilitating homeownership. Nevertheless, there are shortages that we should address before it can be widely accepted by the homebuyers. Accommodation is one of the basic needs, perhaps a human right,” Chin said, echoing the United Nation’s right to adequate housing, wherein housing is recognised as a human right, not a commodity.
“Thus, it is very important that a trustworthy platform that is perceived to protect all interested parties is being created for the purpose of fostering homeownership,” Chin added.
Lim added that the core issue is the housing price inflation into the region of severe unaffordability in ownership, while people’s wages and salaries are still growing painfully slow and could not keep up with the housing prices.
"Property prices are on the upward trend but at the same time, the bank loan approval rate for residential properties still stays low. In 2021, the bank loan approval rate was 34.9%, similar to 2020. Therefore PCF as a financing option may not address these root problems,” he said.
With the privilege of hindsight, the property crowdfunding push is an interesting case study to explore alternative financing options. But perhaps it's time to look at possible solutions to the core issues that lead to Malaysia’s lack of homeownership, such as increasing wages, streamlining the bank loan approval process, and ensuring the quality and accessibility to homes that claim to be affordable.