BY Ahzam Nadzri
Normally, when one decides to buy a home, one would normally apply for a housing or personal loan at a bank. But, one must ensure beforehand that their current financial status is stable, and free of any kind of debts.
However, not counting the financial status, that is all about to change.
Enter…property peer-to-peer (P2P) lending.
What’s property P2P Lending? What’s FundMyHome?
What is P2P lending/financing? Some might argue that it is a type of crowdfunding, where new and upcoming entrepreneurs request funds for their business start-up from investors via multiple platforms on the internet such as Kickstarter, or GoFundMe.
But, in a nutshell, property P2P lending is where house buyers request funds for their process of purchasing their first home through a platform named FundMyHome. And that’s where the similarities with crowdfunding ends.
Specifically, through the FundMyHome platform, house buyers do not need to make monthly payments, like when they applied for a conventional housing loan. Instead, they only need to pay an upfront 20% of the house’s price, while the remaining 80% are covered by investors such as banks in exchange for a share in future profits.
House buyers who are above 18 years old, who is not bankrupt, and a first-time house buyer are eligible to apply through this platform.
Property P2P: The Works
For starters, you might wonder, how does the FundMyHome platform works? Here is how it’s exactly is.
1) There’s a booking fee
In order for you (the 1st time house buyer) to reserve a unit, you have to pay a 2% booking fee in order to secure one of the listed housing projects in the platform. It is worth noting as well that reservations are on a “first come, first serve basis”.
2) “Fully Funded” and “Funding in Progress” homes
Fully Funded homes require you to pay the 20% of the house price within 14 days (2 weeks), and also the relevant fees (stamp duty, taxes, etc.).
Funding in Progress homes has a 30-day waiting period until the 80% of the home price has been funded by the investors. Once the target is achieved, you will need to pay the remaining 20% including all the fees. If the 80% target is not achieved within the 1 month period, then all funds will be refunded to their rightful owners without any interest charged.
3) 5 Years, then Stay or Sell
Once all that has been settled, the home is legally yours. However, the investors hold the home ownership rights.
After that, there’ll be a 5 year period where you cannot sell your home, and you as the buyer, and the investors are barred from exiting this scheme. But, you are free to renovate your home as you please. You can even rent out your home if you so desire. Although, you must not forget to pay the obligatory fees such as maintenance fees, insurance, and assessment tax.
On the 3rd month of the 4th year, FundMyHome will appoint a qualified and independent valuer to. The buyer will then have to complete the valuation process 6 months before the end of the 5 year lock in period.
Once the 5 year period has ended, the buyer has two options.
The buyer can opt to stay in the FundMyHome scheme for another five years. Should the value property go up, the buyer must top up additional funds to fulfill his/her 20% of the house price part.
The investors can either sell their 80% share to other institutions, or sell it to the buyer. In this case, the buyer can draw out a bank loan to buy off the remaining shares.
The buyer must vacate the property and hand it over before the end of the fifth year. If the buyer fails to do so, the buyer will be charged with rent that is subjected to the 5% rental yield. The property will then be advertised for at least three months. But, according to FundMyHome, the usual “no longer than 3 to 6 months sale process” is not guaranteed.
The buyer is subjected to aspects such as the condition of the furniture provided by the developer, and the conditions of the amenities of the property.
Pros and Cons
Let’s talk about the pros and cons, shall we?
First off, the pros.
1) Fixed payments
Unlike when you apply for a conventional mortgage where even your rent could rise up suddenly, FundMyHome does not require you to make monthly payments because you have already paid your part of the 20% of the property price. You’ll be only making payments if you decide to renovate your property (which would help to boost its long term value.)
2) Guaranteed risk-free money back
With conventional mortgage, what you need to repay is slapped with extra charges such as interests. With FundMyHome, what is charged initially is what you pay, which is 20% of the house price. There are no extra charges whatsoever. Furthermore, should you decide to sell your property after the 5 year period, you will get back the full 20%.
But, what about the cons, then?
1) The RPGT
According to the recent Bajet 2019 tabled by the newly-elected government, any property sold which was purchased 5 years ago and is valued around RM200,000 or above will be imposed with a 5% real property gains tax.
2) It’s not regulated yet
The Securities Commision (SC) has yet to consult with the stakeholders/investors before the FundMyHome scheme is initiated probably on the first quarter of 2019. Therefore, the commission has not yet issued any regulations to the funding scheme, which would leave early buyers to a lot of financial risk.
3) Total loss
If after 5 years you decide to sell your property, and the value of your property depreciates, then you stand to lose your capital investments towards the property, whether in small increments, or losing it all.
Property P2P lending like FundMyHome definitely looks promising, with its fixed and transparent investments, and great capital opportunities after the 5 year period.
However, due to it not being properly regulated by the government, and becoming an issue under scrutiny from many sides, at this stage, it is still too early to say what sort of future holds for it. The best way to approach it now is to conduct a research, be it brief or extensive, and continue to monitor the progress of this financing scheme from time to time.