We heard this in the Budget Announcement and then we read the news of the Program Launch subsequently. It seems to be a solution long awaited to help us purchasing our dream home. Is it really the long awaited solution?
- Purchaser pay 20% to own the property for 5 years.
- No Monthly Instalment within 5 years.
- The remaining 80% is not in the form of loan – No obligation.
- Full Ownership within 5 years – Own Stay, Rent Out, etc..
- After 5 years, choose to Own or Sell.
What is so great about this program? In order for us to find out, we compare it to a normal way for us to buy a house (10% Downpayment and 90% Mortgage Loan) : ~
At a glance, the Fund My Home is indeed a good option for buyer that could not secure a mortgage loan. However, this is not a permanent solution as buyer is only owning the property for 5 years.
What happens after 5 years?! This is the most important portion that you must understand before making your decision to take up the program.
The table above obtained from the FAQ section of Fund My Home website (https://fundmyhome.zendesk.com/hc/en-us/articles/360018733792-How-will-sale-proceeds-be-distributed-)
Looking at the table above:
There is only 2 possibilities after 5 years, owner buy the remaining 80% or sell off the whole property. It seems that the owner does not benefit from owning the property unless the property appreciate by more than 20%. It is not as what we assume earlier that the owner could have share on the appreciated value of the property.
Assuming owner is buying the remaining 80% of the property after 5 years with 20% appreciation in the price of the property, the owner need to finance RM300K (2nd Row Last Column). Which mean owner still need to pay in total RM 360K for the property (initially paid 60K and finally refinance 300K). This is one of the disappointment for this program.
Further to that another major disappointment for the program is when the property actually depreciated. Just like appreciation, up to 20% depreciation will be fully paid by Owner rather than the loss being shared with the investor as well. When property depreciate by 20% to RM 240K, owner is the only one that making the loss (refer to 6th row of the table above)
In short, owner does not benefit from appreciation of the property price unless it is more that 20%; Further to that, the owner only get the share of 20% from any amount in excess of the 20%. And at the same time, when the property depreciate, owner will be the only one absorbing the loss up to depreciation of 20%.
So, it seems like this is only a last option when you want to own a house now but you can not secure a mortgage loan. But after 5 years, you will be facing the same problem.
Maybe one should consider whether to defer your plan to own a house such as renting one for the moment..