Press Statement by Agora Society on 11 November 2018 in Kuala Lumpur
The Agora Society has been closely following
the Pakatan Harapan government’s commitment to provide affordable housing
options to all, and is deeply concerned about the recently announced,
government-backed P2P financing scheme ‘FundMyHome’
(described in the Budget 2019 speech as a ‘property crowdfunding’ platform). We
feel that this scheme was rolled out too hastily and falls remarkably short of
its purported priority of providing secure and stable long-term homeownership
to aspiring first-time homeowners. While the prospect of moving into a, say,
RM250,000 house – for five years – instantly with only a downpayment of
RM50,000 (or 20%) might seem alluring at first glance, we are fearful that
first time homeowners may be obscured from the scheme’s long-term implications.
For a start, buyers do not have full ownership
of the property, and their rights as owner are only fully realized once they
have fully paid for the property after the initial five-year period. According
to our calculations, first-time homeowners intending to stay in the property
for more than five years will be financially worse-off by the end of Year
5 (Figure 1). Row (f) of Table 1 and Figure 1 show that if the annual home
value appreciation rate is 5% per annum, buyers would end up with an additional
debt of RM37,911 relative to a scenario where they utilised a standard mortgage[1].
This additional debt figure rises to a staggering RM104,757, relative to a
standard mortgage, if the annual home value appreciation rate is 10% per annum.
This shows unequivocally that the price of refinancing – necessary to keep the
house beyond the initial five-year period – is much higher than that of a
standard mortgaged property. Buyers will need their household income to
increase by at least 5.81%, or 1.19% in compound annual growth rate (CAGR),
during the 5 years just to keep pace with the burgeoning home value. If a first
time homeowner is not able to afford a standard mortgage for said property at
the beginning, it is highly unlikely he or she will be able to afford a
significantly higher refinancing cost five years later (see Rows (f) and (g) of
Table 1).
