What has happened to Budget 2019’s property crowdfunding scheme?

WHEN the Government introduced the first-ever property crowdfunding (PCF) scheme in Malaysia as part of Budget 2019, it was deemed to be a bit ahead of its time.

The scheme was aimed to provide house buyers with an alternative solution to housing ownership amid high prices and mismatched income levels that had been plaguing the market.

Additionally, even though crowdfunding has been practised in the property scene for decades, it has always been focused on seeking funds for development – not house buyers.

Through the provision of a crowdfunding platform that was monitored by the Securities Commission (SC), the Government and private bodies jointly explored the new method of house buying that was safely regulated.

How it was supposed to work

With the successful implementation of the PCF concept, it removes the need for traditional property agents while replacing the need for mortgages from banks, thus creating a new investment asset class.

For example, in an ideal situation under the PCF rules, a PCF platform could match a first-time house buyer with a property priced below RM500,000 with any retail investors who are also keen to fund that purchase.

The hope is that the same property will be worth more after the tenure stipulated by the platform (take five years, for example). Not only must the property appreciate in price, there ought to be a buyer willing to pay that price for the property after the five-year period.

The risky part is that the house buyer and his investors could suffer a loss after the tenure is over. A case in point is that many home buyers are today sitting on properties that were purchased during the boom times that can’t be offloaded at a profit or even leased out at rates that can sufficiently cover their monthly mortgage payments.

Pro greater than con

Despite the risks involved, the concept had great potential. Industry specialists even believed that the PCF concept could solve or maybe somewhat reduce the property overhang issue in 2019 that reached over RM20 bil in value.

“An experiment with this new norm has already been initiated in Semenyih for example the rent-to-buy platform with user friendly features,” said Asianland Realty Sdn Bhd director Warrick Singh in an article published by FocusM in January 2019.

“Agreed interest rates could be a notch or two higher but it has at least got housing off the ground for the B40 segment and a roof over their heads plus their young families,” he added.

However, there hasn’t been much talk regarding the concept in the country ever since EdgeProp Sdn Bhd was registered by the SC as the first recognised market operator to establish and operate a PCF platform in Malaysia.

Regardless of the silence on local grounds, the PCF concept seems to be gaining traction overseas. In May 2021, property experts in the US cited that PCF as “a lot less stressful and time-consuming”.

“Owning physical property requires paying taxes, maintaining the property and often dealing with difficult tenants. Hence, to be successful, one must treat it as a full-time job,” said a source.

Despite also acknowledging the potential risks involved, the PCF concept in the US is mainly focused on small investors who are happy enough with decent returns without having to go through the hassle associated with traditionally owning a property. – Sept 1, 2021

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