LETTER | I admit I am not a finance wizard able to come up or understand sophisticated or complicated financing schemes. But from young, I was taught of two things. First, there are no free lunches in this world and second, we can’t create something out of nothing.
The recent proposal to have FundMyHome scheme begets many questions. Right now, the scheme is still hazy and so some of my questions may be a little premature. But I think it is better to ask earlier than later.
According to the report, house buyers only pay 20% of the property value but will get full use of the property for five years. The remaining 80% will be funded by various investors. The investors will get 5% return and also will get to share the profit from the appreciation of the property in five years.
Apparently, the 5% annual return is derived from the earning of 20% of the value of the property held in an escrow account by the developers.
So here are my questions:
1. Am I right in saying this is a property investment scheme, not a home ownership scheme? If an owner owns only 20% of the house, in five years his/her ownership is still 20%, nothing more.
2. How does 5% annual return for investors come about? Can 20% (of the value of the property) deposit in an escrow account be big enough to generate a 5% return for 80% of the investors? If so, how?
3. In five years, everyone is expecting “appreciation” to get their respective returns. What if the property does not appreciate, what recourse do investors and the owners have? Oh, I understand, it is the risk investors and owners must take.
4. If the property does appreciate in five years, the owners’ share is still 20%. How would they be able to “takeover” the remaining 80% of the share which has also become more expensive? The owners may profit from their 20% share, but by then the properties would be so much more expensive for them to buy a replacement.
5. To me, the problem of home ownership is essentially due to incomes decoupling from prices of property, i.e. either the income is too low or the price of property too high or both. Creative financing schemes cannot make this problem disappears. It will cause another distortion in the financial market if we are not careful – we are essentially encouraging securitisation, investment, lending and borrowing that are not sustainable.
I am not trying to throw a spanner into the scheme. But I am sure many Malaysians are interested and probably they too have the same questions like mine. The purpose, as the Finance Minister pointed out, is for us to ask questions so that those promoting it would be more aware.
Fair enough, the promoters are talking about regulation and supervision by the Security Commission and other regulators.
The stock market is also regulated but I think easily more than 80 percent of the counters are “con” jobs that pay no dividend and deliver no appreciation but bloodbath to most investors.