FundMyHome (3)

3. HB is responsible for all 3rd party charges (eg. valuer, FMH platform? legal, trustee –may needed if there’re multiple investors). These charges should be higher than a normal mortgage as there are more third parties and more steps. FMH put that at 4% of the house price. Note the upfront 2% booking fee.

4. 6 months before the 5th anniversary, the house is valued. HB has to decide – sell or refinance? The developer gets 1st bite of any capital appreciation up to the original 20% of the house price (remember, he hasn’t been paid his 20%). The refinancing is at the new house value, meaning, if the house appreciates, HB has to fork out more. And, has HB’s credit standing improved enough in Year 5 to support a higher loan?

FMH’s table shows scenarios of -+10% capital appreciation of up to -+30%. Taking the 20% example:

Day 0: House price RM300k.
Year 5: Value is RM360k.
Amount to refinance: RM300k. Remember that on Day 0, HB paid RM60k, investors RM240k. But at Year 5, HB has to pay RM300k to refinance.

5. If the property can’t be sold before the 5th anniversary, HB has to pay a rental yield of 5% (on new market value). This is very high. And open-ended until presumably a buyer can be found at the valuation price.

FundMyHome (2)

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Should a home buyer (HB) get onboard?

1. The HB pays 20% upfront and nothing else for 5 years.
FMH says the HB can spend or invest the money which he would otherwise have to pay under a normal mortgage. If it is the lower income group, this money is likely to be spent. Come Year 5, how is he going to refinance the FMH scheme which is even higher than before (to be covered later based on FMH’s own table in their website). Prudent?

This mirrors the Collateralised Debt Obligations (CDO) issuances in Malaysia where most CDO bonds defaulted. Participants (corporate borrowers) were given loans without a specific purpose and only had to pay back on maturity (normally at Year 5). So the borrowers spent indiscriminately.

2. The 20% is given to the developer BUT to be kept in escrow and earn a return for the 80% investor. So the developer only receives 80% of the house value (raised from investors). Now, the house buyer doesn’t pay anything for 5 years so where is the guaranteed 5% to investor coming from? This part is not clear. As it’s not possible for the 20% to generate a 20% return p.a. (to equate to 5% return on the 80%), it is likely that the 20% capital will be used to pay the return to the investors (tranches of 4% each year = 20% over 5 years)

FundMyHome

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Should a home owner, investor and developer go for the scheme? As Tun said, the proof of the pudding is in the eating.

Symphony has reviewed the scheme from publicly available information and FundMyHome’s website. This is our opinion. Do note that there are still a lot of unanswered questions which may change our opinion.

FundMyHome seems investment rather than home ownership is driven. This is because a lot of emphasis is placed on capital appreciation, though FMH says they discourage speculation with the 5 year lock-in period. Based on our analysis also, home ownership is even further away under the scheme at the end of the day (more tomorrow).

The scheme is supposed to help first-time house buyers. We assume that these people have difficulty in getting a housing loan (the lower income group), otherwise, why the scheme.

Macro view.

Remember the 2008 economic crisis brought about by the US sub-prime crisis? The assumption then was that the housing market would continue to appreciate. It did not. The complicated financing structures behind the whole shebang on was simply over-collateralisation of mortgages of people who were of not good credit standing.

Budget 2019

Tomorrow is a historic day. It will be the first time that a budget is tabled by an alliance other than BN. All eyes are on PH’s first budget. It is expected to be non-expansionary budget as the “new” Government seeks to manage the country’s finances amidst a mountain of debt.

Everyone should be interested to know what is in the budget because everyone will be affected. Will there be new taxes, e.g. capital gains tax (affecting people who invest in shares and properties), inheritance tax (affecting families), digital tax (affecting buying and selling online)? The Government has ruled out increasing cigarette tax so smokers’ wallets remain unchanged.

What are the infrastructure projects that are on or off? This affects jobs and the amount of money in the economy. Will the Government cut the size of the civil service which has pushed the national operating budget to such a high level?

Will the budget have more social elements, in which case more taxes will be required? What about healthcare and education, 2 sectors which need urgent reform and from which Malaysians are suffering?

Money laundering and corruption

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Bank Negara Malaysia announced that effective 1 January 2019, banks must report any cash transaction exceeding RM25,000, a 50% reduction from the original RM50,000. This move is to tighten the loopholes for money laundering and corruption.

Many times we have read in the news of huge sums of money (in millions and hundreds of millions of Ringgit) found hidden in some Government officials’ homes. Why would someone keep so much cash in the house which doesn’t earn any income and is at risk of being stolen through burglary? It is to avoid detection because there is no trail compared to cheques and bank transfers. The giver hands over bagfuls of money to the corrupt official and nobody is the wiser, unless the official foolishly spends indiscriminately, displaying ostentatious wealth.

Illegal activities such as gambling, drugs and prostitution are also cash-based. Doubt you give a cheque to the pimp, right?

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