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)