MALAYSIAN property crowdfunding platform pioneer FundMyHome, one of the most celebrated and often cited property P2P financing schemes, was launched in November 2018.

FundMyHome was endorsed publicly by the then Prime Minister Mahathir Mohamad and Finance Minister Lim Guan Eng at its launch.

“This is a fantastic scheme which I couldn’t believe,” said Mahathir. Together with Guan Eng, both thumped their chests confidently and promised that as long as Pakatan Harapan were still governing, the next 10 years would see the supply of one million affordable housing units.

Mahathir even jokingly warned Tong Kooi Ong (The Edge Media Group chairman and FundMyHome initiator) about the “consequence” of failure. “I normally line them up against the wall and I shoot them. But I will not shoot Tong if he fails, but he will be exiled. So, he better succeed”, he said.

Looking back at the past 3 and a half years, things have changed, the FundMyHome scheme should now be regarded as “not so successful”, to put it mildly. Furthermore, Mahathir and Guan Eng are no longer in their governing positions, and therefore no one should expect Tong to be exiled.

Even if Pakatan Harapan had continued to govern, it would be a certainty that the FundMyHome scheme would not be the catalyst for the supply of one million affordable housing units.

The issue with first time homebuyers is not with the banks

First, we have to understand the basic concept of a “Property Crowdfunding platform”. It is an alternative financing method for first time homebuyers to purchase their house, in other words, this is not the kind of conventional bank mortgage. Based on the feedback from the developers and property buyers, a high percentage of mortgage application rejection rate is singled out as property transaction’s biggest obstacle (in 2021, banks had only approved 34.9% of mortgage applications).

Another problem is that many first-time homebuyers find themselves struggling to afford the first down payment of at least 10% of the property value, and as a result, financially fail to fulfil their wish as homeowners.

This has caused many problems for developers, because “affordable” housing units are overhung in large quantities (the statistics of the first half of 2021: 53.3% of overhung units belong to properties priced at RM500,000 and below).

Paradoxically, the Federal government and many state governments have their own policies that push strongly, sometimes even mandating developers build more affordable housing.

Many think that the problem lies with the bank, and chose to get around the bank mortgage but take the approach of “property crowdfunding platform” to help the first-time homebuyers to realise their dream.

The concept for FundMyHome is that, as long as the first time homebuyers who meet the criteria, can fork out 20% down payment (take note, it is 20%!), other “investors” may come in and finance the other 80% , then the first time homebuyer can “own” the property for five years without monthly repayment for their mortgage.

After five years, the purchaser has to decide whether to finance the property based on the current market valuation to continue “owning” the property, or sell the stake that they own (20%) to recoup their investment.

Agora Society released a media statement analysing different scenarios in greater detail, and concluded that FundMyHome is big bad news for first-time homebuyers.

They advised interested parties to reconsider their options.

Perhaps the FundMyHome scheme still exists today, but the website was last updated in 2020.

The website announced that they had financed RM10 million worth of properties. If one takes the average price of RM250,000 per property, then FundMyHome only managed to help 50 first-time homebuyers to finance properties.

If read carefully, one can also find that the financing scheme design has substantial changes compared to the initial one, which proves again the concerns highlighted by Agora Society and other critics about this scheme are valid.

The Securities Commission Malaysia, as the regulatory body for all models of property crowdfunding platforms, released the guidelines and regulatory framework as late as May 2019.

The terms and conditions in the guidelines are rather relaxed, mainly defining the homebuyers’ participating criteria, as well as conditions for the properties qualified to be listed in this platform.

However, the Securities Commission is rather open-minded about the financing model and secondary trading of investors based on their investment notes.

Unequal power and benefits favouring investors

Why has FundMyHome not found success? Can the concept of property crowdfunding platform still work?

In my opinion, the birth of the property crowdfunding platform concept was based on the wrong assumption about the root cause of the problem, it is not about the banks, but the fact that “affordable housing” prices are far from being affordable.

One needs to understand why the banks reject certain mortgage applications. It is usually based on their own department’s risk assessment mechanism.

In the end, banks are for-profit organisations, and therefore defaults on mortgages during economic recession could potentially create a significant impact to the cash flow of the banks themselves.

Could the property crowdfunding platform operators be ignorant or oblivious to the facts about certain homebuyers’ financial risk?

The investors surely also aim for potential financial gains and profits, as they don’t do it for charity or to become “angel” investors. Hence, taking the risk into consideration, the investors would demand higher returns if the risk is bigger.

The platform designer certainly also understands, and that is why the initial FundMyHome design was to appropriate 80% of the property value appreciation gain over five years back to investors!

If the property value depreciates, then the 20% down payment made by the first-time homebuyer would come in handy as a deposit to pay for the deficit, and hence minimises the risk of loss given market uncertainties.

To investors, if they evaluate and expect those participating properties to appreciate in five years, then they would be interested to participate in the property crowdfunding platform (or this would also perversely encourage them to speculate on these properties to make the outcome a certainty).

However, if one happens to face an economic recession, the real estate sector would likely be hit hard, and housing value would be unlikely to appreciate, while the revenue generated from the investment would not be realised.

That was exactly what happened in Malaysia since 2020. The Covid-19 pandemic caused economic turmoil, and the real estate sector was and is still suffering from it.

Even if the housing developers would like to use this platform to help sell the units (especially the overhung ones), there won’t be any investors interested. This explains why the property crowdfunding platform concept went silent in 2020.

No free lunch

First-time homebuyers must realise that the FundMyHome scheme actually doesn’t help them to fulfil their dream but only postpones their financing issues five years later.

They have to understand that in any appreciation of the property value, the purchaser has to pay a price and sacrifice for the investors’ disproportionate returns.

In conclusion, property crowdfunding platforms may be a temporary shortcut to get around bank mortgage issues, but it is not a better solution to help first-time homebuyers.

Given that the design logic of the platform leans towards investors’ interest, it is difficult to imagine if there is any model that could let both homebuyers and investors have an equal “win-win” scenario.

Do not believe in politician’s words telling you that this is an unbelievably fantastic scheme.

Pakatan Harapan’s policy is problematic. The current government should draw a clear line and refuse to adhere or succumb to property developers’ and investors’ logic.

The government should pay attention to housing property values, given that it is already inflated to unaffordable ranges, and people’s income growth is still stagnant and have not kept pace with housing prices. – May 23, 2022.

* Lim Chee Han is a founding member of Agora Society and a policy researcher. He holds a PhD in infection biology from Hannover Medical School, Germany, and an MSc in immunology and BSc in biotechnology from Imperial College London. Health and socioeconomic policies are his concerns. He believes a nation can advance significantly if policymaking and research are taken seriously.