Further explosing FundMyHome and how the scheme shortchanges property buyers

Jay

Publish date: Sat, 17 Nov 2018, 11:02 AM

For those who don't understand the FundMyHome scheme and how it works, it would be better if you read my previous article to gain a better understanding https://klse.i3investor.com/blogs/purelysharing/180971.jsp. Alternatively, you can also read the last two weeks' The Edge Weekly of which they do explained the mechanism in detail.

I was pleasantly surprised that the previous article have stirred some healthy discussions about the viability, merits and risks of this scheme. Many other stakeholders have also since then came out to voice their concerns on the scheme. Unsurprisingly, the mastermind behind the scheme is actively defending his porous scheme and now trying harder to mislead others. Looking at him putting on a brave face, ridiculing those who disagrees with him, is simply disgusting. Which is why I decided to further expose this porous scheme before the general public gets further confused and misled.

Let's look at some of the adverts they are putting out

Above are the misleading examples FundMyHome has used. Is FundMyHome the best option for the people in those scenarios?Let’s debunk the holes in these examples one by one.

Scenario 1

1. The guy actually qualifies for a loan

Banks generally are willing to lend up to 50-60% of your monthly take home pay, some even can extend slightly above. If he’s earning RM5k a month (say around RM4.2k after tax and EPF), his loan capacity would have been around RM2.1-2.5k. Minus a car loan, say a RM60k car with prevailing interest rate, that’s about RM600, he would at least have another RM1.5k capacity to borrow. For a RM300k house, a 30-year mortgage monthly payment would be around RM1,370, if he stretches it to 35 years it’s around RM1,280. So he does qualify for a mortgage and the monthly payment is not that much different from his current rental. He would own 100% of the house rather than 20% and enjoy full upside if it appreciates rather than forgoing the first 20% appreciation to the developer and share the remaining 20/80 with investors.

2. He may not have the 10% down payment for mortgage (which means he also won't have the 20% for FundMyHome)

Some may argue that he may not have RM30k for mortgage down payment. However, most developers are more than happy to offer more than 10% rebate to buyers (details explained below). So he doesn’t actually need to pay out of pocket. Most buyers are rejected by banks not because of down payment but because of their ability to service the monthly mortgage payments. In any case, if the buyers can't even afford 10% down payment then the 20% required by FundMyHome is even more unrealistic.

3. Personal loan interest rate is understated and risky

First, personal loan doesn’t charge 5% or RM1,250 a month. It's simply a BIG LIE. A simple check on price comparison websites would show that most banks are charging around 8% p.a. or around RM1,400 a month for a RM60k 5-year personal loan. Again, if you are paying that amount, you might as well get a proper mortgage. And again, buying a house with money you don't have (relying on personal loan) is exactly the kind of speculative behaviour that cause the current property glut.

To summarise, given the guy’s financial condition, it would have been advisable to simply apply normal mortgage than going for the P2P scheme. The rental comparison is there just to mislead instead of providing a better alternative. Of the 3 options available, between renting, FundMyHome and buying his own house, it is true that rental is the worst option over the long term, but FundMyHome is also hiding the best option (buying own house) from the buyer who qualifies for proper mortgage and has no need for the P2P scheme.

Scenario 2

1. The daughter really needs to grow up and stop relying on parents

With proper education and a few years working experience in a good job, one would wonder why she fails to save up or qualify for a mortgage loan. Is it because of lifestyle choices? Then she has to learn be financially responsible instead of relying on parents’ hard-earned savings. If not, she simply has to be more patient in home ownership.

2. Mortgage doesn’t need 20% down payment

The example is misleading again. It’s the P2P scheme that requires 20% upfront payment. First-time home buyer typically can get 90% loan-to value, so max 10% down payment. Rebate system from developers could have also negated the need of a down payment.

3. Mortgage would beat the P2P scheme without misleading calculations

Let’s just use FundMyHome parameters. The calculations would be as below.

	Mortgage	FundMyHome
Upfront payment	RM60k	RM60k
Monthly payment	RM1.2k	0
Total paid over 5 years	RM73k	RM60k
Remaining mortgage to be paid (principal+interest)	RM364k (25 more years)	RM438k (30 more years)
Total payments	RM498k (in 30 years)	RM498k (in 35 years)

The example used by FundMyHome shows mortgage value to be paid in the last row but conveniently failed to point out that the RM219k under Bank Mortgage column includes principal and interest while the RM240k on the other column is only principal. It gives the false impression that you have to pay more in Bank Mortgage (RM133k+RM219k) compared to FundMyHome (RM60k+RM240k).

If I adjusted the example as shown in the table above, then you get a clearer picture. Yes, you do pay slightly more over 5 years but that is because you have started to pay off some of the principal and interest. The remaining amount to be paid is only RM364k after 5 years while those who bought under FundMyHome still got RM438k to go. You are simply defering the payments down the road.

As you can see, the examples provided above are misleading at best, untruthful at worst.

Rebate system in real life

For anyone who has bought a property from developer, you would have been aware that there's this rebate system going on for a while. For those who are not familiar, when you purchase a house, banks will lend you maximum 90% of the property value, so the balance 10% have to be paid as down payment from your own pocket. For many years, developers have been using a rebate system to circumvent this requirement.

For example, the house may cost RM360k, the developer wanted a profit margin of 20% so they would sell at RM450k. But the developer would mark it up as RM500k. Then, they would offer buyers a 10% rebate. So the developer only charge you RM450k and what you would do is to go to the bank and borrow 90% of the RM500k (i.e. RM450k). Simple and elegant, down payment avoided. And the RM450k recognised in developer's revenue is still able to generate healthy margins (after all, that house is only worth RM450k and cost RM360k).

That's why in real life, most property buyers do not really have to come out with the full 10% down payment. Most upfront costs are like stamp duty, renovations etc. What's stopping property buyers is not down payment (most don't need one), but whether their monthly income supports the mortgage payments (essentially mismatch between income and house prices).

Developers are not going to sell at a loss

If you look closely, most listed property developers' profit margins range from 10-20%. I wouldn't be surprised if some unlisted developers who are earning single digit margins if they lack economies of scale.

FundMyHome claimed that developers are willing to take only 80% of the selling price, 20% set aside to pay investors and then only hope that 1) 5 years down the road you will sell the house and 2) the house has appreciated enough to reimbuse them for that effective discount.

Let's be realistic here. No developer is gonna sell at a real 20% discount (or effectively at a loss). If they do, then you really should be worried what kind of house you are buying.

So if the property is listed in FundMyHome as RM300k, chances are these properties is only worth RM240k in real life. Instead of giving 20% rebates to buyers who qualified for mortgage loans, developers will sell through P2P, setting aside 20% to pay investors while still secure the RM240k intended selling price.

Why does this matter? Because under the scheme, if you decide to sell after 5 years and the house has appreciated, developers get the first share of up to 20% (i.e. up to RM360k, to compensate the RM60k they have paid investors). Buyers only get 20% of capital appreciation after the property appreciates above RM360k. It sounds like a 20% appreciation (RM360k/RM300k) but in reality you need more like a 50% appreciation (RM360k/RM240k) over the actual worth of the property.

Real life examples will be even more lopsided

Back to the 2 misleading examples, if the property is only actually worth RM240k, mortgage would have been hands-down a much better choice for buyers in those 2 scenarios.

Scenario 1 the guy can get a 30-year mortgage of RM240k with zero upfront payment and monthly mortgage payment of around RM1,216. It's even cheaper than rental. Over 5 years, he would pay RM73k effectively owning 100% of the house compared to upfront payment RM60k and only own 20% under FundMyHome. And he gets to enjoy the full potential upside (no more going to developer and investors)

Scenario 2 would look more like this

	Mortgage	FundMyHome
Upfront payment	0	RM60k
Monthly payment	RM1.2k	0
Total paid over 5 years	RM73k	RM60k
Remaining mortgage to be paid (principal+interest)	RM365k (25 more years)	RM438k (30 more years)
Total payments	RM438k (in 30 years)	RM498k (in 35 years)

But I thought FundMyHome claimed that they are a better option than mortgage?

Below is another lie spewed by FundMyHome whereby they claim that the scheme is a better option than mortgage unless the property appreciates by more than 17%.

Look closer and you will realise. Again they conveniently ignore that the RM240k remaining mortgage needs to be borrowed. So column 1 is including interest while column 2 is without charging any interest. Can they be more misleading and deceitful that this?

Let me show you again how in real life it actually looks.

	Mortgage	FundMyHome
Purchase price	RM300k	RM300k
Downpayment (20%)	RM60k	RM60k
Monthly payment (year 1-5)	RM1.2k	0
Total payment over 5 years	RM133k	RM60k
Remaining mortgage to be paid (principal)	RM218k (in 25 years)	RM240k (in 30 years)
Remaining interest to be paid	RM86k (in 25 years)	RM197k (in 30 years)
Remaining mortgage to be paid (principal+interest)	RM304k (in 25 years)	RM437k (in 30 years)
Total cost	RM497k	RM497k

Why isn't there any difference in cost? Because they are essentially the same! A RM300k house and if you borrow RM240k, the total amount to be paid over the whole course of home ownership would be the same whether you borrow from day 1 or you borrow from year 5 onwards.

FundMyHome is just using misleading presentation to give a false impression that mortgage actually costs RM50k more than them. And it's also crucial to note that if property indeed appreciates, mortage buyers get 100% of upside while FundMyHome buyers get 0% upside until it appreciates more than 20% (even then it has to be shared 20/80).

So it's clear now how FundMyHome shortchanges genuine homebuyers who have better options out there. It's pure nonsense that property needs to appreciates >17% to breakeven with FundMyHome. I wonder how those writers in the Edge sleep at night writing such false examples to mislead those who are financially illiterate.

According to the mastermind, "All innovations goes through stage of perception, from ridicule to debate, before reaching it was obvious". I agree with that general statement.

But flawed innovation is destined to go from ridcule to trouble to bust. What is obvious by now is that FundMyHome is actively misleading and misguiding the general public. We Malaysians are not going to be fooled by some slimy businessman with vested interest. If there are more lies spewed, there will be more expose.

Be warned.

Discussions

4 people like this. Showing 50 of 199 comments

paperplane

From buyer perspective put it this way. I fork out 100k for 500k property, then next 5years I can rent it out,trying to recoup my initial investment of 20% 100k loh,since next 5yrs I no need serve any loans compared convention. But need to ensure property price got more than 20% lah...and another trouble after 5yrs to mortgage it again ,you need to pay the investor more,end up yourself left with not much.... sucker....

2018-11-23 23:43

paperplane

What if Bank reject your refinancing then.....how ?? Sell it at stress price???

2018-11-23 23:45

paperplane

What if....no buyer at all????hahaha.lelong it? Use lelong price???

2018-11-23 23:46

paperplane

Qqq3,come,argue my points.what if I die within 5yrs? And I got two wives fighting the rights of the house? How ah??

2018-11-23 23:50

paperplane

Post removed.Why?

2018-11-23 23:51

paperplane

Qqq3,where u???don't hide inside my pussy leh! Come lah,argue

2018-11-23 23:55

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