As supply-demand imbalances in Malaysia’s property market have been steadily increasing since 2015, the government has announced the formation of property crowdfunding schemes to bridge worsening mismatch.

In recent years, it has become more popular in overseas markets, such as the UK and Australia.

However, the property crowdfunding scheme in Malaysia is looking to be different.

What does that mean?

In UK and Australia, property crowdfunding is a process whereby individuals or the “crowd” pool their money to invest in a single property.

It’s a way to enable individuals to participate in the property market.

The individuals, as known as investors, will become part owners of a Special Purpose Vehicle (SPV) and get to share in the rentals from the property owned by the SPV. 

That means that investors will get a share of the rentals as dividends.

In addition, if the SPV sell the property, investors may get the net sale proceeds.

Investing in property comes with risks, including the potential loss of some or all the money that you invest. Why?

It may be difficult or even impossible to sell their shares in the SPV and investment, so investors should take this investment as part of a diversified portfolio.

If you cannot afford to lose some or all of your money, property crowdfunding is not for you.

Malaysia’s property crowdfunding enable more people to own a house

The peer-to-peer financing framework, which was announced by Finance Minister Lim Guan Eng when tabling the 2019 Budget, allows first home buyers to purchase selected properties at 20 percent of their price. It’s the first of its kind in the world.

As for the remaining 80 percent, it would be borne by potential investors in exchange for potential appreciation in value over a period of time.

The home buyer can stay or rent out the property without having to make any additional payments for the next five years. After five years, the home buyer decides whether to keep the property or sell it.


Prime Minister Tun Dr Mahathir Mohamad (center) launched FundMyHome scheme. Image via The Edge.

Under this new initiative, The EdgeMedia Group’s subsidiary EdgeProp Sdn Bhd has launched the country’s first privately-driven property crowdfunding platform that connects first-time home buyers and institutional investors in a mutually supportive relationship.

FundMyHome will feature approximately 1,000 units of homes in the first phase of its rollout, all costing less than RM500,000 each.

The government aims to solve the problem of supply-demand imbalances

Why did the Malaysian government come out with the idea of rolling out the property crowdfunding scheme?

The idea was derived from supply-demand imbalances in the local property market and enable more people to own a house. The government wants to bridge the gap between low wages and high property prices.

According to Bank Negara’s box article entitled “Imbalances in the Property Market” Research Paper, the total unsold residential properties stood at 130,6903 units, the highest in a decade in 1Q 2017.

It’s primarily on account of the mismatch between the prices of new housing launches and what the households can afford to pay. Most of the unsold units belong in the above RM250,000 price category.

With this new scheme, it would enable more people to own a house with a minimum payment, which could be settled by their savings, loans or Employee Provident Fund (EPF) withdrawals.

The buyers can easily borrow money from banks, as they just have to pay just 20% of the price of the house.

It’s a Pro-buyer or Pro-developer’s scheme?

Although the property crowdfunding scheme is created for helping more people to buy and own a house, it’s raising concerns with industry analysts.

The Real Estate and Housing Developers’ Association (Rehda), also known as Malaysia’s main body representing the property industry, has sounded caution over the scheme, including over whether it is suitably tailored for its target group.

The property crowdfunding scheme seems to be more beneficial to developers than house buyers, as it’s not offered for buyers to purchase subsale properties, and is only applicable to new houses.

Over the last 2 years, local property market remains weak amid continued oversupply, and developers are struggling to sell their completed units.

According to the National Property Information Centre’s (NAPIC) Property Overhang Report for the second quarter 2018, Malaysia has an overhang of 29,227 units, valued at RM17.24bil as at June 30, 2018. That is a rise in overhang units of 40%. In ringgit value, it was a rise of 40.60% year-on-year.

As the scheme will only applicable to new houses, it will help the developers to clear their unsold units. So, it seems to be a pro-developers scheme.

Will it Create Systemic Risk?

Currently, the market is increasingly concerned about the bad debt issues.

Asian Strategy & Leadership Institute’s Centre for Public Policy Studies senior policy analyst Jarren Tam told SunBiz he is concerned with easy lending leading to worsening household debts.

“Although the property crowdfunding scheme has well-intended targets, it once again has the narrow focus of bridging financing for the lower-income group and is akin to previous policies of making credit markets more lenient. This will only lead to the worsening of household debt.”

Besides, as the scheme will allow buyers to rent out the property, it seems like apart from the purpose of promoting home ownership, it will allow people to do speculation which as they are buying houses that they do not live in and are just hoping would appreciate in price.

Instead, a good suggestion considered would be a no-lease period like affordable housing schemes for first home buyers.


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