OWNING a house could be a costly dream for the working class, but it is deemed the worthiest investment for most people — even if you can’t enjoy capital appreciation, at least you will still have a roof over your head and a place that you could call your own.

But when houses are beyond the affordability of the young working group, they should perhaps consider renting while aiming to eventually own a home.

Industry experts and observers suggest that renting may not be a bad thing and could in fact assist some people to eventually own their own home if it is done in a systematic way, such as in the form of a Rent-to-Own (RTO) scheme.

Datuk Seri Fateh Iskandar Mohamed MansorReal Estate and Housing Developers’ Association of Malaysia (Rehda) president Datuk Seri Fateh Iskandar Mohamed Mansor says RTO schemes will definitely assist those interested in owning their own home in the long run, especially for young income earners.

“Young income earners may not have strong financial support which makes it difficult for them to secure loans from banks due to a lack of financial track record or income stability,” he tells TheEdgeProperty.com via email.

He notes that the 10% down payment to purchase a house will also be an issue for most young buyers and if there is any RTO scheme offered, it will help to lessen their burden of owning their first home.

According to Rehda, government agencies have already started RTO schemes that focus on low-cost and affordable housing.

Aside from PR1MA (1Malaysia People’s Housing Programme), there are also state governments and state agencies providing RTO schemes for affordable housing projects, such as RumaWIP (Federal Territory Affordable Housing Policy) homes, Selangor Smart Sewa Scheme and Program Sewa-Beli Kerajaan Johor.

“I believe if more state governments or agencies play their roles and move in the same direction to promote RTO schemes, it could encourage home-ownership,” Fateh says.

Knight Frank Malaysia managing director Sarkunan Subramaniam also lauds the government’s initiative to have RTO schemes such as the introduction of the RTO scheme for successful applicants of PR1MA homes whose loan applications have been rejected.

Sarkunan SubramaniamUnder this scheme, applicants will be able to rent a PR1MA home for up to 10 years, before deciding to buy them at the end of the fifth and tenth year, at a pre-determined price.

“Whilst this is a laudable initiative, it is also important that the proposed location and type of housing products under the RTO scheme match the housing needs of the younger population — near transportation routes or highways and supported by various amenities,” he adds.

How viable is it?

Independent economist Lee Heng Guie notes that RTO schemes are only viable if both the government and housing developers are fully committed in building affordable rental housing and accommodation.

“The availability of homes for rent at below-market rates for a fixed time period will give tenants the opportunity to save up for a deposit and get ready to buy their own home,” he adds.

Meanwhile, VKA Wealth Planners head of financial planning Lawrence Seow says although RTO schemes encourage home ownership,  this concept could only be successful for government joint-venture projects as the funding mechanism requires long-term planning.

He says private developers might be reluctant to offer such schemes as they may have to wait as long as 10 years to collect their profits, unless there is a win-win solution for both developer and buyer.

“I believe the RTO concept could assist young people to own their first home, but the challenge here is how to implement the scheme and Lee Heng Guieensure this scheme will not be misused by others for profit,” says Seow.

On the developers’ initiatives to promote the RTO scheme, Rehda’s Fateh says the idea is very subjective to individual industry players, but there are some developers who have introduced their own RTO schemes as part of their innovative marketing strategies.

“The tight lending guidelines by Bank Negara have made some developers come out with creative marketing plans to assist buyers to own their dream home and, at the same time, clear off their unsold properties. Such initiatives will also reduce the holding cost for developers, which is good for the market,” he explains.

On short-term speculation, Fateh says it will not be an issue as such schemes usually come with moratorium periods ranging from five to 10 years where the property is not transferable (sold) to others except close family members, until the “tenure price” is fully settled.

However, there may be some irresponsible owners who rent out their property for a higher rental during the “rental period” when the owner and his/her family are the only ones allowed to occupy the property. “This is something quite difficult to control,” Fateh adds.

Developers experimenting with RTO schemes

In Malaysia, Tan & Tan Developments Bhd and Selangor Dredging Bhd (SDB) have introduced their own RTO schemes to some of their buyers.

SDB has introduced the Reside and Purchase (RAP) programme which allows potential homeowners to purchase the property after they have moved into the property.

Lawrence SeowAccording to a company spokesperson, the buyers could move in immediately after they have paid 5% of the down payment. After that, they have 36 months to secure a loan to purchase the property. Pending the loan approval, the buyer would be paying instalments towards the cost of the home. In the event the buyer is unable to obtain a loan at the end of the 36-month period, the amount that has been paid will serve as rental for the house which is non-refundable and the unit will be returned to the developer.

Properties which are available under the RAP scheme are the completed developments, namely Windows On The Park in Cheras, By The Sea in Penang as well as Laman & Bayu in Puchong, Selangor.

The spokesperson says the programme has received hundreds of enquiries from interested buyers and the curious public since its launch in mid-February this year and, thus far, there are 25 units of SDB homes that have been transacted under this scheme.

She notes that this programme allows the buyer to enjoy the home and lock in the price of the home with a lower down payment.

“At this point in time, we are not sure if this programme will continue, but if it helps people and makes it easier for them to obtain a property, we may just consider having this scheme for a longer term,” she adds.

Meanwhile, Tan & Tan Developments introduced a RTO programme for its Park Manor bungalow project in the Sierramas development in Sungai Buloh in mid-May this year.

Executive director Teh Boon Ghee says the company is looking at renting out four bungalow units out of the 40 in Sierramas for a monthly rental of RM10,000.

The company will offer the option for tenants to purchase the unit after staying in it for one or two years. He however, stresses that this is just an experiment for the company.

“As a property developer, our principal business is on development planning and building as well as in selling properties, not in leasing homes,” he offers.

Don’t rush, try renting instead

According to a Khazanah Research Institute (KRI) report in 2015, Malaysia’s housing market is seriously unaffordable. Using median multiples as one of the two methods to assess the situation, KRI noted that median house prices are 4.4 times the median annual household income in 2014. By global standards, an “affordable” market should only have a median multiple of 3.0 times.

In Malaysia, only one state, Melaka, has been classified as having an “affordable” housing market with a mean multiple of 3.0 times. There are four states that have “severely unaffordable” markets — Terengganu, Kuala Lumpur, Penang and Sabah with a mean multiple of above 5.0 times.

VKA Wealth Planners head of financial planning Lawrence Seow concurs that house prices are far beyond the means of most Malaysians as household incomes have not risen in tandem with the cost of living.

“There are many places where the market value of ‘ordinary’ double storey terraced homes are above RM1 million. At current salary levels, there is no way to afford that kind of property,” he says.

From a financial planner’s perspective, he urges young salary earners who are planning to own a home to have a financial health check before making any property buying decision.

Rent to own

So if you can’t afford to buy a house now, should you consider renting instead?

Economist Lee Heng Guie says renting a house may be a wise move for young working adults or young families as it allows more flexibility, less financial commitment and less investment than buying a property.

“They should rent affordably now, save for a deposit, and then buy a house when they are financially stable and sound,” he adds.

He notes that the young can opt to buy a house when they have accumulated some savings or wealth and are in a better financial position to meet the long-term commitment of owning a property.

Knight Frank Malaysia managing director Sarkunan Subramaniam says home-ownership tops the list of financial priorities for Malaysians but unaffordability has priced out the young working group from the housing market.

“The current challenging market condition has worsened the situation — the slowdown in the economy, the gloomy job market with higher retrenchment, the higher cost of living and lower disposable income. All these may push more Malaysians to rent instead,” he explains.

Most of us may agree that owning a house is better than renting one but whether we have the ability to do so is a different story. There is a long checklist before you can make that decision.

Buying a house is a long-term financial burden which could be a sweet or painful experience, depending on how the homebuyers work out their financial plans.

Start your search for a condominium of your choice HERE.

This story first appeared in TheEdgeProperty.com pullout on July 1, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free.

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