FundMyHome: The final verdict and implications, plus the crab mentality

We will start with a very brief recap of the key parameters of FMH. There is a broadly held perception that homes are increasingly unaffordable because prices have far outpaced income growth, therefore making it extremely difficult for prospective homeowners who cannot afford to buy one now to ever catch up. In fact, this perception is not true for the average Malaysian household, and we will explain in the following paragraphs. But yes, there are groups of people who do have difficulty making the minimum 10% down payment and getting mortgages, including lower-income households and the younger generation, particularly those just entering the workforce. Their incomes and savings will rise with time, as will their eligibility for a mortgage, but then so will home prices.

The objective of FMH was to directly address this issue — by providing a five-year bridging finance to those who have not saved enough for the 10% down payment and/or have not yet reached the income level required to qualify for a traditional bank mortgage. We will not delve into the exact mechanisms of the scheme, which is proprietary IP. Suffice to say, FMH successfully bought 32 families (the actual number of homebuyers under the scheme) five years’ time to improve their credit standing and financial position.

With some help from the government — a loan/grant for 10% of the price was made available to these homebuyers under the DepositKu programme (to partially cover the 20% down payment) as well as a 7% bumiputera discount — these 32 families needed to come up with only RM10,052 on average, or 3.3.% of the home price. The actual average price for the 32 homes was RM308,094 in 2019.

During the entire five-year period, from 2019 to 2024, they did not need to pay any rental or mortgage. The estimated rental saved is about RM900 a month or RM10,800 a year — and totalling RM54,000 over the five years (assuming zero compound interest income on the monthly savings). This amount is intended to be their equity contribution at the end of the five years, which would significantly improve their ability to obtain a mortgage.

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For example, RM54,000 is equivalent to more than 20% of the total amount needed to buy the home in Year 5 (see Table 1), assuming the home price remains unchanged. The refinancing required (RM246,475) will be reduced to only RM192,475 (or only 62% of the home value) and accordingly, so will the monthly mortgage repayment. The lower loan-to-value ratio and monthly mortgage repayment of RM852 (Scenario 2) will significantly improve the homebuyer’s eligibility for a bank mortgage. 

The final tally

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The FMH scheme ended in 2024. Here is the outcome:

1. Only eight — or 25% — of the 32 families opted to buy their homes, refinancing through mortgages.
2. The remaining 24 families have since vacated their units, which will be sold in the market.

The majority of the 24 families did want to buy over their homes but were unable to secure a mortgage. They still failed to qualify for a mortgage — principally because they did not save the rental (that they did not have to pay for five years) as they should have. Hence, they did not have the equity contribution and could not meet the banks’ minimum debt service ratio based on their current household income level.

Lesson 1: Lack of discipline

Their biggest obstacle to homeownership (and for everyone, really) is the lack of discipline. “Affordability” depends on your income level, expenses and savings, and the price of the home you choose to buy, of course. To improve homeownership affordability, one could spend less on discretionary expense and be more committed to saving. Or complain.

There is nothing wrong with FMH’s maths. It works. What was lacking was the discipline to put aside the rental (that they would have had to pay for any other home if not for FMH) instead of treating the RM900 savings as a “windfall” and spending it all for instant gratification. Or perhaps they simply “didn’t care”. You can lead a horse to the water, but you cannot force it to drink. We can devise the best-laid plans, but they must also want to help themselves.

So, what are the solutions to help the poor? RED.

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• Responsibility for self and family.
• Education. A quality education, including ongoing financial literacy courses for adults, is the best way to ensure upward income and social mobility.
• Discipline. No one should be allowed to feel entitled.

It all boils down to the VALUES we inculcate in our society. We are focusing too much on the tools, not the users. We will write more on this in our upcoming articles. It is time to call a spade a spade. The pendulum is swinging against progressive inclusiveness — too high costs for society to pay.

Lesson 2: Home prices do not only go up

Earlier, we mentioned that there is a widely held belief that homeownership is increasingly unaffordable, a perception that is often perpetuated by the media and government officials. This is simply not true. Homeownership in Malaysia is nearly 80%, meaning almost all households can afford to own a home, if they so wish. We have written extensively on this subject before.

Banks will typically lend the equivalent of up to 30% of a person’s gross income to service the monthly payments towards a home mortgage. Based on this criteria, the minimum monthly household income to qualify for a mortgage to buy a RM200,000 home is RM2,840 and for a RM300,000 home, it is RM4,260. The median household income in Malaysia was RM6,338 in 2022 while nearly 90% of households earned more than RM2,840 a month.

Affordability — as measured by the average home price over average household income — has improved since the DIBS (Developer Interest Bearing Scheme) bubble burst. Property prices fell and more or less stagnated for years — household income has grown faster than house price appreciation since then (see Chart 1).

In fact, it is also a myth that property prices only go up. In the case of the homes under the FMH scheme, prevailing market prices have fallen, unfortunately. This is contrary to the steady rise in prices in the location (Semenyih) as reported by Napic (National Property Information Centre). This underscores our contention that home price data from Napic has an inherent upward bias. It tracks the average prices of a basket of homes selected based on certain predefined criteria. The problem with this methodology is that it doesn’t track the “same house” price over time but prices for different houses that also include new launches. Think of it as trying to chart the growth progress of one child by measuring the height of a different child each year! Our own analysis based on data for “same house” in the Klang Valley shows that prices fell between 2017 and 2022.

In the case of the 32 FMH homes, the current market price is estimated at less than RM240,000, down by more than 20% from the original sale price. This is due primarily to rapid growth in the supply of similar units in the location, despite improving demand. Unfortunately, this means that the 32 homeowners will have to take a small loss, which is capped at what they have already contributed upfront. That is, the RM10,052 in down  payment. They have no further liability beyond this, no matter the current market price. The next level of losses will be borne by investors who funded the project (that is, us).

Drops in market prices affect all homeowners, whether they have chosen to finance their purchases via traditional mortgage, FMH or a rent-to-own scheme like HouzKEY. We made a comparison of the size of the financial losses under the three different financing methods in Table 2.

Using traditional mortgage financing, after paying almost RM100,000 in the past five years for down payment and debt servicing, the outstanding mortgage is still almost the same as the value of the home today. Any further price decline, below RM240,000, the homeowner would be sitting on negative home equity (that is, owing more to the bank than the price of the home). The homeowner enjoys all the potential upside gains but also bears all the downside risks.

Under HouzKEY, one will probably opt to walk away instead of buying the home for RM308,094 (locked-in price) — but not before forfeiting the RM57,305 already paid in the last five years for rental (which they would have to expense anyway) plus the premium on the rent-to-buy option.

Walking away from the FMH scheme means the homeowner will lose the entirety of his equity contribution of RM10,052, which is also the maximum capped loss. But remember, they also saved RM54,000 from not having to pay any rental in the last five years. Anyone renting (not owning) the home over the last five years would be out of pocket by RM54,000 (rental expense). That means these FMH owners are in effect walking away with a “net profit” of RM43,948!

In conclusion, for homeowners, the FMH scheme was indeed the better scheme. They effectively benefited with a financial gain of RM43,948 despite the property prices having fallen. If they had chosen a typical mortgage, they would have suffered a financial loss of RM42,337 and a loss of RM3,305 under a rentto-own scheme.

The sharp fall in market prices also means that we, as the FMH investors, will be getting far less than our 5.9% per annum promised returns. In fact, we are likely to come out of this project with a net loss on our investment. We now have to sell the 24 units (not taken up by the homeowners) in the secondary market at prevailing values. The latest transactions indicate prices well below RM240,000. All losses (plus selling expenses) from selling at prices below RM246,475 will be borne by the investors. In other words, FMH may well be a costly experiment for us. Nevertheless, we did learn a few valuable lessons in the process.

We dispelled the myth that property prices only go up, even in a good location and for homes built by a reputable developer. There are reasons why property prices have trended up over the course of history, worldwide. Prices were rising due to prime land scarcity, population growth and declining household size, urbanisation and migration, inflation (in construction costs, for labour, land and building materials) as well as speculation and financial innovation (that makes buying a home easier and more affordable even to those who shouldn’t qualify otherwise) and so on. That is why homeownership has historically been the key driver for mass wealth creation and accumulation, underpinning the rise of the middle class globally. But will this remain true going forward? There are places in some advanced countries where residential property prices are in secular decline. This is an issue that we think is worth exploring further and we will write about in the future.

Lesson 3: Crab mentality

FMH is a novel, out-of-the-box solution specifically tailored to help the poor and young own a home. Put together in 2018, it did work for a few homeowners in our pilot run. There is nothing wrong with the maths. Where we were wrong was on the behaviour of people.

One of the most important takeaways from this project was the barrage of criticism and objections from detractors and naysayers, often made based on suppositions in the absence of facts and without even studying the intricacies (yes, we concede that the scheme is somewhat complicated; we simply did not realise there were so many unintelligent people) and merits of the scheme. Most did not even bother to contact us for clarification on the details.

FMH failed to attract any funding from institutional investors and had no follow-up support from the government. We only managed to execute a small pilot run, with RM10 million of our own money, as proof of concept. Hence, FMH never took off en masse. It surely could have helped more families own their first homes.

Who are these critics and why were they so adamant in their rejection of FMH? Even more critically, what are their actionable alternative plans to help these people own a home, beyond highlighting the obvious (and with words only)? We will not reprint their views to avoid embarrassment, but you can google them.Don’t get us wrong. We are all for healthy scepticism and vigorous analysis of the facts. After all, we are data-driven analysts. Perhaps most people simply fear what they do not understand. But if we do not innovate and try new ideas, we can never make progress. Or is it envy, one of the seven deadly sins, that leads to sabotage and enforced conformity (to be mediocre)? In fact, there is a term to describe such behaviour. It is called crab mentality — where individuals in a group attempt to pull others down if they perceive them as advancing or succeeding.

“If I can’t come up with a great idea, well then, neither can you.”

In fact, it was in the early 1990s when Tan Sri Wan Azmi first cautioned me that many business elites in Malaysia have crab mentality. They wish to pull you down, back into the box. That was when my career was taking off in stockbroking and banking.

Conclusion

FMH may not have turned out to be the wild success that we had hoped. There are things beyond our control, like property prices that are driven by market demand and supply, and people’s behaviour. In any case, it was never intended to be the panacea for all the perceived issues involving homeownership. Obviously, different financing methods (mortgage, rent-to-own and others) will better suit different households depending on their objectives, financial standing and risk-reward preferences.

We did help set 32 families on the path to homeownership. Many more could have been provided this opportunity. But it was not to be. Innovative ideas were pulled down by the prevalence of many with crab mentality.

The Malaysian Portfolio fell 3.0% for the week ended Jan 15, in line with the selloff in global equity markets. The FBM KLCI ended 3.3% lower. Markets have been roiled by the prospect of higher-for-longer inflation and interest rates in the last few weeks. All stocks in the portfolio ended in the red. The biggest losers were Gamuda (-14.3%), Insas Bhd – Warrants C (-7.4%) and KSL Holdings (-5.7%). Last week’s losses pared total portfolio returns to 196.9% since inception. Nevertheless, this portfolio is outperforming the benchmark index, which is down 14.6% over the same period, by a long, long way.

The Absolute Returns Portfolio, however, closed just marginally lower, down 0.3%, recouping most of the losses from earlier in the week thanks to Wall Street’s strong rebound on Wednesday (after Asian markets trading hours). Investors cheered the December consumer price index report that showed core prices, after stripping out food and energy, rising at a slower-than-expected rate on both a monthly and yearly basis. The top gainers were Talen Energy (+5%), CRH (+3.5%) and Berkshire Hathaway (+1.5%); while the notable losers included DBS (-4.2%), OCBC (-3.8%) and Grab Holdings (-3.7%). Total returns since inception now stand at 16.5%.

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/ or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.