Is FundMyHome a ponzi scheme?

No.

A Ponzi scheme is a form of fraud which lures investors and pays profits to earlier investors by using funds obtained from more recent investors.  Ponzi schemes never make legitimate investments.

Under FundMyHome,  all funds raised are invested into a hard, tangible asset – your home. You can see, feel and stay in it.  All returns subsequently payable to you and investors  rests on the property’s value which is transparent and independently verified  every five years.

How can I, a first-time homebuyer, come up with the 20% upfront payment, and how can I benefit?

You may draw on your own savings, approach friends and family for assistance or take a personal loan from a bank.

Paying the 20% with savings

Let’s say you now rent.

Assume you have some savings or are able to gather from family the RM60,000 needed to pay 20% of a RM300,000 home under FundMyHome. You move in, paying nothing more over the next five years. You would have saved a total of RM72,000 and have equity of RM60,000 to show for at the end of the period.

Table 1

Paying the 20% with a personal loan

Alternatively, if you take out a personal loan to fund the 20% of a RM300,000 home under FundMyHome, your monthly payments are equivalent to building up equity in the home. At the end of five years, you would have saved RM60,000 in a home under your name.

In contrast, if you had continued to rent for five years paying RM1,200 a month,you would have spent RM72,000 but have nothing to show at the end of five years.

Table 2

If I can’t get a mortgage today, how are my chances improved in 5 years under FundMyHome?

Buying through FundMyHome rather than renting during the first five years puts you in a better financial position for a mortgage thereafter.

Continuing your journey as a homebuyer under FundMyHome, by Year 6, you would have accumulated RM60,000 or 20% equity in the home (see table below). Should you choose to apply for a 80% mortgage to buy the home, you need no further funds to meet the downpayment. This scenario assumes the home price is unchanged at RM300,000. Even if the home price rises, to say RM350,000, you would only need to top up RM10,000.

On the other hand, if you had stayed in a rented house through the first five years, you would have no equity in the home and would need to freshly raise RM60,000 towards the downpayment of 20% to purchase the same home costing RM300,000. If the home price has rises to RM350,000, you would need to raise a higher sum of RM70,000.

The reality is, you will NEVER be worse off with FundMyHome compared to renting. If the house price falls by 10%, you would still have positive equity value of 10% of the original house price. Even with a fall of 20%, you are not worse off than renting. 

The positive equity value created is what helps you to eventually own the home completely.

FundMyHome or a Mortgage?

The answer depends on your individual circumstances, risk appetite, mortgage terms, investment horizon and your expectations for how home prices behave over the five years.

To buy a 3-bedroom apartment costing RM300,000, a homebuyer under both options needs to pay RM60,000 upfront. Over the next  five years, with a mortgage, you need to keep up with  RM1,216 in monthly repayments. With FundMyHome, there is no monthly repayment.

By the end of the fifth year, with a mortgage, you would have paid nearly RM132,960 and still owe RM218,779.  Under FundMyHome, you would have paid only RM60,000 and have a balance of RM240,000 outstanding.  

Another way of looking at it is that the amount already paid plus the outstanding loan payable would be RM351,739 under a bank mortgage. Under FundMyHome, the equivalent amount is only RM300,000 or nearly RM52,000 cheaper. This is because much of the payments in the early years under a mortgage went towards interest.

However, should home prices rise by more than 17%, you would be better off with a normal mortgage. On the other hand, the risk of losses due to a fall in home prices is much higher under a mortgage. With FundMyHome, your loss is limited to the capital you invested, which is 20% of the original house price.

In summary, if you have the access to a bank mortgage, prefer not to share your capital gains and do not mind bearing all the loss as well, FundMyHome is not for you.

On the other hand, if you do not have access to a bank mortgage, are willing to share your capital gains and mitigate your potential loss, then FundMyHome may be for you.

Is it fair that the upside from any capital gains is mostly enjoyed by the developers while the first 20% of any capital loss is borne by homebuyers?

FundMyHome works because developers only receive 80% of the home price upon sale. The balance of 20% is only earned at the end of Year 5, provided the home price appreciates by 20%.  Otherwise, the developer forfeits the 20%.

That 20% is set aside to pay a fixed 5% interest rate to institutional investors over the 5-year period,acting to incentivise them. Without a fair return, it would not be possible to attract investors  to fund 80% of your home.

In short, the first 20% of capital gains paid to the developer at the end of Year 5 is a repayment of their 20% set aside upon sale of the home in order to pay the 5% interest rate to the investors.   Developers will never get more than the original selling price of the house.  Instead, they risk losing up to 20%, even if the house price stays unchanged.

FundMyHome aligns the interests of developers and homebuyers such that developers are incentivised to uplift the value of your property.