Remember the brouhaha about the property crowdfunding announcement many months back? Well, there are more progress to it but before we get too lost trying to understand the regulatory terms etc, here’s an easy to understand summary and commentary by a prominent lawyer and real estate personality, Chris Tan. He’s also a TV host for the interesting Property Hot Seat show in Bernama News Channel. When I heard him speak for the very first time in Penang probably 8 years ago, I wondered if he’s a real lawyer because his presentation was so easy to understand! (Just kidding, all awesome lawyers in Malaysia.) Read on and get ourselves updated.
— start of Chris Tan’s summary and commentary —
10 points Summary on the Proposed Property Crowdfunding Framework in Malaysia and observations by CHRIS TAN 陈佐彬·MONDAY, MARCH 25, 2019 This is Chris Tan 陈佐彬’s summary and commentary on the Proposed Regulatory Framework For Property Crowdfunding by the Securities Commission Malaysia
Point # 1: Objective: Leverage on Technology-enabled and Innovative Mechanism to provide Alternative Funding for First-time Homebuyers
Point #2: Adopting the existing P2P (Peer to Peer) Crowdfunding Framework with some adjustments and updates.
Points #3: Listing of individual property purchase proposal by first-time homebuyers for the selection of crowdfunding investors based on their very own investment risk profile.
Point #4: Investment note in this regard can be tradable in a secondary market.
Point #5: P2P Crowdfunding to finance the necessary the balance purchase price of the proposed first home purchase as an alternative to the conventional banks and financial institutions.
Point #6: New license or licenses shall be issued by SC for new recognised market operator.
Point #7: Key parameters on:(a) platform operators;(b) interested homebuyers; and(c) properties to be listed
Point #8: Platform Operators:
(a) Roles:- listing of qualified properties available to be purchased by interested first-time homebuyers- operate a secondary market for investors to trade their investment notes- centralised contact point between a homebuyer and the investors
(b) Key Requirements:- Minimum paid up capital at RM20million- Ready and able to operate the Secondary Market for the Investment Notes- Appointment of a responsible person
– Due diligence on both the homebuyers and the hosted properties
– Perform proper valuation before hosting the property on the platform
– Disclosure obligations for property hosted
– Continuous public education and awareness programs for both the homebuyers and the investors
– Disclosure of Applicable Fees, Charges and Incentives
(d) Do and Don’t:
– host properties on the platforms
– operate a secondary market
– host a forum for discussion on the offerings on the platform
– property management services
– standardised documentation relating to the scheme
– contact point between homebuyers and investors
– funding/ financial assistance to homebuyers and/ investors
– offer investment advise- negotiate terms for and on behalf any third parties like financial advisers, lawyers, banks, moneylenders etc.
Point #9: Additional features of the Property Crowdfunding Model:
– All or nothing approach: if fund raised not meeting target, no deal and money will be returned immediately to the investors.
– Trust account to hold funds pending completion of the campaign.
– Disclosure of material adverse changes for the entire campaign period.
– Release of the fund raised directly to the Developer upon a successful campaign and no material adverse change during the campaign
– Internal Dispute Resolution Mechanism by the Platform
– Exit certainty at the end of the scheme and the Disclosure of the same
Point #10: Homebuyers
– first residential property only
– Malaysian only
– at least 21 years old
– never owned a property solely or jointly
(b) Funding limit:- up to 90% of the Purchase Price only
(c) Eligible property:
– purchased from Developer
– newly completed property within 24 months from a valid certificate of completion and compliance
– valued at RM500k and below at the time of hosting at the Platform
– properties in Malaysia only
(d) Restrictions on homebuyers:
– no selling or transfer of ownership during the tenor
– Owner occupied only and allow to rent out rooms in the home but not entirely
************Chris Tan 陈佐彬’s Observations:
1. It is essentially a lending model; and not an equity model that perhaps offers an upside gain on the appreciation. Such features of return if exist, should be prominently featured and explained.
2. Secondary market offers better liquidity compare to conventional property investment but there is a need for good governance and safety mechanism to prevent speculation.
3. The all or nothing approach should be qualified if the buyer have a short grace period to secure the shortage in the funding target from the conventional banking or family and friends.
4. – Disclosure of material adverse changes should cover during and until the disbursement of the fund for a successful campaign.
5. Extra conditions prior to release to the Developer like a confirmation from the Developer that the outstanding is exactly the same of the fund raised and no further claim after the release of the entire fund raised.
6. The scheme as it is proposed now seems to only cover property offered by Developer now, perhaps can also cover secondary property to be sold to first homebuyers by the first hand buyer earlier.
7. It seems to only covers the unsold units by the Developer upon VP and not those under construction.
8. Not clear on the possibility and range of permitted interests to be charged on the homeowners.
— end of summary and commentary by Chris Tan 陈佐彬 —
From the summary, I think there’s one important point which has been brought up by MIEA too. Earlier article here. The focus on helping first-time home buyers to own a home should be extended to the secondary property market too. I would assume this proposal (extending to the secondary market) is already under consideration because let’s understand that the more options we provide to first-time home buyers, the better it would be for them. Sometimes, these secondary properties are the properties nearest to their parents for example. Newer launches are usually further instead of within some older neighbourhoods for example. As a filial son / daughter, I would love to stay as close as possible to them, right? Do follow Chris Tan in his FB. Lots to learn.
Next suggested article: 6 reasons I love secondary properties