By Focal Times
clock 15-03-2021
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Rent-to-Own Your Dream Home, or Not?

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Though many people dream of the perfect home, it’s not that easy to find the “right” house, especially with escalating housing prices and the rising cost of living in general.

A Rent-To-Own financing scheme to assist first-home buyers was introduced in Budget 2020. Under this scheme, financing of up to RM10 billion will be provided by financial institutions with support from the government via a 30% or RM3 billion guarantee. The said RTO scheme applies to the purchase of first homes, with a property value of up to RM500,000.


Understanding the Rent-To-Own Scheme


Firstly, it doesn’t require the initial payment of a 10% down payment associated with buying a house.


The scheme works through a lease agreement that gives the buyer the option to buy the rented property at a future date.

The contract between the developer and potential buyer will dictate the length of time the buyer will first rent the home. It could be 5 years, 10 years or even 20 years for some. Then, at the end of the contract, you can exercise the option to purchase the property – hence the term, rent-to-own.


Pros



  • Low entry cost.

  • Able to start preparing towards owning property even if qualifying or getting a loan is difficult now. 

  • Test, survey and observe the surrounding neighbourhood before deciding to buy.

  • Lock in the property purchase price based on current value and enjoy future price appreciation.


Cons



  • Forfeiting money paid for the “option” of buying the property if you decide not to buy.

  • Risk of being unable to qualify for a loan at the time that you want to buy the property.

  • Missed payments or “breach” of set terms of the agreement may leave you both without a house and in a lot of debt.

  • You are not the owner of the property (yet) and cannot renovate or make any changes without the owner’s approval.

  • Property prices may unexpectedly fall lower than the price locked in at current pricing.


Who’s Eligible For This? 



  • Buyers must be citizens or are permanent residents of Malaysia aged 18 to 65 years old and bearing not more than one housing loan to their names.

  • No maximum set for the combined household income of applicants, but it must be at least RM5,000 and above. Those who do not meet the minimum amount are allowed to rope in up to three guarantors who must be immediate family members only.


Buying a property is a big deal for many of us, so if you don’t fancy the idea of living in a rented house for around 10 years, then RTO may not work for you. However, having said that, a Rent-to-Own home option can be beneficial for buyers who lacks a good credit score too.


Our verdict? Go for the choice that makes the most sense to your finances and circumstances. Currently, rent-to-own properties are still limited in Malaysia, so take advantage of it if you can and are comfortable with the arrangements. We hope that there will be more RTO property project launchings in Malaysia soon. 



The views and opinions expressed in this article are those of the authors and not intended to malign any company, individual or necessarily reflect the official policy or position of any agency or organization. Focal Times is a subsidiary of Maxworld Consulting Sdn Bhd, a regional organization founded by a mixture of agile and experienced corporate finance, venture capital and industrial experts. This establishment focuses on sharing current banking affairs, latest property developments and updates and more.





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