According to Budget 2020, government will collaborate with financial institutions to introduce a Rent To Own (RTO) financing scheme to assist for the first time buyers those unable to afford the initial 10% deposit and access to financing to buy homes.

Under this scheme, financing of up to RM10 billion will be provided by the financial institutions with the support from the government via a 30% or RM3 billion guarantee.

Finance Minister Lim Guan Eng, in tabling the 2020 Budget, said the RTO scheme applies to the purchase of first homes, with a property value of up to RM500,000.

What is Rent To Own Scheme (RTO)

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

The scheme works through a lease agreement that gives you the option to end with a sale. those looking to buy a property enter into a lease – which is a contract between the developer and the potential buyer – that dictates a certain length of time the buyer will first rent the home for. For some people, this might be five years, and for others it could be 20. At the end of this contract, you can exercise the option to purchase the property – hence, rent-to-own.

If you’re looking for an option that provides you with a property that you can call your own – but without having to save tens of thousands of Ringgit to secure a property – then rent-to-own could be the way.

A Rent-to-Own home option can be a good option for buyers who lacks a good credit score too.

Who can participate for Rent To Own Scheme

This program is the most suitable for young families and working professionals who don’t have the earning power yet to qualify for housing loans.
These can include being a Malaysian citizen, having the right number of guarantors from your family (i.e., someone who agrees to pay your rent for you if you’re somehow unable to do so), and having a combined household income above a certain amount (usually around RM5,000 and above).

Pros & Cons of Rent To Own Scheme

Advantages

  • More Affordable Housing

    The reason rent-to-own schemes exist is to help lower-income families get into the property market, even if they don’t have the downpayment to purchase a house, or if they don’t qualify for housing loans at many banks.

    Tenant does not need to pay a hefty 10% down-payment to secure the unit. Depending on the scheme, usually just need around 3 months’ rent to be eligible, which is significantly cheaper than a 10% deposit to own a home, with a 90% loan to finance a home.

  • You Get To ‘Try It Out’ Before You Commit

    This gives you the chance to do a survey and observe the surrounding include the neighbourhood, uncover any potential issues with the property, and see whether it’s a property that suitable for your permanent stay.

    Apart of it, if anything goes wrong with the property, you can contact the owner to fix it for you as it’s still house owner’s responsibility.

  • Smart Buyers Can Lock In A Good Price

    Rent-to-own schemes allow you to lock in the purchase price of a property based on the current value. Therefore, when you decide to make the purchase, the sale price doesn’t change, even if the property’s market value is higher over the years.

  • Cheaper Entry Cost

    Legal fees and stamp duties for tenancy are typically cheaper compared to that of loan agreements and Sale and Purchase Agreement.

Disadvantages

  • Missed Payments Are Dangerous

    A rent-to-own or lease option is a contract that you can use to purchase a home in the future in terms you agree to today.  If you fail to comply with, or “breach” the terms of the agreement, the seller can kill the whole deal and often keep your money, too. It can leave you both without a house and in a lot of debt.

  • Smart Buyers Can Lock In A Good Price

    Rent-to-own schemes allow you to lock in the purchase price of a property based on the current value. Therefore, when you decide to make the purchase, the sale price doesn’t change, even if the property’s market value is higher over the years.

  • Fixed Price

    Renters who sign the Rent-to-Own scheme locked the price of a lease option at the time of lease agreement. If the renter signs the agreement during the peak of the home value, the cost of the home might end up being more than its value at the time of purchase if the home values rise.

    Because you will be locked into a price based on the current market value, if the property prices drop unexpectedly, you will still have to buy at the price that was originally agreed to.

  • You Still Don’t Actually ‘Own’ The Property During The Lease

    During rent-to-own, you’re not the owner of the property until a sale has taken place, which means if your lease term is 10 years, for example, you can’t renovate or make any changes without the owner’s approval.

HouzKEY by Maybank

HouzKEY is another type of Rent-To-Own scheme . Based on the concept of ijarah – a lease agreement in Islamic finance – HouzKEY locks in the purchase price of the property and does not require any down payment. It provides greater flexibility and cash flow efficiency, specially designed to assist those who intend to be homeowners but are unable due to the high initial cost.

Who is eligible:

  • Buyers must be citizens or are permanent residents of Malaysia aged from 18 to 65 years old 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.

How to apply:

To apply, purchasers merely need to select from the list of participating properties and submit the relevant documents – all of which can be done online via the maybank2own portal.

Benefits:

  • 100% financing
  • 1% move-in cost
  • Locked-in property price

Properties by Developers

  • New launches & completed properties – Up to RM1 million in Klang Valley, Johor & Penang from top tier developers

Properties by Individual Seller

  • Monthly payment reduces your financing amount overtime
  • Your choice of home – Up to RM1 million anywhere within Klang Valley from subsale market/individual sellers

Stay2Own by Maybank (EcoWorld Project)

Stay2Own is a rent-to-own program to ease home ownership with minimal initial cost, low rental rates and a savings mechanism to help you pay down for your dream home.

Who is eligible:

  • Buyers must be citizens or are permanent residents of Malaysia aged from 18 to 65 years old 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.

How to apply:

To apply, purchasers merely need to select from the list of participating properties and submit the relevant documents – all of which can be done online via the maybank2own portal.

Benefits:

  • Minimal initial cost – Pay 3 months rental deposit
  • Minimal monthly commitments – Pay as low as rent rate
  • Stay first and buy later – Decide within 5 years
  • Rental savings – At least 30% of rental paid can be converted to savings to help you pay down payment when you decide to purchase
  • Lock in today’s property price – You are able to purchase any time after 1 year up year 5
  • Applicable for selected homes offered by EcoWorld – Homes are readily available for occupation

Selected projects:

  • Click here for Eco Majestic
  • Click here for Harmoni
  • Click here for Parque Residences
  • Click here for Eco Grandeur
  • Click here for Eco Sky

Other Participating in RTO Developers & Projects

Process and Contract

To apply, purchasers merely need to select from the list of participating properties and submit the relevant documents – all of which can be done online via the maybank2own portal.

Upon approval – which can be obtained within 1 working day – successful applicants and their guarantors will have 7 days to pay the 3-month rental as security deposit and sign the lease agreement.

The contract period runs for a minimum of 5 years, with an option to renew every 3 years for a maximum of up to 30 years.

Rental for the first 5 years will be fixed at a flat rate, but should the tenant decide to go for the renewal option, there will be an annual 2% increase in the rent.

After servicing a 12-month rental period, tenants can choose to exercise the option to purchase by migrating to a mortgage facility.

The property price is locked from day one and the rental amount paid will reduce a portion of the property price [akin to mortgage repayment] hence, the optional purchase price at the later date will be lower than day one’s property price.

This would explain why the rental payments are higher than the monthly repayments for housing loans, as the down payment is already bundled into the rent.

HouzKEY also offers a Cash Out option for tenants who decide not to purchase the property after the 12-month period, allowing them to earn some cash based on the property’s capital appreciation.

This works by having the tenant buy the property on paper before selling it off to another buyer – which Maybank can assist in finding – at the current market price.

If the selling price is higher than the purchase price which was locked in when the tenant signed the agreement at the start of the lease tenure, he or she benefits by pocketing the difference.

A third option exists for tenants who can choose to walk away from the scheme at the end of the five-year tenure without any penalties and still get a full refund of the three-month deposit.

Source from: Focus Malaysia