Rent-to-own schemes don’t make financial sense for us, says developer

PETALING JAYA: A property developer has dismissed the idea of rent-to-own (RTO) schemes as a way to reduce property overhang, saying this is “easier said than done”.

The suggestion was made by property consultancy firm Rahim & Co International Sdn Bhd, which said government-led initiatives were not enough to reduce the glut in housing.

According to a Malaysian Reserve report, the firm said RTO schemes were the next best option to trim the oversupply of homes in the market.

However, Melaka-based developer Anthony Adam Cho said for most developers with a ready supply of unsold homes, RTO schemes were not financially feasible.

With RTO schemes, he said, developers would not be able to collect enough from house buyers each month to cover the high costs of the loan taken for the project.

“On average, a developer would seek 50% financing for a housing project from the bank, and the interest rates are high – somewhere around 8% and above,” he told FMT.

He said even big developers, who can afford to run RTO schemes, were unlikely to adopt the move. Instead, he said, they would look for alternatives to clear their stock.

“Some may opt to provide 30% financing to buyers which they need to repay in five years. The buyer can then apply for a 70% bank loan for the rest. This is better for developers because they know they are guaranteed to receive 70% from the bank.

“Banks also want returns on their investments, so if a property is in an un-strategic location and cannot be sold or will not appreciate, there would be no incentive for banks to go in and offer RTO schemes,” he said.

Noting the overhang of units in the RM300,000 to RM500,000 category, Cho said the real issue was the inability of people to afford homes.

He attributed this to the disparity between the increase in salaries and cost of living.

He said buying property would probably be the least of a person’s priorities if he or she was struggling just to survive.

Cho said developers would not set unaffordable prices, but that these were also affected by costs, from the high prices of land and regulatory costs to cross-subsidisation where developers need to commit a percentage of their developments to building affordable homes.

“With cross-subsidisation, the developers build affordable homes at a loss and are forced to make up the difference in other projects. Regulatory costs like laying the last mile for utilities push up the costs, too.”

He said the likes of TM and TNB had been privatised and were profit-making companies, so it no longer made sense for developers to bear the cost of laying their utilities when these companies should be doing it themselves.

National House Buyers Association secretary-general Chang Kim Loong agreed that affordability was the issue, but added that developers should not be too stubborn in maintaining their selling price.

“In the current market, there is an abundance of unsold property, to the tune of RM22 billion. It is time the developers recouped their costs for unsold units as they made profits from the units sold earlier.

“At the end of the day, the longer they hold on to their unsold units, the more detrimental it will be to them due to the holding costs,” he told FMT.

He also urged developers to consider giving more discounts in addition to the stamp duty exemption given by the government and the 10% discount on properties given during the National Home Ownership Campaign.