A relatively new concept in Malaysia, the rent-to-own scheme (RTO) emerged a couple of years ago. It makes property-owning more affordable for more Malaysians. How does it work?
Firstly, it doesn’t require the hefty down payment associated with buying a house outright.
The scheme works through a lease agreement that gives you the option to end with a sale – or, to put it more simply, you can try a property before you buy!
In a nutshell, those looking to buy a property enter into a lease – that is, a contract between the developer and the potential buyer – that dictates a certain length of time during which the buyer will first rent the home.
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.
Budget 2020 Announcement On The Rent-To-Own Scheme
The Malaysian Budget 2020 was announced on 11 October 2019. One of the plans shared by the government is the introduction of their rent-to-own scheme.
The government will be working with financial institutions for this scheme to assist those who are unable to pay a 10% deposit and to secure access to home purchase financing.
This scheme will commence in 2020 for properties priced up to RM500,000.
Following this, property seekers can rent for five years, with the option to buy at a price stated in the rental agreement. Stamp duty is also waived for this scheme.
New as it is, the stipulation is the first most significant effort for rent-to-own Malaysia has ever seen.
*More details on this to follow soon.
Although it’s widely considered to be the answer to home ownership for many Malaysians, there are a few things to consider when deciding if rent-to-own is for you. Read on to learn more!
1) Who Can Use The Rent-To-Own Scheme?
Anyone (who meets the criteria, of course!) can use Malaysia’s various rent-to-own schemes if they are unable (or unwilling) to shell out a hefty down payment to buy a property.
The scheme is typically most suitable for young families and working professionals who don’t have the earning power yet to qualify for housing loans.
Depending on which scheme you use (Maybank’s HouzKEY and PR1MA are two of the most popular) there are a few stipulations that interested candidates must meet, including:
- Must be 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)
- Having a combined household income above a certain amount (usually around RM5,000 and above)
2) Why Not Just Rent A Property?
Good question! If you’re looking for somewhere to live where you commit only for a short period – minus the need to build or renovate – AND without being held to longer leases, then regular renting might be the right avenue for you.
However, 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 best way.
At the end of the day, it comes down to personal preference, and your financial capabilities.
3) What Are The Advantages And Disadvantages Of Rent-To-Own Schemes?
Probably the best thing for you to do is weigh up the pros and cons of rent-to-own. When buying a property in Malaysia – or anywhere in the world, really – no option is perfect, or 100% risk-free.
There’s always an element of risk, and you simply need to work out which option suits your needs and bank balance.
Rent-to-own property pros:
a. 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 down payment to purchase a house, or if they don’t qualify for housing loans at many banks.
Depending on the scheme, you only need around three 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.
b. You get to ‘try it out’ before you commit
Well, sort of. But while you’re still agreeing to a long lease, this gives you the chance to check out the neighbourhood, uncover any potential issues with the property, and see whether it’s a property that suits your needs (in the long-term).
Additionally, if anything goes wrong with the property, you can contact the owner to fix it for you – it’s still their responsibility (although this isn’t always the case, so check your contract carefully!)
c. Smart buyers can lock in a good price
Rent-to-own schemes allow you to lock in the property’s purchase price based on its current market value.
What this feature means: 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.
Rent-to-own property cons:
a. You still don’t actually ‘own’ the property during the lease
During rent-to-own, you’re not the property owner until a sale has taken place, which means if your lease term is ten (10) years, you can’t renovate or make any changes without the owner’s approval.
b. Missed payments are dangerous
The reality hits with regular rentals too. But in rent-to-own schemes, you are locked into long lease periods. If broken, the lease can leave you both without a house and in a lot of debt.
c. If property prices do drop, you might not benefit from this
Because you’ll be locked into a price based on the current value, if property prices suddenly or unexpectedly drop (slim chance there, but still a risk), you won’t be able to buy at the cheaper rate. Instead, you’ll have to buy at the price you initially agreed to.
Ultimately, nothing is perfect – and this includes Malaysia’s rent-to-own programmes.
These leasing agreements and transactions can be complicated, and if you’re not careful, you could find yourself in some REALLY sticky situations.
4) What Are The Initiatives Of Rent-To-Own Malaysia Currently Has? What Can You Do?
As it turns out, assistance for rent-to-own agreements is always at hand. As touched on briefly above, some of the rent-to-own initiatives available in Malaysia are Maybank HouzKEY, PR1MA, and Smart Sewa. Wonder which you’re eligible for? Here’s what you need to know!
*Note: Figures are updated as of August 2020.
a) Maybank HouzKEY
- 100% financing.
- 1% move-in cost.
- 0% down payment and no payment during construction.
- A locked-in property price and lowest monthly payment.
- Eligible for properties by developers (new and completed projects): Up to RM1 million in Klang Valley, Johor, and Penang.
- The scheme is suitable for properties by individual sellers/subsale market: Up to RM1 million anywhere in the Klang Valley.
- The rent-to-own house scheme initiative is for Malaysian citizens only;
- Applicants must be between 18-70 years old at the time of application;
- Applicants must not have more than one home financing at the time of application;
- Applicants may include up to three guarantors to improve the application success rate.
Maybank’s HouzKEY home loan gives you greater flexibility and a more efficient way to manage cash flow. It’s great for young couples and adults looking for their first home.
b) PR1MA (Perumahan Rakyat 1Malaysia/1Malaysia Housing Programme)
- Property prices between RM100,000 to RM400,000.
- Properties are available in various locations and states across Malaysia.
- A 5-year moratorium will be imposed on the property, during which it cannot be sold or transferred without approval from PR1MA.
- The property must be owner-occupied and no subletting allowed.
- The initiative is open to all Malaysians citizens, single or married.
- Applicants must be aged 21 and above at the time of application.
- Applicants must have an individual or combined (husband and wife) monthly household income of RM2,500 to RM15,000.
- Applicants must not own more than one property, between them and their spouse.
- Applicants must adhere to any additional guidelines set by PR1MA.
PR1MA housing projects are generally high in demand due to their affordability and low barrier entry for those looking to buy their first home. So, make sure you stay updated with their official page to find out when the next balloting will happen!
c) Smart Sewa (Rumah Selangorku)
- This rent-to-own house scheme covers a minimum rental duration of two (2) years and a maximum of five (5) years;
- A 30% return of the total rental is paid and used as a deposit if the tenant can buy the property within the stipulated five (5) years;
- The average rental rate begins from RM600 to RM650 per month and is subject to the location’s market rate;
- The initiative is for applications keen to rent-to-own Selangor homes ONLY.
- The initiative is open to Malaysian citizens only, including spouses;
- Applicants must be aged 18 and above, with discernible financial or family commitments;
- Applicants’ monthly family income level must not exceed RM5,000 a month for Type A or low-cost housing, OR RM15,000 a month for Type B, C, and D properties, including affordable and low-cost housing (those below RM10,000/ month are prioritised).
- Applicants and their spouses must live and work in Selangor.
- Applicants must not own any property in Selangor (prioritised);
- If applicants are existing homeowners, their properties are located more than 50 kilometres away from the applied location and are within a 25km radius of their workplace;
- Applicants must be registered voters in the state of Selangor.
Living in Selangor has so many perks, like subsidies for your children, a special higher education fund, free Internet connection (hello, WiFi@SmartSelangor), and the Smart Sewa homeownership scheme. They make independent living a closer reality!
If nowhere else in Malaysia speaks to your desire to rent-to-own, Selangor is then the best place for you. Along with Kuala Lumpur, the state is known to the country’s connecting point to the world.
Confident For A Rent-To-Own? Consider This First!
Before you enter into any rent-to-own agreement, make sure you’ve done your research. When in doubt, speak to real estate professionals who can help you get the best value for your money and preferred personal living arrangements!