This guide spells out what you need to know about the current RTO schemes available in Malaysia and how these rental homes can help you get one step closer to becoming a homeowner.
Owning a home is not an easy feat. It requires you to save up diligently for several years before you can fork out the hefty down payment to own your dream home. However, with the introduction of the Rent to own (RTO) scheme, a young first-time homebuyer may now be able to get a leg up on the home ownership ladder in a more flexible and affordable way.
Let’s take a look at what the RTO is all about and how you can benefit from it.
What is the Rent to Own (RTO) scheme?
Simply put, the RTO is working towards owning a property by renting it first.
A relatively new concept in the local property scene, the RTO scheme requires one to lease a residential unit, with an option to buy the property in the future at an agreed locked-in price.
The potential home buyer will first enter into a leasing contract with the developer, which states that the buyer will be given the right to exercise the option to purchase the said property at the end of the contract period.
How does the Rent to Own (RTO) programme work?
The Rent to Own (RTO) scheme works differently from the traditional home-buying concept. Firstly, it does not require the potential home buyer to fork out a hefty amount for the down payment. The buyer can either choose to buy the property or walk away at the end of the RTO lease agreement, which makes it flexible enough for those who want to ‘try and test’ living in a new neighbourhood or locality.
Although a down payment is not required, the potential home buyer will still need to pay a refundable security deposit, a typical figure is roughly 5% of the property price. This is similar to how one pays a 2.5 months deposit when renting a house in Malaysia.
If the lease agreement ends with a sale, the potential home buyer will be entitled to purchase the property at the agreed price stated in the leasing agreement (a locked-in current market price) without worrying about the increase in property prices over the years.
Depending on the scheme, the RTO lease duration differs from 12 months to five years or even longer. In rent to own deals, a certain percentage of the monthly rent paid will be credited to the property’s (future) purchase, i.e savings accrued for the property’s downpayment. Provided that the tenant (buyer) does not breach the terms of the RTO, the unit shall legally belong to the tenant at the end of the period.
What are the available Rent to Own (RTO) schemes?
Maybank HouzKEY Homeownership Plan
Introduced by Maybank, the HouzKEY scheme offers great opportunities to first-time homebuyers who wish to own a home but lack sufficient monies for a down payment. HouzKEY is based on the Shariah contract of Ijarah Muntahiyah Bi Tamlik, which is a lease contract that ends with ownership
With this rent to own plan, no down payment is needed as the bank will provide 100% margin financing. A potential home buyer, however, will need to pay the upfront cost of a three-month refundable deposit. Homebuyers under HouzKEY will start with a 5-year tenure and subsequently, have the flexibility to continue for up to an additional 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 rent.
The rental amount paid will reduce a portion of the property price at a later date. This is why the HouzKEY rental payments are higher than the monthly repayments for a typical home loan, as the down payment is already bundled into the HouzKEY rent.
The applicant has the option to purchase the property from Maybank Islamic Berhad (the owner of the property), at a pre-agreed purchase price any time after 12 months up to 5 years of the lease period. When they are financially ready, the applicant could either own the rental home by securing a mortgage with Maybank or any other bank OR migrate to mortgage via the Greenlane migration process upon request (subject to good payment track record during their tenure with HouzKEY).
How does HouzKEY work?
There are 2 categories rent-to-own schemes being offered by Maybank, namely:
1) Properties offered by selected Developers: This includes new launches, under-construction or completed properties located across Selangor, Kuala Lumpur, Johor and Penang. Currently, Maybank and several local developers are underway in offering the HouzKEY homeownership plan – these include Mah Sing Bhd, Tropicana, Eco World and Sunsuria.
2) Properties listed for sale by an individual seller on maybank2own.com: The subsale units are limited to Selangor and Kuala Lumpur and must not exceed RM1 million in price. The unit must also have a minimum built-up area of 550 sq ft.
Benefits of the Houzkey scheme
Eligible home buyers are entitled to enjoy zero-payment during the construction period. This means that if your housing unit is still under construction, i.e. a newly launched property, no payment will be charged once you enter into the RTO leasing agreement. Your first payment will be from the date you move in, or fourteen (14) calendar days after the date of the move-in notice issued by the bank for you to collect the keys, whichever is earlier.
Furthermore, the monthly payment is low as the scheme will offer you the best rate upon approval. You will enjoy a locked-in property price when you decide to purchase the property.
Those who sign up for a HouzKEY lease of more than 5 years have the option of walking away from the property and exiting without any further obligations after the 5 years. Should you decide to continue with the HouzKEY scheme after the initial tenure (5 years), you will not be required to submit new income documentation for assessment.
Other benefits include:
- Bumiputera discounts (for eligible Bumi buyer)
- EPF withdrawal for monthly payment
- Home Ownership Campaign (HOC) benefits including Stamp Duty waiver, Memorandum of Transfer (MOT) waivers, and 10% discount on purchase of property.
However, the applicant is responsible for all expenses and charges concerning the rent to own property such as taxes, takaful, quit rent, maintenance fees and utilities throughout the HouzKEY tenure.
HouzKEY applicant eligibility
The HouzKEY programme is only open to Malaysian citizens aged between 18 and 70 years old who currently have only one existing home loan. Interested applicants may also provide up to three guarantors (immediate family members) to increase the success rate of approval. For more information on HouzKEY, log onto the maybank2own portal.
PR1MA rental homes
The PR1MA RTO housing scheme is expected to be launched in June 2021. According to the Housing and Local Government Housing Minister (KPKT) Minister, Datuk Zuraida Kamaruddin, KPKT is currently in the midst of discussions on refining the housing scheme mechanism with the banks involved.
The scheme which was tabled during the Budget 2021 in November last year is catered specifically to first-time homebuyers and will be effective until 2022. It will involve 5,000 units of PR1MA homes in the country with a total value of more than RM1 billion.
Once the scheme is finalised, first-time homebuyers can look forward to applying from a selected list of approved PR1MA homes and lock-in a home financing plan with the financial institutions that are collaborating with KPKT.
While awaiting further details from the government, sign up for a PR1MA account at https://register.pr1ma.my/Account/Register
Skim Smart Sewa to Ownership (2STAY)
An initiative under the Selangor state government, 2STAY is to assist the lower-income bracket (B40) in home ownership by offering rental homes at less than RM200,000 under the RTO umbrella.
Currently, the 2STAY initiative is offering a total of 2,175 units of rent to own houses to the targeted group. The minimum rental period is 2 years up to a maximum of 5 years. These houses (Rumah Selangorku Harapan and Rumah Idaman) are equipped with air conditioning units, kitchen cabinets, wardrobes and water heaters.
Under this scheme, the minimum rental period is 2 to 5 years and the right to purchase the units will be available by the end of the lease term. If the offer is not taken up at the end of the contract, the tenants will have to move out. However, the tenants will be entitled to a 30% refund of rental paid during the lease term.
To be eligible for this scheme, you should have the following criteria:
- Malaysian citizen, including spouses.
- Aged 18 and above, with family/commitments.
- Monthly family income of not more than RM5,000 a month for Type A or low-cost housing; OR, not more than RM15,000 a month for Type B, C, and D properties, including affordable and low-cost housing (priority to those with family income below RM10,000/month).
- Applicants and/or spouses must live/work in Selangor.
- Applicants must not own any property in Selangor. If they do own a property, it must be located more than 50km away from the applied location and within a 25km radius of their workplace.
Applicants must be registered voters in the state of Selangor.
Find out more about Skim Smart Sewa here: http://phssb.com/syarat-syarat-kelayakan-skim-smart-sewa/
Is it a good idea to sign up for Rent to Own (RTO)?
As with most home ownership schemes or plan, there is no one size that fits all. You will have to identify your current needs and decide what is best for your own pocket. Here are some points on the advantages and disadvantages of the Rent to Own (RTO) scheme for you to ponder:
1) The Rent to Own (RTO) scheme works if you are a first-time homebuyer who does not have enough funds or means to purchase a house via the traditional home-buying method, i.e. paying the 10% down payment.
2) Are you still building your credit score?
- RTO may help to speed up the process of owning a home, while you work to increase your earning power.
- It also provides potential home buyers with the time to save up for a home loan and practice good financial habits.
3) Under the rent to own scheme, potential home buyers may enjoy a locked-in price based on current market value if they decide to purchase the property. This means that they will not be affected by the increase in the property’s price or capital growth over the years.
Rent to own Disadvantage: However, in the event of capital depreciation (decrease in the property’s price), the potential home buyer will have to purchase the property at the original agreed price, i.e. higher price than the current market value.
4) Entering into an RTO agreement does not make you an outright owner of the property. This means that you are still a ‘tenant’ and do not actually own the property during the lease term. Since you are not the owner yet, you will not be allowed to renovate or make changes to the property.
5) Staying in a property under the rent to own scheme will allow potential home buyers to be acquainted with the new neighbourhood or locality. They will have the opportunity to determine whether the purchase will be a good fit for them and their families.
6) Having said that, the RTO scheme may not work well for you if you are not looking forward to a long-term commitment of owning a property, even though under the RTO scheme you may opt to walk away at the end of the lease period.
7) If you (and your spouse) own more than two properties, the scheme is not for you. The main objective of introducing the RTO scheme is to provide a flexible and affordable home ownership option to Malaysian millennials.
8) Do remember that once you have signed an RTO agreement, you will be bound by the terms and conditions – this includes the consequences of delaying or missing a payment which might leave you both homeless and in debt!
While the above is just a guide, it is important for an aspiring home buyer to conduct the necessary due diligence and seek professional advice if possible. If you can’t decide if you should be a homeowner yet, perhaps renting could be a good option too. Check out whether renting or buying a home in Malaysia is better.
Browse rental homes across Malaysia at www.iproperty.com.my/rent.