The advent of the Rent to Own (RTO) scheme has paved the way for future homeownership in Malaysia. Now, owning the perfect house is no longer a pipe dream, and we’ll tell you why.
Firstly, this new concept disencumbers first-time homeowners of massive down payments. No more saving up for years while housing prices continue to escalate! With more flexibility and affordability, the Rent to Own scheme in Malaysia can benefit you tremendously.
It may sound like a complicated process, but we’re here to simplify it for you:
What is Rent to Own (RTO) Malaysia?
RTO works through a lease agreement with the option of owning a property by renting it first. In other words, it’s like sampling a house before buying it! So when you lease a residential unit with a developer, you can exercise the right to purchase the property after the contract period ends at a locked-in price.
The contract’s length typically ranges between five to twenty years, and then you can transition from “rent” to “own”!
How Does the Rent to Own (RTO) Programme Work?
As mentioned, the Rent to Own scheme differs from the traditional home-buying process in the absence of a down payment. Of course, you’re not obligated to buy the property and are free to walk away when the RTO lease ends. It’s perfect for those who wish to test the waters of living in a new neighbourhood.
Below are some of the critical processes in which the applicant must undergo:
- Select a property offering the Rent to Own scheme in Malaysia.
- The applicant then signs a lease document with the developer, i.e. banks that state the lease term.
- Although there’s no down payment, the applicant must pay a refundable security deposit of roughly 5% of the property price.
- Once all formalities and legalities are complete, the applicant can move into the selected property.
- Pay the monthly rent through the lease term according to the agreement.
- At the end of the period, the potential homebuyer can either:
- Purchase the leased property at the agreed locked-in rate, unaffected by increasing property prices, or
- Waive their right to purchase the leased property.
Given that the potential homebuyer does not breach the RTO terms, the residential unit will legally belong to them should they make the purchase.
Who Can Use the Rent to Own Scheme in Malaysia?
This concept is most suitable for young adults who are yet to have the earning power to qualify for housing loans. Still, anyone who meets the below criteria can use the Rent to Own programme in Malaysia.
While each scheme—such as Maybank’s HouzKEY and PR1MA—has its own set of requirements, there are some standard stipulations to note in candidates:
- The applicant must be a Malaysian citizen.
- Have the correct number of guarantors, usually family members, to pay the rent if the tenant cannot.
- Have a combined household income above the set threshold (approximately RM5,000 and above).
Advantages & Disadvantages of Rent to Own Schemes
Every scheme in the real estate sector boasts its pros and cons. In an ideal world, buying a property anywhere would be 100% risk-free, but this will, unfortunately, remain a pipe dream. The best thing to do is weigh the pros and cons of Rent to Own in Malaysia and see what works for you.
Rent to Own Pros:
1. More Affordable Housing
The introduction of this scheme was to assist lower-income families in breaking into the property market. Thus, if they can’t afford to pay the 10% deposit for homeownership or are ineligible for bank loans because of insufficient income, they can still own a home.
Depending on the scheme, they might only need three months’ rent to qualify for application.
2. Time to Secure a Bank Loan
A household unable to get a bank loan can apply for the Rent to Own scheme in Malaysia, securing a home for the agreed lease period. In the meantime, it opens up more room for them to increase their household income and potentially become eligible for a housing loan.
3. Trying Before Committing
Understandably, buying a house is a huge commitment that comes with fear of regret. Thankfully, this scheme allows you to “try out” a new home before settling in for the long haul. You can use the lease period to check out the neighbourhood, uncover any potential issues with the property, and familiarise yourself with the connectivity.
If you’re not satisfied and decide this is not the home for you, you can simply search for better alternatives.
4. A Good Locked-in Price
Perhaps the best thing about RTO is that you can lock in a property’s purchase price at its current market value. Even after the lease agreement expires, you don’t have to worry about shifting rates. The longer the lease period, the more the tenant could save.
5. Refundable Deposit
The 5% security deposit of the property’s value will be refunded regardless of the applicant’s decision to purchase. Consequently, you can use this fund for more practical purposes.
Rent to Own Cons:
1. Not Actually Owning the Property
Before the lease ends in a sale, tenants do not actually own the property. This means that you can’t make any renovations without the developer’s approval. Moreover, applicants are bound by the loan repayment period on top of the lease term if they decide to buy the property.
2. Missed Rent Payments Are Consequential
Like regular rentals, failure to fulfil rent could result in eviction, leaving you homeless and in tremendous debt.
3. A Drop in Property Prices
If housing prices do take a downturn, applicants would still be bound to the initial market price. As a result, you won’t be able to purchase the property at its cheaper rate.
In summation, leasing agreements are always tricky—sign with caution. It all comes down to your financial capacity and whether Rent to Own (RTO) schemes are your path to take. Now that you have a better understanding of the ins and outs, learn more about the popular RTO schemes in Malaysia at HouzKEY Homeownership or PR1MA.