Rent-to-own – What is it and how to benefit from it

Rent-to-own or rental-purchase is relatively less known in Malaysia but has been around overseas for decades. The scheme works through a lease agreement that gives you the option to end with a property 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.

According to Budget 2020, the 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. Former 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 this means is, property seekers can rent for 5 years, with the option to buy at the price stated in the rental agreement. Stamp duty is also waived for this scheme.

Types of RTO Schemes Available to Malaysians

1. Maybank HouzKEY
   Details:

• 100% financing.
• 1% move-in cost.
• 0% downpayment 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 the Klang Valley, Johor, and Penang.
• Eligible for properties by individual sellers/subsale market: Up to RM1 million anywhere in the Klang Valley.

Maybank’s HouzKEY home loan not only gives you greater flexibility, but also a more efficient way to manage cash flow — great for young couples and adults looking for their first home.

2. PR1MA (Perumahan Rakyat 1Malaysia/1Malaysia Housing Programme)
   Details:

• Property prices between RM100,000 to RM400,000.
• 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.

PR1MA housing projects are generally high in demand due to its 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!

3. Smart Sewa (Rumah Selangorku)
   Details:

• Minimum rental duration of 2 years, maximum of 5 years.
• 30% return of the total rental paid, and used as a deposit if the tenant is able to buy the property within the stipulated 5 years.
• Average rental rate begins from RM600-RM650 per month, subject to the market rate of the location.
• Only for properties in 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 that makes independent living a closer reality.

How Do You Qualify for the RTO Scheme?

Depending on which scheme you use (Maybank’s HouzKEY and PR1MA are two of the most popular) there are a few stipulations which interested candidates must meet. 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).

1. Maybank HouzKEY
   Eligibility Criteria:

• 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.
• May include up to three guarantors to improve the application success rate.

2. PR1MA (Perumahan Rakyat 1Malaysia/1Malaysia Housing Programme)
   Eligibility Criteria:

• Open to all Malaysians citizens, single or married.
• 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 you and your spouse.
• Adhere to any additional guidelines set by PR1MA.

3. Smart Sewa (Rumah Selangorku)
   Eligibility Criteria:

• For Malaysian citizens only, including spouses.
• Aged 18 and above, and 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 (prioritized for those below RM10,000/month).
• Applicants and/or spouse must live/work in Selangor.
• Applicants must not own any property in Selangor (prioritized), OR, owns a property but located more than 50km away from the applied location and is within a 25km radius of their workplace.
• Applicants must be registered voters in the state of Selangor.

On a side note, before you enter into any rent-to-own agreement, make sure you’ve done your research and have spoken to real estate professionals who can help ensure you get the best value for your family.