Fintech eases the pressure off home ownership

In Malaysia, a new type of financing is making it easier for property buyers to own a home

Few industries are as closely tied as the worlds of finance and real estate. The success of a country’s property market is often dictated by the health of its financial sector and availability of credit to consumers.

The sheer complexity of property transactions doesn’t help matters—the mountains of paperwork, agonising wait times, and expert agents charging exorbitant fees to guide consumers along.

These are the kinds of hurdles the tech industry has made a habit of striking down over the past decade, and the real estate world is proving no different. Both fintech and emerging technologies like blockchain are helping to reshape the way developers plan and buyers buy.

That technology was simply not mature enough some years back. Also, for these solutions to work, we need banks to partner with us. These days, banks are more open to work with fintechs.

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For years, Malaysia has been plagued by the region’s highest mortgage rejection rates, caused in part by potential buyers not understanding how much they could actually loan. After being rejected for a mortgage they could not afford, their credit scores take a hit, making it more difficult to get a loan the next time.

Launched this April, the PropertyGuru Home Loan Pre-Approval programme is an example of fintech stepping in to solve pain points caused by traditional financing methods. Run through PropertyGuru’s existing property portal, the system uses available credit data from the Bank Negara Malaysia’s eCCRIS and uses it to calculate a debt service ratio. In about five minutes, customers get the loan amount they are eligible for before they apply.

“That technology was simply not mature enough some years back,” says Bjorn Sprengers, CMO and head of fintech, PropertyGuru Group. “Also, for these solutions to work, we need banks to partner with us. These days, banks are more open to work with fintechs like us.”

The Asia-Pacific fintech market is expected to grow to USD72 billion by 2020, according to market research firm Frost & Sullivan. While Malaysia only accounts for 15 percent of the total fintechs in ASEAN, Sprengers says there is a lot of potential for fintech and technology like blockchain to help solve traditional pain points.

More: Asia embraces the brave new world of fintech

“In Malaysia specifically, we’re seeing some innovative thinking on rent-to-own models,” he says. “Particularly in markets in which downpayment causes a barrier to ownership, private capital may increasingly come in through new kinds of financing.”

According to Sprengers, the biggest changes fintech will bring to the real estate world will happen on both the ownership and financing front. This might include fractional ownership models or crowd-financed schemes, which would both be possible with wider adoption of blockchain technology—a form of secure information transfer often associated with cryptocurrency. Buyers can expect to see increased access to capital as well, largely in countries with poor credit data where fintech companies can offer alternative methods of credit risk assessment.

This article is the first in a four-part series. It originally appeared in Issue No. 156 of PropertyGuru Property Report Magazine. Read the second, third, fourth parts here