Taking stock of the Reverse Mortgage in Malaysia

Cagamas Berhad (the National Mortgage Corporation of Malaysia) (‘Cagamas’) launched Malaysia’s first reverse mortgage scheme, the Skim Saraan Bercagar (‘SSB’), on 14 December 2021. The SSB was made available to applicants in the Greater Klang Valley from 17 January 2022 and was to be extended nationwide by mid-2022.
To read our previous articles on reverse mortgage schemes and the main features of the SSB please click here and here.
To recap, a reverse mortgage is similar to a conventional home mortgage in that it is a loan that is secured against immovable property. However, unlike a conventional mortgage, a reverse mortgage does not require the homeowner to make any loan repayments during the tenure of the mortgage. Instead, the entire loan balance becomes due and payable when the borrower dies, moves away permanently or sells the home.
Sixteen months after the initial launch of the SSB, the President and Chief Executive Officer of Cagamas, Datuk Chung Chee Leong, has provided some interesting insights1 into the progress of this initiative, some of which are highlighted in this article.
First application
The first application for a reverse mortgage loan was received in March 2022.
Number of reverse mortgage loans approved
A total of 26 loans have been approved. A number of applications are still being processed.
Availability of the reverse mortgage scheme
The reverse mortgage scheme was launched in the Greater Klang Valley in mid-January 2022. It was extended to Johor Bahru and Penang Island in October 2022 and to Ipoh, Seremban and Malacca in December 2022.
Extension of product
Cagamas introduced the Skim Saraan Bercagar Islamik (‘SSB-i’), a global-first shariah-compliant reverse mortgage financing facility in October 2022. The SSB-i is based on a sale-based commodity transaction under the Shariah concept of Commodity Murabahah via Tawarruq arrangement. The SSB-i will be granted similar stamp duty exemption as the SSB until the end of 2023.2
Preferred mode of disbursement
Two methods of disbursement are available under the SSB and SSB-i - a monthly disbursement or a combination of lump sum and monthly disbursement. Based on the data, the monthly disbursement option is preferred.
Type of property financed
The main type of property mortgaged under the SSB and SSB-i are terrace houses which accounts for 45% of the total applications.
Other granular data
Ninety-five per cent of the applications received were from the Klang Valley and the remaining 5% were from Penang.
More than one-half of the applicants were between 61 and 70 years old, of which 46% were Chinese, 36% Malays and 9% Indians.
According to Datuk Chung Chee Leong, the reverse mortgage scheme has been well received by the target market and the take-up rate is within Cagamas’s expectations, given that the reverse mortgage is a new concept in the Malaysian market and caters to a niche market comprising retired homeowners who require a supplemental monthly income.
As only 26 reverse mortgage loans have been approved since the scheme was made available 16 months ago, it cannot be said that the product has been an overwhelming success. This is understandable as a reverse mortgage is a new concept in Malaysia and caters to a niche market.
It is to be noted that thus far the reverse mortgage scheme has been made available only in the Greater Klang Valley, Johor Bahru, Penang Island, Ipoh, Seremban and Malacca. Reaching out to the remaining state capitals such as Kangar, Alor Setar, Kota Bahru, Kota Kinabalu and Kuching as well as other major towns like Sitiawan, Sibu, Mentakab, Temerloh, Batu Pahat, Segamat and Muar and promoting the product more aggressively, such as having promotional booths at shopping malls and property fairs, may further enhance the take-up rate for the SSB and SSB-i.
Article by Jesy Ooi (Partner) and Eo Shao Dong (Associate) of the Real Estate Practice of Skrine.

1 Cagamas retirement product gaining ground, The Star, 25 April 2023.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.