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What You Should Know About Buying a Residential Property in Malaysia

Lately, there has been a growing interest in investing in residential properties out of Singapore. Singaporeans and Singapore-based investors have been motivated to look elsewhere to park their money, following several measures to cool the property market in Singapore.

With a bullish Singapore Dollar, favourable financing terms, geographical proximity, a foreigner-friendly property ownership, similar culture and background and most importantly, family ties; Malaysia remains one of the top favourite property destinations. To help those seeking to invest for the very first time, here are some things you should know about buying a residential property in Malaysia:

Tip 1 – Understanding the type of property you can own

With one of the most foreigner-friendly policies in the region, Malaysia laws allow foreigners to own an unlimited number leasehold and freehold property, subject to state consent. However, some are prohibited:
•    Properties valued below RM500,000 (approximately SG$200,000)
•    Land or properties with “Malay Reserved” status
•    Agriculture land (unless above 5 acres and for commercial purpose)
•    Properties assigned under Bumiputra (Malays and indigenous tribes) quota

Note: For the island of Penang, the minimum property purchase threshold for strata-titled properties is RM1 million (approximately S$400,000) and for landed, RM2 million (approximately S$800,000).

Tip 2 – Market Research

The Internet is a boon. By typing a few key words and pressing ‘enter’, you are transported to a wealth of information. So start your journey by finding out about the developer. Is the developer reputable, in strong financial standing and regulated by the government? You see, established developers are more likely to see through the progress of a development successfully, come financial crisis or not. And if you find the price too good to be true, chances are the Internet will tell you why. Sieve through the clutter and learn wisdom from those who have gone through the same pain.

Tip 3 – Determining your budget and knowing yourself

While market research aids in making informed investment decisions, it is also crucial that investors know themselves. For example:

  • What is my budget and what are the financing options available to me?
    Indeed, Malaysian banks offer as high as 85% financing to Singaporean investors so with a minimum 15% outlay, you will be able to own a property relatively quite easily. The question is, when do you start servicing your loan? At property launches, developers often offer the Developer Interest Bearing Scheme (DIBS) which means the developer will bear the interest payable to the bank. So besides the 15% upfront downpayment, you won’t have to pay anything until date of completion. But once the property is at an advanced stage of construction, DIBS is no longer offered and you will have to start servicing your loan. Some developers also absorb legal fees for the Sales and Purchase Agreement (SPA), loan agreement and stamp duty. Combined, these can be a great savings for many so be sure to ask.
  • How much do I have as buffer?
    Property price aside, you need to set aside some money for legal fees, documentation, monthly maintenance fees, renovation/furnishing costs, annual taxes, etc. In some cases, you may even need to start servicing your bank loan interest. Also, some buffer for days you would like to take a career break, in between jobs, to be a stay-at-home mom, etc.
  • What is the purpose of this purchase?
    Is it a short-term flip or will this be a long-term plan where you may call home in your retirement years?
  • Where am I in right now?
    While risk tolerance is a factor in an investor profile, so too are an individual’s personal circumstances. Where an individual is at different stages of one’s life greatly influences the risk/return decisions that are made. If you are young, chances are you will be in the accumulation cycle (building a home, starting a family, saving for an emergency fund, etc). You should focus on relatively high risk, high returns and capital-gain oriented assets. However, if you are in your mid to late stages of your career (consolidation cycle), you should target higher risk, higher returns.

By knowing who you are and what you can afford, you are taking a calculated risk to arrive at a better decision.

Tip 4 – What are the hidden costs?

Taxes are always a cause of concern for foreign property buyers. Situation in Malaysia is no different than anywhere else. There is a Real Property Gains Tax of 10% imposed on capital gains of property that is sold within 5 years from date of purchase (the date of SPA). Also, property owners are required to pay the annual minimal Quit Rent (‘Cukai Tanah’ in Malay) and the twice-yearly Assessment Tax (‘Cukai Pintu’ in Malay) on their properties. Non-resident individual tax rate is at 26% (rental income is subject to the same tax rate).

Tip 5 – Site Visit

Once you have shortlisted your choices, a site visit is key to making the final decision. If the property is yet to be built, walk the streets, speak to locals and find out about the prospects of the area. If the property is in the process of being built, it is even better as you are in a better position to assess the quality of the building materials, furnishings, specifications, etc.

It is also not a bad idea to look into the future to fully understand the upside potential. With the plans of the Economic Transformation Programme (ETP) in motion to transform Malaysia into a high-income nation by 2020, some areas may be gazetted for future developments (MRT, etc) so it is a good time to ensure the property of your choice withstands the sands of time.

These are some tips to help the first-time investor into Malaysia. Too many people have walked away from a good investment, either having worried too much or just letting their dreams to fizzle when all they need is to take that first step. So start now. Who knows, it could turn out to be one of the best investments you have ever made.

*Article contributed by Aileen Han, Country Manager E&O Property (Singapore) Pte. Ltd.

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THE DIFFERENT TYPES OF HOME LOAN IN MALAYSIA

With more than a dozen banks in Malaysia all offering housing loan products of some sorts, it is not surprising that many consumers struggle to differentiate between the different types of home loan.

In general, property loans in Malaysia can be categorised into two different groups: conventional and Islamic. Let’s take a quick look at the differences between the two:

Conventional home loan

Conventional loan accounts for a large majority of the total housing loans in the market. In a conventional housing loan, a borrower agrees to repay the loan amount together with interest over an agreed loan period.

Banks normally charge either a 1) fixed or 2) variable interest rate on conventional loans (or a combination of the two). Most property loans in Malaysia are variable interest rate loans, with the interest rate tied to the base lending rate (BLR) of banks.

Flexi home loan

In an increasingly competitive environment, banks are forced to innovate and expand the types of property financing products being offered. This has brought about the emergence of flexi loan products.

As its name suggests, a flexi loan provides great flexibility to a borrower. A flexi loan is a mortgage product that comes with a linked current account. With a flexi loan, a borrower has the option to withdraw or make extra repayments at any time, without the need to inform the bank beforehand.

Flexi loans are great for those who may have extra cash flow. Each month, the loan instalment is automatically deducted from the linked current account, and the balance will go towards reducing the amount owed on the loan.

Islamic versus conventional home financing

Islamic home financing

While Shariah-based Islamic Home Financing products on surface have the same characteristics as conventional housing loans, they are based on different concepts and principles.

In a conventional housing loan product, banks earn interest from the borrower. In contrast, Islamic home financing products are not interest-based (hence you will seldom see the word “loan” being used in Islamic products, as “loan” suggests an arrangement which involves an interest payment).

Islamic home financing in Malaysia typically comes in two types – Bai’ Bithaman Ajil (BBA) or Musharakah Mutanaqisah (MM).

Bai’ Bithaman Ajil (BBA) home financing

BBA home financing is based on a buy-and-sell concept. In a BBA home financing, the bank first buys the property at the current market price, and sells it back to the customer at an agreed price. This agreed price includes the actual cost of the property, plus a mark-up for the bank’s profit.

The bank and the customer would then agree to a term and an instalment amount. No interest is charged.

Musharakah Mutanaqisah (MM) home financing

MM home financing is based on a partnership concept. In a MM home financing, the customer and the bank jointly buy and own the property. The bank then leases its share of property to the customer, and in return, the customer promises to buy the bank’s ownership in the property. The customer pays rental to the bank under ijarah, of which a portion of the payment is used to gradually purchase the bank’s share in the property.

*iMoney

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Why Property Insurance Is Important

The basic goal behind buying insurance is to make you financially whole following a loss. You agree to pay a (relatively) small fee to an insurance company today, causing a small but certain loss to you now, in exchange for a guarantee from the insurance company that it will bear the burden of a large but uncertain loss in the future.

Let’s say that you have a house that you own, free and clear – with no insurance. As long as you continue to pay your property taxes, you have every right to enjoy the use of that house for as long as you like, as guaranteed by law. You may live there, rent it out, leave it vacant or even sell it if you like. However, if that giant tree in the back yard falls on your house causing severe damage, it is still up to you to cover the cost to repair the house. This is the basic reason to carry property insurance, which would have paid for your property to be fixed or replaced.

Protecting Your Investment:

Ensuring that you are insured against fire, flood, theft and damage is savvy. It means that you are a covered for large payouts that are incredibly costly. This means that your savings will remain intact in the event of these events happening. As a landlord, your property is your livelihood. It is imperative that you protect your investment as you are ultimately protecting your profit margins.

As a result, you need to ensure that your profits remain intact. Frequent rentals and short term tenants will cause a lot of wear and tear on your property. Dealing with damage on your property could result in a loss of revenue. Of course, by taking out an adequate insurance policy, you are protecting your coffers.

Liability Coverage

In addition to covering the value of your home or other property, many insurance policies also include an important provision for liability coverage. You may not think this is very important, being the careful person that you are, however, there are scores of eager lawyers in every city searching high and low for lawsuits against people such as yourself. Liability coverage is well known to owners of automobiles, but may be lesser-known to homeowners.

If your neighbor’s house catches fire because you left your charcoal grill unattended, who do you think will pay for the damage caused by the fire? You will. You have paid the insurance company your premiums so that they will pay for larger claims when they do occur. The same goes for someone who is hurt and requires medical attention while on your property.

Final Thoughts

One last warning: some insurance companies provide seemingly unbelievable rates for their policies. If the company is unknown and its rates are exceptionally good, this should be a red flag for you. Check around for the company’s reputation, and don’t just take the salesman’s word for it. Have a look at the policy and see what they cover, and what they don’t. You may find only too late that what you thought was adequate coverage, was barely the legal minimum in your area. Seek quality coverage – remember, “cheap insurance can be very expensive.”

*Investopedia, yourmoneyrelationship,

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Concern over abandoned project

CONSTRUCTION work on The Boss, one of Klang’s most talked about development projects, has been abandoned halfway, dealing a cruel blow to 300 investors who were initially guaranteed huge returns on their properties.

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The multi-million ringgit project, a high-rise residential hotel suite with commercial space, was to be developed by Hotwer Development Sdn Bhd and units were sold between RM250,000 and RM900,000.

Klang residents had also thought that upon completion, the unique building near the Hokkien Association Hall would become a new landmark for the royal town but instead, it had become an eyesore.

According to the buyers, units in the project had been sold through roadshows organised in popular malls in the Klang Valley.

The buyers, believed to be mostly from outside Klang, were left in the lurch when the project, which kicked off in 2012, was abandoned towards the middle of last year.

Lack of information and uncertainty over the status of the project had confused the buyers, especially since they had been informed in February that the development was in the hands of a liquidator.

By March, they received letters from KPMG Deal Advisory Sdn Bhd, informing them that in November 2014, the company had been appointed liquidator by the Kuala Lumpur High Court.

KPMG also called for a meeting with the purchasers and creditors to discuss the next course of action.

The Boss Purchasers Association (TBPA) vice-president Heng Hock Lai said the meeting had been fruitful and the buyers were confident the project would be revived soon.

He said experts had been called in to ascertain the completion rate of the project.

“We have also requested that the buyers be called in for meetings with potential developers so that our interests will be protected.

“We believe the new contractor will be able to complete the project without adding more costs to us,” he said, adding that he had bought a commercial unit for RM816,000.

Gavin Trapshah Ismail, 31, from Kuala Lumpur said he had been attracted by the 7.5% and 8% monthly returns offered by the developer for the units in the development.

“The design was unique and the location was perfect,” he said, adding that he had booked his units in 2012.

Eleanor Harjandar Singh said her family bought two units in the project, with one for her dentist son who lost his eyesight after a sudden illness.

She purchased one unit at RM565,000 while her son’s was priced at RM292,000.

“My husband and I decided to buy the property for my son, thinking that the returns would offer him some form of income in the future.

“In fact, we used our son’s entire insurance payout to purchase the property and we were heartbroken when we heard the project had stalled,” she said, adding that they had bought the property in cash.

Another buyer, S. Anuradha from Petaling Jaya said she bought a suite costing RM429,000 in December 2013.

She said it was the first property bought with her husband as they got married earlier that year.

“Both my husband and I were excited about the good returns offered by the developer and the artist’s impression of the building was also impressive.

“We have been servicing full instalments for the property which should have been completed by now.

“I hope the new developer will be able to revive the project and offer us a similar package so that we will not sustain heavy losses on our investment,” she said, adding that her property was now only a bare room with a washroom.

Ooi Woon Chee, who confirmed his appointment by the court as one of the two liquidators from KPMG, said they had convened two meetings so far with the buyers to decide on the future of the project.

He declined to comment further.

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Office space rental rates to remain flat

PETALING JAYA: Rental rates for office space within the Klang Valley is expected to remain flat for the rest of 2015, as steady incoming supply will offset demand.

Savills Malaysia executive chairman Chris Boyd however asserted that the situation was not all “doom and gloom” and merely temporary.

“For the remainder of this year, we do see supply exceeding average take-up. However, we do see stretches like this regularly.

“We’re not seeing a potential oversupply. It’s not a major alarm,” he told StarBiz.

Boyd said the fall in oil prices was a contributing factor for demand not meeting supply.

“The fall in oil prices meant that the expansion by oil and gas players has been temporarily shelved, so take-up has been slower and it will take a longer time to fill up those spaces,” he said.

Boyd added that rental rates of office space are likely to remain subdued for the remainder of 2015.

“We believe the economy will pick up next year and take-up will improve,” he said.

According to CH Williams Talhar & Wong’s (WTW) in a report earlier this year, some 5.89 million sq ft is expected to come into the market this year.

It pointed out that the economic uncertainties in Malaysia and in the European countries, as well as the slower growth in China and other Asian countries, gave negative signals to foreign investments into Malaysia.

With the large supply of office space, WTW said it expected the take-up to be slow, especially in Kuala Lumpur, which depends on multi-national companies’ demand for space.

Among the office buildings that are expected to be completed this year are Menara TH @ Platinum Park, Naza Tower @ Platinum Park, IB Tower, Menara Bangkok Bank, Solaris Sultan Ismail, KL Trillion, Quill 15 @ Vision City, Q Sentral (Lot B, KL Sentral), The Ascent @ Paradigm Mall, The Prime @ Altium and the MKN Embassy Techzone.

WTW noted that the general office market in the Klang Valley remained stable, hovering at 84% during the second half of 2014.

It said Kuala Lumpur had experienced a marginal decline in occupancy rate of 0.5% (which stood at 86.5% and 87% in the third and second quarters respectively) and remained stable in the fourth quarter of 2014.

“In terms of space taken up, the overall market in the Klang Valley had experienced slow take-up rates, registering at about 240,000 sq ft during the second half of 2014 compared with a total net-take up of about 1.57 million sq ft during first half of 2014,” it said.

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Becoming Landlord

Becoming a landlord is commonly the first step in becoming a property investing. The question is: are you cut out to be a landlord?

Do your homework first

Insurance: If you rent your home, your homeowners insurance is going to increase because it’s now not owner-occupied. So-called “dwelling” policies also include a separate liability policy.

Equity: If you purchase a property to rent, you’ll need to have at least 20% equity in it to avoid having to carry private mortgage insurance. The good news is, that will allow you the opportunity to gain price appreciation on 100% of the property while having only 20% into it.

Your return: Start by figuring out how much you can charge for rent in your area and multiply by 12. Then deduct taxes, fixed expenses (such as mortgage payments, insurance and lawn maintenance), and utility and property management fees, if any.

Cash flow: Chances are, your rental will be vacant from time to time. Your next renter rarely comes walking in the next day. How easily can you weather those non-revenue spells?

Maintenance and repairs: When repairs are needed, do you have a list of contractors you can depend on to get the plumbing fixed and the air conditioner back on?

The law: Discrimination based on race, color, national origin, religion, sex, disability and the presence of children is definitely a no-no. Knowing the law will help you stay in complete compliance with regard to safety issues. Not knowing will not protect you from legal action.

Are you up to becoming a landlord?

Once you’ve determined you can afford to become a landlord, the next step is to weigh whether you’re up to the task. Pondering these questions will help:

Do you live on-site or nearby? If not, you may want to consider hiring a local property manager.

Are you naturally handy? Rental properties can require frequent, hands-on maintenance.

Are you familiar with your state and local landlord-tenant laws and neighborhood rental restrictions?

Do you negotiate well?

Are you good at resolving conflicts?

Do you mind being interrupted on nights and weekends?

This business is about managing people and managing conflict. Finding the right tenants, screening them, dealing with the different personalities and having to fight to get rent or deal with collections — most people just aren’t cut out for that. But are you?

*Bankrate