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.