Singapore speculators who were banking on making a quick profit from buying property in Johor, Malaysia, are likely to run into difficulties when the new RM1 million (approx. S$385,200) limit for foreign property purchases comes into effect on May 1.
Many Singaporeans have been investing in property across the causeway in recent years, attracted by comparatively low prices. However, those who need to exit their investments quickly are likely to face significant challenges when trying to sell their property – and could ultimately be stuck with a property they cannot sell.
From May 1, foreign property owners including Singaporeans who reportedly account for as much as 70 percent of property purchases in some parts of Johor state, will only be able to sell their units to other overseas buyers at prices above RM1 million. They can sell to Malaysians below that price, however Malaysian buyers of resale new and yet-to-be-completed units are extremely few and far between.
I believe there are a significant number of buyers who have bought at levels below RM1 million and are potentially "stuck", but the impact to these buyers is not really being felt now because most of these are newer properties still under construction and with DIBS in place, so there is no urgent need to sell yet.
DIBS (Developer Interest Bearing Scheme) is where the developer pays interest payments on the buyers' loans during the construction period. Normally the buyer pays a down payment or deposit and legal fees, but nothing else until completion.
The common mistake that most Singaporean investors have made in Iskandar is buying property that is too expensive for locals - though cheap for Singaporeans - and yet not in a prime enough location, not a good enough design, and not in a good enough environment where there will be enough foreign buyers to take up these properties in the future."
Investors who have purchased property below RM1 million in Medini are largely safe from potential sales challenges due to favourable pricing and exemptions from the RM1 million foreign buying limit there. A possible sector which will likely see benefits from the new rules is the gated, guarded landed homes market.
Going forward, he believes that sales volumes will moderate and buying will be very selective, as buyers have a lot of choices and will gravitate to projects that have a strong product proposition. The new rulings will help to moderate the Iskandar property market in the medium term, which is healthy for the market overall.
Another look:
Last year, Malaysia announced new policies for foreign property buyers. We all braced for a bloodbath, predicting something to match Singapore’s cooling measures. But talk about an anticlimax – the new policy had less impact than Navy ads have on recruitment. Here’s why Malaysian property remains attractive:
Policy Changes in Malaysia
Starting from 1st May 2014, the minimum purchase price for foreigners will be RM 1 million (previously RM 500,000). In addition, there is now a Real Property Gains Tax (RGPT). This tax is applied to your capital gains, should you sell a property above the purchase price.
The RPGT rate is 30%, if the property is sold within the first five years. From the sixth year onward, RPGT is 5%. According to investor Howard Kong, who currently owns two properties in the Istana region:
“The RPGT is to prevent overheating in the property market. They don’t want people to flip houses, they want long term investors. But there is not much impact, because if you are investing in Malaysian property you are probably planning to hold for five years or more anyway. The market here has never been good for flipping.”
The sentiment was shared by property developers E&O, during their launch of Andaman East. Special thanks to Aileen Han, Country Manager of E&O Property (Singapore).
How Do the New Regulations Affect the Property Market in Malaysia Anyway?
“We believe that the latest cooling measures, which include an increase in the Real Property Gains Tax (RPGT), are unlikely to dampen real demand. It is worth noting that the RPGT is a tax on the upside that does not impact the cost of purchase.
Nonetheless, we believe that the appeal of the Malaysian market to Singaporeans and Singapore-based residents will endure due to our proximity, shared heritage and cultural similarities coupled by the relative affordability of Malaysian properties…”
Note that the policy change has almost no impact on owner-occupiers (e.g. the Singaporeans who aren’t looking for profit, but just want a living space they can’t spit across). The RPGT won’t raise the price of the house, and owner-occupiers aren’t too worried about profit from the resale anyway.
But what about investors?
Don’t the New Regulations Make Malaysian Property Less Attractive as an Investment?
Well, let’s put it in context: less attractive compared to where? Every other country has its own regulations too. And many are comparable, or even stricter, than Malaysia’s. Aileen says that:
“With countries around the world trying to strike a balance between helping their citizens achieve home ownership and welcoming foreigners…property cooling measures do appear to be the new norm. It is no exception in Malaysia.”
Among the points Aileen raises are the fact that “Malaysia has foreigner-friendly property investment policies, which allow foreigners to own freehold and landed properties.” Note that it’s a fairly rare practice, for a country to allow foreigners to buy freehold.
“In general, Malaysia offers positive returns in both capital and rental yields. One may expect to enjoy healthy capital appreciation when purchasing directly from the developer. The margin of appreciation however depends on the timing of the investment, the exact location of the property and the strength of the developer.“
Take note about the “strength of the developer”. It’s different from Singapore, where land scarcity means that even mediocre properties sometimes luck out and deliver a good return. Stick with high-end properties when investing in Malaysia – mass market units are a dime a dozen there, and you’d be speculating on them.
But What Impact will the Regulations have on Rental Yield, Resale Value, etc?
Aileen remains confident about prospects in Malaysia:
“Demand for prime urban locations will always remain for those who can afford the exclusivity of such addresses as well as for those who aspire to do so. In fact, such properties are viewed as the prized “family inheritance” within investment portfolios as they have proven to hold their own even during tough times.“
As a private investor, Howard mostly agrees, with one caveat:
“From my experience rental yields are around 4%, and the new regulations aren’t really relevant to that. The main worry is finding a property with good management and location – there is a significant oversupply risk, with regard to mass market properties in Malaysia. But for high-end properties, potential gains are still high.”
Source: Public Source
Many Singaporeans have been investing in property across the causeway in recent years, attracted by comparatively low prices. However, those who need to exit their investments quickly are likely to face significant challenges when trying to sell their property – and could ultimately be stuck with a property they cannot sell.
From May 1, foreign property owners including Singaporeans who reportedly account for as much as 70 percent of property purchases in some parts of Johor state, will only be able to sell their units to other overseas buyers at prices above RM1 million. They can sell to Malaysians below that price, however Malaysian buyers of resale new and yet-to-be-completed units are extremely few and far between.
I believe there are a significant number of buyers who have bought at levels below RM1 million and are potentially "stuck", but the impact to these buyers is not really being felt now because most of these are newer properties still under construction and with DIBS in place, so there is no urgent need to sell yet.
DIBS (Developer Interest Bearing Scheme) is where the developer pays interest payments on the buyers' loans during the construction period. Normally the buyer pays a down payment or deposit and legal fees, but nothing else until completion.
The common mistake that most Singaporean investors have made in Iskandar is buying property that is too expensive for locals - though cheap for Singaporeans - and yet not in a prime enough location, not a good enough design, and not in a good enough environment where there will be enough foreign buyers to take up these properties in the future."
Investors who have purchased property below RM1 million in Medini are largely safe from potential sales challenges due to favourable pricing and exemptions from the RM1 million foreign buying limit there. A possible sector which will likely see benefits from the new rules is the gated, guarded landed homes market.
Going forward, he believes that sales volumes will moderate and buying will be very selective, as buyers have a lot of choices and will gravitate to projects that have a strong product proposition. The new rulings will help to moderate the Iskandar property market in the medium term, which is healthy for the market overall.
Another look:
Last year, Malaysia announced new policies for foreign property buyers. We all braced for a bloodbath, predicting something to match Singapore’s cooling measures. But talk about an anticlimax – the new policy had less impact than Navy ads have on recruitment. Here’s why Malaysian property remains attractive:
Policy Changes in Malaysia
Starting from 1st May 2014, the minimum purchase price for foreigners will be RM 1 million (previously RM 500,000). In addition, there is now a Real Property Gains Tax (RGPT). This tax is applied to your capital gains, should you sell a property above the purchase price.
The RPGT rate is 30%, if the property is sold within the first five years. From the sixth year onward, RPGT is 5%. According to investor Howard Kong, who currently owns two properties in the Istana region:
“The RPGT is to prevent overheating in the property market. They don’t want people to flip houses, they want long term investors. But there is not much impact, because if you are investing in Malaysian property you are probably planning to hold for five years or more anyway. The market here has never been good for flipping.”
The sentiment was shared by property developers E&O, during their launch of Andaman East. Special thanks to Aileen Han, Country Manager of E&O Property (Singapore).
How Do the New Regulations Affect the Property Market in Malaysia Anyway?
“We believe that the latest cooling measures, which include an increase in the Real Property Gains Tax (RPGT), are unlikely to dampen real demand. It is worth noting that the RPGT is a tax on the upside that does not impact the cost of purchase.
Nonetheless, we believe that the appeal of the Malaysian market to Singaporeans and Singapore-based residents will endure due to our proximity, shared heritage and cultural similarities coupled by the relative affordability of Malaysian properties…”
Note that the policy change has almost no impact on owner-occupiers (e.g. the Singaporeans who aren’t looking for profit, but just want a living space they can’t spit across). The RPGT won’t raise the price of the house, and owner-occupiers aren’t too worried about profit from the resale anyway.
But what about investors?
Don’t the New Regulations Make Malaysian Property Less Attractive as an Investment?
Well, let’s put it in context: less attractive compared to where? Every other country has its own regulations too. And many are comparable, or even stricter, than Malaysia’s. Aileen says that:
“With countries around the world trying to strike a balance between helping their citizens achieve home ownership and welcoming foreigners…property cooling measures do appear to be the new norm. It is no exception in Malaysia.”
Among the points Aileen raises are the fact that “Malaysia has foreigner-friendly property investment policies, which allow foreigners to own freehold and landed properties.” Note that it’s a fairly rare practice, for a country to allow foreigners to buy freehold.
“In general, Malaysia offers positive returns in both capital and rental yields. One may expect to enjoy healthy capital appreciation when purchasing directly from the developer. The margin of appreciation however depends on the timing of the investment, the exact location of the property and the strength of the developer.“
Take note about the “strength of the developer”. It’s different from Singapore, where land scarcity means that even mediocre properties sometimes luck out and deliver a good return. Stick with high-end properties when investing in Malaysia – mass market units are a dime a dozen there, and you’d be speculating on them.
But What Impact will the Regulations have on Rental Yield, Resale Value, etc?
Aileen remains confident about prospects in Malaysia:
“Demand for prime urban locations will always remain for those who can afford the exclusivity of such addresses as well as for those who aspire to do so. In fact, such properties are viewed as the prized “family inheritance” within investment portfolios as they have proven to hold their own even during tough times.“
As a private investor, Howard mostly agrees, with one caveat:
“From my experience rental yields are around 4%, and the new regulations aren’t really relevant to that. The main worry is finding a property with good management and location – there is a significant oversupply risk, with regard to mass market properties in Malaysia. But for high-end properties, potential gains are still high.”
Source: Public Source
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