Dont rush to buy into hot spots Sporeans keen on homes in Malaysia should grasp impact of cooling measures Source: Sunday Times Singapore | Invest Yasmine Yahya Recent curbs hit genuine buyers Malaysia has long been Plan B for Singapore property investors deterred by cooling measures and sky-high prices here, but there are plenty of pitfalls across the Causeway for the unprepared. The fact that its right next door does not lessen the risks for local buyers, who should arm themselves with a good understanding of the countrys rules and regulations. The very nature of investing in real estate offshore is in itself a chancy endeavour, as National Development Minister Khaw Boon Wan highlighted last Monday. He warned in Parliament that Singaporeans, when buying properties overseas, should take note of the added risks and complexities arising from differences in legal and regulatory frameworks. That has not stopped Singaporeans from making a beeline for Malaysian hot spots such as Kuala Lumpur, Penang and, more recently, Johor over the years. The attractions are obvious: Many years of rising prices here have led those with smaller investment budgets to seek out more affordable units in Malaysia. Several rounds of property cooling measures and loan restrictions have pushed wealthier investors northwards too. At the same time, the ramping up of development in Iskandar in recent years has attracted a wide variety of Singaporean buyers, from savvy speculators to retirees looking for a more laid-back lifestyle and lower cost of living. Of course, Malaysia is not the only market that Singaporeans have targeted. In fact, it was the rush to invest in foreign fields that prompted Mr Khaw to sound his warning last Monday. The Council for Estate Agencies (CEA) will release an online guide this week that will provide some general tips on buying property overseas. It will also step up efforts to regulate estate agents marketing foreign properties here. What to look out for The online guide will expand on the basic tips that the CEA already has on its online consumer resource centre, the council said. For starters, buyers should ask themselves: Why am I buying? Is this a short-term investment, a long-term one or a holiday or retirement home? They should also perform a financial assessment on themselves to see how much they can afford to spend before making any decisions. This includes the amount of cash they would have to pay up front, legal fees, stamp duties, taxes and maintenance fees, the amount a bank can lend, the mortgage repayments over how long a period and so on. All these conditions vary from country to country. Investors should not be taken in by claims in overseas property advertisements, the CEA notes. If rates of returns, yield rates or rates of capital gains are indicated, they should check on the basis and source of the claims. Any agreement on promotions or guarantees should be put down in writing to avoid disputes. Investors should also bear currency risk in mind. If you buy a property in Malaysia and its value rises 10 per cent but the ringgit weakens 15 per cent against the Singdollar over the same time, you would incur a loss if you sell. Investors should look for these factors, says IP Global Singapore director Alex Bellingham: A strong legal structure; Rental liquidity. If the property is meant to be rented out so that the buyer can earn an income, there should be a robust supply of expatriates or other tenants in the market; Liquidity of property market. In some markets, it can be quite difficult to sell a property once you have bought it; The ease of obtaining mortgage financing; Reasonable tax rates. If you can balance practicality with value, that would represent the best chance of buying into a good market - a market when you can buy and own the house in your own name, then rent it, sell it and make money, says Mr Bellingham. In general, Malaysia, especially Kuala Lumpur, has all of the above factors, he adds. Malaysias cooling measures Malaysia is also dealing with the issue of runaway property prices, partly due to the influx of foreign buyers, hence the cooling measures in its Budget in October. Some of the changes were aimed at foreigners. From Jan 1, Malaysian home owners who sell a property within the first three years of purchase have to pay a real property gains tax of 30 per cent of the selling price, double the previous rate of 15 per cent. The tax for citizens will be 20 per cent if they sell the home in the fourth year and 15 per cent if the home is sold in the fifth year. Thereafter, they will not be taxed on the sale of their home. However, non-citizens and businesses will be levied 30 per cent within the first five years and 5 per cent in any subsequent year. The minimum price of property that can be bought by foreigners has been raised from RM500,000 (S$193,000) to RM1 million, starting from May 1. Property developers and financial institutions are now banned from using the Developer Interest Bearing Scheme. Under this popular scheme, developers would absorb the interest on the buyers home loan while the property was still under construction. The scheme was blamed for fuelling speculation as it allowed buyers to flip the property once it was completed and make a profit without having to stump up much money. Finally, Malaysian banks are now required to make property loans based on the net selling price, which excludes discounts and rebates, rather than gross selling price. Speculators will certainly take a hit. However, these curbs are also likely to affect a group of genuine buyers - foreigners with smaller budgets who may want to buy a Malaysian property as a weekend or retirement home or as a first-time investment. A major attraction of Malaysia, especially for novice investors, is the affordable prices, says Mr Colin Tan, head of research and consultancy at Suntec Real Estate Consultants. A required minimum investment of RM1 million makes it less affordable and a deterrent for such novice investors, whereas better-off and seasoned investors would have already graduated to luxury properties. Aside from that, the measures are likely to have different effects on different markets within Malaysia, experts say, and the outlook for each market depends on various other factors too. Kuala Lumpur Mr Bellingham believes Singaporeans and other foreigners have typically bought units of more than RM1 million in Kuala Lumpur anyway, so the new minimum investment amount for foreigners would not have much of an impact. The higher capital gains tax is also unlikely to discourage serious long-term investors or those buying property to live in, he adds. As a result, he believes Singaporean investors are unlikely to be deterred by the measures, especially with the ringgit hovering near a 15-year low against the Singdollar. Given the current exchange rate, Singaporeans can purchase a RM1 million property in Malaysia for about $386,000, which is still significantly cheaper than an average property here, says Mr Bellingham. Singaporeans will also find more bang for their buck. For the same amount spent on a lower-end HDB flat in Singapore, they can buy a spacious luxury apartment in Kuala Lumpur, he notes. A look at online listings of Kuala Lumpur properties for sale shows that RM1 million gets a condominium unit of about 1,000 sq ft in the city centre or in the upscale Bangsar area that is popular with expatriates. However, a Knight Frank report said demand for Kuala Lumpur property will be hit by the cooling measures and expectation of an interest rate hike. Still, it expects prices to continue rising, albeit at a slower pace. Kuala Lumpur property prices climbed 5.5 per cent last year. Penang The cooling measures are least likely to have an impact on Penang, which implemented a rule in July 2012 forbidding foreigners from buying property under RM1 million. Foreigners looking to buy a landed home have to fork out at least RM1 million in Seberang Perai, the part of Penang state on the mainland, or RM2 million on Penang island. While the cooling measures may affect overall sentiment, the gloom should not last very long, says Mr Eric Chan, deputy managing director of Malaysian developer Eastern & Oriental. Investors will still find Penang appealing, in terms of affordability, the environment and product offerings. Iskandar The Johor government plans to impose a 2 per cent levy on foreign buyers across all property segments, including the secondary market, starting from May this year, on top of the recent cooling measures announced in the Bud-get. The current flat rate is RM10,000 for all types of real estate. The levy is aimed at curbing spiralling home prices in Johor and especially Iskandar, where they surged by 17 per cent last year. But some observers note that Iskandar property has become so expensive now that even without the RM1 million rule, only wealthier investors would be able to afford buying there anyway. And they are sceptical that the levy, coupled with the Budget moves, will do much to dampen the hot market. After all, even with prices now reaching levels similar to those in Kuala Lumpurs city centre, units are still being snapped up. In the second half of last year, for example, there were several launches of high-rise and landed developments that all sold well, even though few offered units at under RM1 million. Take EcoBotanic, a development in Nusajaya with 624 units of cluster and semi-detached houses. The cluster homes were priced at between RM900,000 and RM1.3 million while the semi-detached houses went for RM1.8 million to RM2 million. All were sold within six hours. The Isola Grandeur waterfront villas in Senibong Cove were all snapped up for at least RM3 million each. At Sunway Lenang Heights, semi-detached units are priced from RM1.5 million while bungalow units go from RM2.5 million. The first phase is more than 60 per cent sold. Foreigners, particularly Singaporeans, will continue to buy within the state as most of the existing high-end properties available are already being priced above the RM1 million threshold level and there is still a huge disparity in prices between Malaysia and their home countries, said Knight Frank in its report. The strong Singapore dollar and growing interest from other foreign purchasers, particularly in the locality of Nusajaya (the focal point of Iskandar) and Medini (the business heart of Nusajaya), will continue to drive the growth of the residential market. Medini will continue to be a hot spot due to its special economic zone status that grants it a substantial tax break and exempts it from the RM1 million minimum price threshold for foreign buyers, Knight Frank added. [email protected]
Posted on: Sun, 16 Mar 2014 02:10:44 +0000
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