Property Investment in Malaysia: What Should You Know?

Singaporeans top the list of tourist arrivals in Malaysia, numbering more than 12 million in 2017. Many Singaporeans cross the Causeway each week, taking advantage of the stronger Singapore dollar, to visit a favourite restaurant, shop for groceries or simply chill at a hipster cafe.

This is one of the reasons that Singaporeans are choosing to make Malaysia their second home. In 2014, the Johor-Singapore Community Care Association estimates that about 5,000 Singaporeans families have set up home across the Causeway. Malaysia is one of the world’s best five countries to retire in according to the Global Retirement Index for 2018, an annual survey by International Living. Being a culturally diverse country similar to Singapore, Malaysia will make any Singaporean living there feel right at home.

Malaysia’s property market is especially open to foreign investment. Foreigners are allowed to own freehold properties, giving the owner full, permanent ownership of the property. Otherwise, leasehold titles allow the owner to stay in possession of the property for a period of 99 years with the flexibility of extending it further upon paying a sum. Malaysia My Second Home (MM2H), a programme tailored to foreigners who wish to stay in Malaysia for a prolonged period of time also helps make property ownership more affordable.

So, what does one need to know before buying a property in Malaysia?

Location Matters

Location has always been an important deciding factor when it comes to buying a property and the same goes for overseas properties. Popular areas to consider in Malaysia are Kuala Lumpur, Johor Bahru, Penang and Melaka. By buying a property in these popular cities whether for own use or as an investment, there might be a higher chance to get a higher return from your property investment with the developments going on in these cities.

Apart from proximity to amenities such as shopping malls, educational institutions and medical facilities, you should choose a location which is convenient. There are upcoming projects between Singapore and Malaysia, seeking to connect the people of two countries closer together and reduce travel time significantly. For example, the Johor Bahru-Singapore Rapid Transit System (RTS) is expected to be ready by 31 December 2024.

Due to Johor Bahru’s proximity to Singapore, there is a growing number of Singaporeans who are looking at living in Malaysia while still maintaining their Singaporean citizenship as property in Johor Bahru is far more affordable.

Developer's Reputation

If you are looking for a brand-new property in the market, it will likely mean that you will be buying an under-construction project from developer. Properties under construction are usually sold at early-bird price or compensated with free stamp duty, free legal fees and so on to reduce transaction costs.

Having said that, buying an under-construction property signify a higher risk as there is no guarantee of quality. Hence, it is important that you invest in properties built by well-known and established developers. Go with a public listed property developer or developers who have a proven track record for delivering quality developments on time.

Can Singaporean Permanent Resident (PR) Buy Property In Malaysia?

The answer is yes! Effective 1 May 2014, there is a minimum purchase price cap for foreign buyers who wish to own real estate in Malaysia. The prices vary in the 13 different states according to local supply and demand. In most states, such as Kuala Lumpur and Johor Bahru, the property must be priced from RM1 million and above. 

However, the MM2H scheme allows foreigners to live in Malaysia and buy property in certain states at lower prices. In Penang, for instance, foreign MM2H homebuyers only need to spend a minimum of RM500,000 on a property, and Sarawak sets a lower limit of RM350,000. 

Rules For Foreigners Investing In Properties In Malaysia

While foreigners are eligible to purchase unlimited number of freehold or leasehold (99 years) properties of any type, a foreigner who wishes to purchase a residential property in Malaysia has to make an application to the State Authority to obtain the State Consent before the transaction is completed. The application fees can range from RM600 to RM20,000 or 2% of the purchase price whichever is higher, depending on the states.

Depending on the developer, a booking fee ranging from 5-10% of the purchase price is required from the buyer. A Sale & Purchase Agreement (SPA) is then constructed. Typically, a buyer will have to engage a lawyer who will help with the conveyancing work. This legal fee makes up another portion of the property acquisition cost.

One of final fees payable by the buyer would be stamp duty on Memorandum of Transfer (MOT). Stamp duty ranges from 1% to not more than 3% depending on the property purchase price. The property is transferred once all the above is done.

Some other costs involved in the buying process include disbursement cost and real estate agent’s fees.

Malaysia House Loan For Foreigners

When it comes to financing your new property, there are a few options. You can obtain your housing loan from Malaysia-based banks. The loan-to-value ratio for foreigners is capped at 70% but can go up to 80% for MM2H holders. Interest rates for housing loans in Malaysia is between 4% to 5%.

Singapore-based banks also offer financing for Malaysian properties. The rate is pegged to the Singapore Interbank Offered Rate (SIBOR) and ranges from 3.6% to 4.1%, assuming SIBOR for 3 months is at 1.1 percent.

However, if you are going to be based in Malaysia, you might prefer to borrow in ringgit instead. This is especially so if you are planning to use your property for investment purposes, and the rental income will be in the same currency as the monthly installments on the loan. Another possible consideration could be the currency exchange rate between both countries. As the ringgit continues to weaken against Singapore dollars, it might make more sense to borrow in ringgit.

Moving forward

Before you become a proud owner of your new property, you should always study the area you are looking to invest in. Apart from the developments and potential yields of the area, you should also keep an exit strategy in mind.

In Malaysia, there is a real property gains tax (RPGT) levied on chargeable gains arising from the sale of property, ranging between 5% to 30%, depending on the holding period of the property. 

For Singaporeans who are looking to buy an overseas property, there is a minimum-occupation-period (MOP) required of HDB flat owners. According to HDB InfoWEB, those who own a HDB flat can only buy both local and overseas private residential properties after 5 years since first possessing the flat, regardless of whether the flat is being transferred to others within the period.

Finally, it is important to seek the advice of a reliable real estate agent who is familiar with the various processes, financial and legal aspects of buying a property in the country of your choice.

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Information accurate as of July 2018.