Singapore property’s an easy investment. If your orifices are big enough for all the diamonds and XTC pills you’re smuggling. Because how else could most of us afford it? With added stamp duties, inflated prices, loan restrictions, etc. investors are being pressured to look towards our northern neighbour. But before you buy a house there, know these basic points:
Special thanks to Aileen Han, Country Manager for E&O Property (Singapore) Pte. Ltd. for her help. See below for more details.
1. Location Requires a Little More Thought
Compared to Singapore, Malaysia’s a big place. Heck, compared to Singapore, a walk-in wardrobe in Florida’s a big place. And local investors should adapt their thinking to the size difference.
Due to land scarcity, every square foot of this island tends to be valuable. That makes it difficult to get considerations of location wrong. However, this may not be the case in Malaysia. An example:
Say you buy a property in Jurong, Punggol, or some other non-mature estate. You might not get good rental yields immediately, and capital appreciation might take time. But there’s no worry, because the value almost certainly rises after five years. Malls, train stations, hawker centres, etc. spring up fast around here.
But let’s say you buy property in an obscure, rural part of Malaysia. The sort of place that’s all plantations, and which tends to feature in TV episodes hosted by Utt. Well, don’t expect big changes in valuation or rental yield; the property value could stay flat for over a decade.
Now, you might be thinking: “That’s stupid. Obviously I’ll buy in a popular area, where every other investor is headed.”
Oh, you mean the location where prices could be inflated, over-supply’s a possibility, and a few hundred landlords compete for tenants?
Therein lies the conundrum: If you want to look for underdeveloped areas with growth potential, you risk buying a complete dud. If you want to target the “hot” areas, you’re facing intense competition. Give that some serious thought.
I got some advice from Aileen Han, Country Manager for E&O Property (Singapore) Pte. Ltd. E&O is a luxury lifestyle property developer, which recently launched The Mews in Kuala Lumpur.
“Many investments centre on the key property markets of Klang Valley, Penang island and Johor Bahru. These cities are existing economic, political and cultural centres that are popular because of their centrality and connectivity,” Aileen says.
“What makes these cities appealing to investors is that as growing metropolises, these cities also boast a range of ambitious future plans, such as upgrading of existing infrastructure by way of Mass Rapid Transit and HighSpeed Rail and the promotion of progressive economic policies to increase foreign direct investment (FDI).”
2. The Malaysian Market Favours Investors, not Flippers
For all the would-be house flippers out there:
Yes, your methods are hard to apply here now. But going to Malaysia will not make it better. A word from Aileen on flipping and sub-sales:
“Viewing property investment from a long term perspective, most developers in Malaysia generally don’t allow properties to be sold within the construction period. And they do this for good reasons.
It is to to stabilise the supply of a particular property in the market, and to allow the product time to be completed and its full potential showcased. And as result of this, to enhance the value of the property at completion, thus affording earlier purchasers the opportunity to enjoy a healthy yield.”
Malaysia also has a Real Property Gain Tax (RGBT). This is 10% on any property sold within the first two years, and 5% if sold on the third to fifth year.
3. Know the Acquisition Costs
Although bank loans in Malaysia have a higher interest rate, the acquisition costs tend to be lower. The following is provided courtesy of Aileen. Crunch the numbers before buying:
Acquisition costs include:
A) Legal Fees – Legal fees for loans are calculated based on the standard scale of fees below:
Loan Amount and Corresponding Rates
- 1st RM150,000 – 1.00%
- RM850,000 – 0.70%
- RM2,000,000 – 0.60%
- Next RM2,000,000 – 0.50%
- Next RM2,000,000 – 0.40%
- Over RM7,500,000 (negotiable) < 0.40%
B) Disbursement Fees – Between SGD 600 to SGD 800.
C) Stamp Duty on Loan Agreement – Around 0.5% of loan amount
D) Stamp Duty Payable Upon Issue of Title: This is a variable amount, based on the scale below
Purchase Price and Corresponding Stamp Duty Rates
- First RM 100,000 – 1.00%
- Next RM 500,000 – 2.00%
- Any amount thereafter – 3.00%
4. Look for DIBS
“…at new property launches, developers often offer the Developer Interest Bearing Scheme (DIBS), which means the developer will bear the interest payable to the bank,” Aileen says, ” So besides the 20% upfront down-payment, you won’t have to pay anything until the date of completion.
Some developers also absorb legal fees for the Sale & Purchase Agreement (SPA), loan agreement as well as furnishing incentives. Combined, these can be a great savings for many, so be sure to ask.”
So while Singaporean developers are currently dangling large carrots (to compensate for cooling measures), don’t forget there are similar incentives to the north.
5. Iron Out Details With Your Malaysian Property Agent
The function of property agents is similar in both Malaysia and Singapore. But don’t assume that every aspect of how they work is similar. Aileen suggests you iron out any discrepancies early on:
“…it is prudent to always agree upon the terms and conditions first. For example, while it is the seller who should be paying for the commission for a successful sales transaction, the amount to be paid is dependent on the quantum of the transaction.
It is normally 2% with an additional 6% GST. Similarly, for lease agreements, the landlord pays a month’s rent for the transaction of a successful tenancy term (anything from 1 year and above) but negotiations are required if the lease term is less than a year.
Such details should be ironed out and agreed upon before work proceeds to avoid any misunderstandings.”
For more tips on property investing in general, follow us on Facebook. I get paid to bug busy industry professionals with questions all day (Thanks for the help, Aileen!)
Aileen Han is the country manager for E&O Property (Singapore) Pte. Ltd, part of the E&O Group. Listed on the main board of Bursa Malaysia, the E&O Group is a luxury lifestyle property developer. More information may be found at www.easternandoriental.com