Due to cooling measures and restrictions, local property investors have begun searching for alternatives. Some turn to stocks, others to gold. But one of the more popular options right now is Malaysian property, especially thanks to the development of the Iskandar region. In this article, we consider if Malaysian property has overtaken Singapore property as an investment:
Why the Demand for Malaysian Property?
The demand for Malaysian property is often attributed to Singapore’s cooling measures.
Because of lower loan quantums, tighter debt servicing ratios, etc. investors have started looking elsewhere. But our cooling measures are not the sole issue. Malaysian property offers unique advantages (and disadvantages) when compared to Singapore’s property investments.
In order to get a clearer picture, let’s look at:
- Housing Loan Interest Rates
- Resale Prospects
- The Oversupply Worry
- Rental Yields
1. Home Loan Interest Rates
The lower your home loan interest rate, the higher your capital gains upon resale.
In Singapore, home loan rates have been around 1% to 3% for the past decade. In Malaysia, they’re closer to 4% to 6%. If you take into account a typical 30 year loan, that means a difference of several hundred thousand dollars (depending on the loan amount); not good for anyone thinking of resale value.
However, many borrowers in Malaysia are only faced with 10% down-payments. In Singapore, buyers of multiple properties may be faced with 40% to 60% down-payments (based on how many outstanding home loans they have).
Malaysia also still has the Deferred Payment Schemes (DPS), which means after the downpayment, borrowers can wait until the Temporary Occupancy Permit (TOP) before paying any installments.
As such, some investors choose to buy in Malaysia because they don’t feel the pinch at first. It also makes Malaysian property a better investment for the aggressive types: Banks in Malaysia will let you stretch your financial liabilities to a much greater degree than in Singapore.
So if you want the most expensive property you can get, Malaysia is where you should look. Mind you, this has no bearing on the financial prudence of such a move.
Also, if your main problem is getting loan approval in Singapore, consult a mortgage specialist before grabbing at Malaysian properties. You can consult one for free at sites like SmartLoans.sg.
2. Resale Prospects
Singapore’s been a property hub for so long, our historical trends and patterns are well established. Most property agents can quote you resale prices in district 9, district 5, etc. without so much as glancing at their books.
In Malaysia, especially in Iskandar, the opposite is true. Malaysia’s property market has yet to fully “shine”, and is only now beginning to realize its full potential. There are plenty of new developments in Iskandar, and how they’ll fare upon resale (in 10 or 15 years time) is a complete mystery.
On the upside, this means Malaysian property is a potential goldmine. A low value area might multiply in value upon resale, quite against analysts’ expectations. This is different from Singapore, where it’s getting harder to price resale property higher than district norms.
(That’s not to say this never happens in Singapore. We have our goldmines too. You’re just less likely to stumble upon a new one, because the market’s been thoroughly searched already).
But an untested resale market is also a downside to Malaysian property. There’s a lot of speculation involved in resale, because there are few historical trends to check. Buyers today are taking a stab in the dark.
3. The Oversupply Worry
Some investors contend that Singapore is land scarce, thus “naturally” preventing an oversupply problem. This could be an overly-optimistic assumption.
Those same investors like to point out Malaysia’s a lot bigger than Singapore: The Iskandar region alone is twice the size of our island. And that, coupled with the new rush to build developments there, implies an oversupply risk (which again, they assume is impossible or implausible in Singapore).
But it’s early days yet, and from a big picture perspective Malaysia abounds in possibilities. If you look outside the Iskandar region, and at Kuala Lumpur for example, there’s always a core demand for apartments near the city centre. If we go back to the core rules of property, it’s about location and not so much numbers.
Even in places like Iskandar, it’s too early to predict anything reliably; the high speed rail link isn’t even built. It would make more sense to look at this issue again in three to five years. Until then, oversupply predictions may as well be coin tosses.
4. Rental Yields
Malaysian property probably provides better rental yields than Singapore property. Landlords should take note.
Many developers have started programmes to help connect tenants to buyers, “guaranteeing” rental yields of between 6% to 9% (though not all of them use the term “guarantee”). This seems to be the expected rental yield in hotspots, like the CBD area in KL.
The programmes for finding tenants are a big hit with Singaporean landlords, who typically have issues finding and managing tenants abroad. Some may not mind the “service fees” from such programmes, which are often a small cut of the rental income.
Then there is the simple issue of price. The lower the price, the higher the rental yield (which is basically a ratio of the earnings to the cost of the unit). Malaysian property is generally cheaper than Singapore property, and that alone means the rental yields and capital gains will be higher.
Under our current circumstances (i.e. cooling measures, tighter loan restrictions), now might be a good time to buy and rent out Malaysian property.
But as for resale, that still remains a toss-up. Singapore’s property market is simply more consistent and predictable, when it comes to resale values. We’ll be following the trends so stay tuned with us on Facebook.
Would-be landlords should stick to well established Malaysian developers who are building in hotspot areas. It also helps if the developer can manage the tenants for you (unless you already have ways and means in Malaysia). Some developments that have been getting a lot of attention are The Mews (E&O properties), and The Binjai on the Park (Layar Intant Sdn Bhd).
Do you consider property in Malaysia a good investment? Comment and tell us why!
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