Malaysia Properties

According to latest sources Malaysia’s real estate market is expected to reach a plateau this year. Having enjoyed fantastic growth over the years from 2003-2006 and a holding a steady market last year, experts predict there will be changes for the future caused by the U.S. market melt down.

Especially the growth in rentals and capital value is said to ease out by the end of 2008. There will also be an oversupply of yet to be finished residential developments, which will further stop the growth of recent years.

Depending on how many of these Malaysian properties can be rented out or sold, foreign interest might be sustained or wane altogether.

With recent elections in March seeing the opposition take hold of Penang, Selangor, Kedah and Perak, many investors are actually sitting tight right now, waiting for events to unfold. They watch whether this recent change in leadership will have any effects onto the property market before they take action.

While the economy is expected to grow at a projected rate of 5.7% y-o-y, the office sector should also enjoy similar growth. If this will indeed take place, then the service sector will be positively affected as an immediate result.

The whole scenario is like a ripple effect as with any economy and property investors will just have to sit back and wait to see what happens.

While this all sounds somewhat acceptable, Malaysia could still be negatively affected by outside forces out of their control. With crude oil prices and interest rates having already been negatively affected (raised) by the global melt down, one would have to be a wizard to see into the future and know for sure.

In the end it is always best to stake safety before anything else if you are just not sure which way the market will go.

Malaysia’s income per capita is expected to grow from RM22,345 in 2007 to RM23,864 in 2008 and increased spending patterns and investing of funds could well be a possibility. A figure of 7.9% has been estimated in increased private consumption over the course of this year.

Property Taxes

Capital gains tax on property deals was abolished with effect from 1st April 2007. It used to be as high as 30% in the case of re-sale in under two years, tailing off to a minimum of 5%.

The ‘Assessment’, equivalent to the British Council Tax would be in the region of RM 400 to 500 for a resort apartment (approximately £60-75).

Stamp duty on purchase is payable at the rate of 1% for the first RM 100,000 and 2% for the next RM 400,000 rising in steps to 3% and then 4%. Stamp duty is also due on loans at the rate of 0.5%. On top of that consents for purchases by foreigners (from the Foreign Investor Committee – FIC – and the state aurthority) will probably come to about RM 2,400 in total.

For those considering Malaysia as their main domicile, the country has a benign tax regime.

Points to Remember, Legal and others

With the exception of Israelis and Serbians, expatriates can invest in residential property for their own use under the well-publicised Malaysia My Second Home programme (MM2H). MM2H is central to the residential property regime for foreigners. The scheme actually allows for ownership of up to two properties and includes means to tests applicants. Procedures now require all applicants to register through approved agents. The scheme does not permit participants to work in Malaysia but it is not clear how this condition applies to people working over the internet in fields such as consultancy or investment.

Outside the MM2H programme, it is possible for expatriate workers to obtain permission to purchase real estate and with outright possession (compared with Thailand) comes the possibility of financing a purchase with a loan from a local bank.

Deposits on residential property purchases are made in two stages, firstly a 3% sum with the letter of offer followed by a further 7% of the purchase price with the full sale agreement (normally two weeks later) .

Construction periods for off-plan investments can be quite long (2 to 3 years). Investors should check the status of the land the development will take place on as Malay reserves lands are not suitable for investors from overseas. Instalments in staged payment agreements should only be paid when the work has been certified by a competent architect or engineer.

Where to Look Properties in Malaysia?

Kuala Lumpur is in a class apart as the country’s business capital and definitely the focus of most activity in residential, retail and office real estate. The city’s central business district is currently undergoing rapid change. However, KL’s long term prospects are not guaranteed despite all the activity. Singapore (pop. 4.5m) is only as far away as London is from Paris and this proximity means that Kuala Lumpur only has Malaysia (pop. 27m) as its hinterland. Given that KL and the KL ‘metropolitan region’ have populations of 1.8m and 6.9m respectively, it seems unlikely that the city can surprise by growing into a different league, either in terms of wealth or size. However, genuine friendliness and cooperation between the two countries could herald impressive new opportunities. WTW’s (CH Williams, Tahar & Wong) series of annual property reviews provides a good breakdown of developments around the country.

The other main growth possibility would seem to be Malaysia potential for tourism and retirement residential property. Peninsula Malaya (Western Malaysia) has well developed tourism infrastructure including coastal resorts and the old colonial hill stations in the Cameron Highlands. Coastal resorts range from Port Dickson, KL’s ‘local’ resort to the excellent beaches on the east coast (Pahang). High quality developments on islands such as Langkawi, Perhentian, Tioman, Pulau Pangkor .

Sabah and Sarawak are becoming increasingly popular as holiday destinations. Once again there are good beaches & rain forests popularised by TV programmes on orang-utans and Kinabalu, Borneo and Malaysia’s highest mountain. There are interesting opportunities in “purchase and lease-back” in luxurious resorts

It is also worth watching the Iskandar Development Region in Johor, adjacent to Singapore. The success of this project is not certain but the government is certainly making investment easier for foreigners in sectors such as logistics and tourism.

For those unwilling to commit to direct investments, opportunities to invest in real estate investment trusts quoted and managed in Singapore are worth considering but for the time being Malaysia has high withholding tax on profits from property investment trusts