Iskandar Malaysia - Singapore Property Search -
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ISKANDAR Malaysia (IM) has come a long way from its early days. In 2006, when IM was first established, not many people paid any heed, with response from foreign in- vestors lukewarm at best. Fast forward seven years, and IM is high on the radar of international and Singapore investors. Their investment grew at an annualised rate of 36.9 per cent over the last seven-and-a-half years. As at June 2013, it attracted about RM119 billion (S$46 billion) of committed invest- ments, a stark contrast to a committed capital of RM11 billion in 2006, and surpassing its investment target of RM73 billion for phase 2. Last year was touted as the tipping point, with the completion of multiple key catalytic projects such as the Legoland Malaysia Theme Park, Hello Kitty Town, and the Johor Premi- um Outlets. IM’s education hub, EduCity in Nusajaya, also saw two tertiary institu- tions – Newcastle Medicine University and Marlbor- ough College – begin opera- tions. Local infrastructure and accessibility has also been enhanced with newly completed highways such as the New Coastal High- way, the Eastern Dispersal Link Expressway and the Senai-Pasir Gudang-De- saru Highway. With the completion of these major developments and better-than-expected prospects, investors started to gain confidence that IM will succeed and become a good place to work, play and live. An increasing number of investors are casting their eyes across the Cause- way, with the continued in- troduction of property curbs in Singapore. IM has become an alter- native investment destina- tion for them to park their monies. But while the low entry barrier for property invest- ments in Malaysia may sound attractive, buyers should be mindful of poten- tial costs in terms of taxes and legal fees, as they are quite different from Singa- pore. We explore some of these differences here: ◆ Real property gain tax (RPGT) Buyers who wish to lock in capital gains within five years of purchase will be subject to RPGT. The tax charges are as follows: 15 per cent of the profits if the property is bought and sold in the first two years, and 10 per cent of the prof- its if the property is bought and sold in the next three years. After this, there will be no RPGT payable. ◆ Sub-sales A sub-sale is the selling of an uncompleted property. As prices might rise to an at- tractive level during the con- struction period, some in- vestors might consider tak- ing profit early. In Malay- sia, sub-sales are only al- lowed with the consent from developers, as certain developers prohibit sub- sales. In addition, an admin- istrative fee may be charged to deter buyers from doing so. ◆ Rental income tax There is a rental income tax of 26 per cent for non-residents in Malaysia. Anyone who lives less than 182 days out of the year in Malaysia is considered a non-resident, regardless of citizenship or nationality. ◆ Mortgage loan rates With mortgage loan rates in Malaysia hovering at around 4-5 per cent, inves- tors should aim for rental yields of at least 7 per cent in order to cover property related taxes and expenses. Buyers could consider taking a home loan from Singapore banks, but do note that not every Singa- pore bank operates a home loan business in Malaysia. Developers also may not of- fer buyers the same dis- count, rebate or even de- ferred payment scheme (DPS), as some are tie-ups with the Malaysian banks. ◆ Upfront costs of purchase Before purchasing a proper- ty in IM, there are several fees that Singaporean buy- ers should be aware of. The top table on the right shows the costs that are payable during purchase of a prop- erty in Malaysia. Some developers offer discounts or rebate packag- es to entice buyers, with dis- counts ranging up to 16 per cent off the initial purchase price. ◆ Additional risks On top of the various taxes and legal costs that inves- tors have to bear, invest- ments in IM have their unique risks. There is a currency risk since the rentals and sales of assets are in ringgit. In- vestors should also consid- er the effect of currency movements when comput- ing their expected return for their home purchase. Should the ringgit depreci- ate against the Singapore dollar, investors may not achieve the desired rental or returns on their asset sales. This is worth noting as the Sing dollar has gained about 7 per cent against the ringgit over the last five years. The lack of historical da- ta is also a concern. In Sin- gapore, investors can ob- tain public information on the property market by us- ing caveats data. However, official transaction data in IM is not readily available to the general public, as the official figures do not show the breakdown for IM alone. This is especially so for Nusajaya, an area where many residential projects have only just begun to emerge. As many of the buildings in Nusajaya are still under construction, there is hardly any market history to track or analyse. Future rental yields and re- sale prices are anyone’s guess at this point in time. With the large supply coming up in the next few years, demand in IM is un- likely to be supported by the local population alone. Therefore, significant de- mand has to come from in- vestors and residents from other states of Malaysia, as well as foreign interest. The looming spectre of a potential oversupply has caught the attention of the Malaysian authorities, which halted further land sales in Iskandar last month, according to media reports. Halting further land sales will limit the sup- ply of land that developers can build on, thus stoking demand for Iskandar prop- erties. In view of the RPGT and possible sub-sales restric- tions, investors should have a longer investment horizon for Iskandar prop- erties. Given the strong sup- port by both Singapore and Malaysia governments and private sectors, IM is look- ing relatively more promis- ing, compared with when it first started in 2006. Barring any political risk, IM could be consid- ered a complementary in- vestment opportunity, where land and labour are relatively more abundant and cheaper. However, as with all in- vestments, high return also comes with greater risk. In- vestors should always do their homework and base their real estate purchases on sound rationale. The authors are from property firm OrangeTee. Christine Li is head of research and consultancy, Wong Xian Yang is senior analyst from the research and consultancy department and Chris Yap is senior manager from the international projects department. Multiple key catalytic projects such as the Legoland Malaysia Theme Park, Hello Kitty Town, and the Johor Premium Outlets have been completed. By CHRISTINE LI, WONG XIAN YANG and CHRIS YAP Coming up: (Clockwise, from above) Investors’ investment in IM has grown at an annualised rate of 36.9% over the last 7.5 years; multiple key projects such as the Legoland Malaysia Theme Park have been completed; many residential projects are taking shape in Nusajaya; Newcastle Medicine University has began operations at EduCity. FILE PHOTOS Iskandar Malaysia comes to life Out of pocket COSTS NOTES Upfront fees payable when purchasing an uncompleted property in IM 1. Down payment after signing S&P agreement 2. Legal fees for Sales and Purchase Agreement 3. Stamp duty for Loan 4. Legal fees for Loan 5. State Consent Fee (Foreign Ownership Levy) 6. Balance payment assuming 80% loan 7. Stamp duty for memorandum of transfer (This stamp duty is usually payable upon after construction completion and transfer of title to owner) Total estimated costs for RM1,000,000 property with 80% loan (Assuming no rebates and discounts on purchase price) Convert to SGD assuming exchange rate of 2.5 10% of the purchase price 0.4% to 0.7% of the purchase price 0.5% of the loan quantum 0.4% to 0.7% of the loan quantum Varies from state to state. For Johor, the state consent fee is currently RM10,000, with an application fee of RM500. 10% of the purchase price For the first RM100,000 – 1% of purchase price. Next RM400,000 – 2% of purchase price Above RM500,000 – 3% of purchase price RM256,600 S$102,640 Source: OrangeTee Research Where the money goes Iskandar’s yearly investments by sector RM (BILLION) 2006 2007 2008 2009 2010 2011 2012 2013 Source: IRDA, media reports, OrangeTee Research 10 8 6 4 2 0 Manufacuring Utilities, tourism and others Properties Government 32 PROPERTY 2013 The Business Times, Thursday, September 12, 2013 (SPHBHT11: BT-NEWS-PAGES <XSA-032> [SUPP1 -32 ] ... 12/09/13 Author:WOONCJA Date:10/09/13 Time:18:44)
Transcript of Iskandar Malaysia - Singapore Property Search -
