Property Investment in Malaysia Posted : on 23/9/15
Malaysia has caught the eye of many investors and expatriates with its low cost of living, beautiful weather, lack of natural disasters and federal incentives designed to bring more foreigners to the country. As more foreigners join the country’s population, it could prove beneficial for investors.
The Asian nation of Malaysia is divided into two regions—the Malay Peninsula and Borneo—by the South China Sea. It shares borders with Thailand to the north, and Singapore and Indonesia to the south.
The population of Malaysia was estimated at 24,821,286 in July, according to the CIA World Fact Book. The Malay make up the majority of the population, at more than 50 percent, with Chinese and Indian residents also well represented at 23.7 percent and 7.1 percent respectively, according to the CIA World Fact Book. The Malaysia My Second Home program, which is designed to help foreigners relocate to the country, has approved approximately 10,000 applications since the program began in 2002, according to its website. Applicants who are approved receive a renewable 10-year visa, the right to one tax-free car and no taxation on their offshore income. While Bahasa Malaysia is the official language of the country, English is widely spoken, adding to the country’s appeal to British and American expatriates. Why Malaysia? “Malaysia is a very cheap place to live relative to the degree of development the country has achieved. Foreigners can enjoy a very nice lifestyle here,” Andrew Davidson, editor of The Expat and manager of the Malaysia My Second Home website, said. “Regionally our property values are substantially lower compared to our neighbors, Singapore, Indonesia and Thailand. Cost of living is also an attractive factor and effective 2007, the government has waived real property gains tax, meaning profits can be repatriated to your respective countries with no tax deductions,” Nixon Paul, director of Carey Real Estate in Malaysia, said. Apartment and house rentals in Malaysia range, on average, between approximately $146 and $220 U.S. per month, according to ExpatForum.com. While housing costs are probably higher than the average in metropolitan areas of Malaysia, they are still likely to be lower than the estimated rent of $440 to $745 U.S. per month in neighboring Singapore, according to ExpatForum.com. These low prices encourage expats, who tend to pay higher rents, to move in. Malaysia's currency, the Ringgit (RM), was 53 percent undervalued compared to the U.S. dollar as of July, according to the Big Mac Index published by The Economist. "The Ringgit is widely expected to strengthen as government controls are gradually eased,” Doug Pierce of Kuala Lumpur Property said.
The potential returns on Malaysian real estate are promising for investors, ranging from 6 to 12 percent depending on the location, demand and type, according to Firdaus Musa, managing director of Firdaus and Associates Property Professionals in Malaysia. Capital gains of approximately 20 to 80 percent can be realized on new properties within two or three years, Musa said.
“[Malaysia’s] GDP is expected to grow around 6 percent per annum in 2007,” Pierce said.
The country is also politically and economically stable, has a high literacy rate, and has established statutory laws on ownership and title deeds, Musa said.
“Successive, well thought out, five year plans have seen Malaysia enjoy fairly steady economic growth since the 1970s. They have managed to spread the wealth more effectively than some of their neighbouring countries,” Davidson said.
In recent years, Malaysia has made a concerted effort to attract new overseas residents. When more and more upscale developments were built, the government realized there just wasn’t enough of a demand domestically, Davidson said. This lack of domestic consumption could be a cause for concern for investors.
One of the ways the government responded was by abolishing the property gains tax as of April 1. It is also now much simpler than it was in the past for foreigners to get loans in Malaysia, a feat which was once “nearly impossible,” according to Davidson. The loan-to-value ratio is still much lower for foreigners than it is for native Malaysians; foreigners can typically receive up to 70 to 75 percent of the value, while Malaysians receive loans covering up to 95 percent of the value. Some banks may offer loans with as low as 60 percent loan-to-value to foreigners who do not have satisfactory financial documentation, Davidson said.
Kuala Lumpur, located on the peninsula, is the largest city in Malaysia, with a population of approximately 1.3 million. The Kuala Lumpur City Center, in the area around the PETRONAS Twin Towers—the tallest twin buildings in the world—is popular among expats, which accounts in part for the higher rents that can be found there. The City Center is a prime location for property investment because the area has high rental values and has had strong capital appreciation over the past five years, Paul said.
“Kuala Lumpur [is the best area for investment] if you plan to rent, as most expats live in this area and they pay the highest rentals. It is also the fastest growing part of Malaysia,” Davidson said.
Another area that comes highly recommended is Penang, a state in the north on the peninsula. A lot of expatriates are choosing to retire to the area, according to Davidson; Penang is also highly trafficked as a tourist destination. Paul said that, because of these factors, he anticipates strong capital gains in the area.
“Johor, in the south, has good potential because of its proximity to Singapore, and the government has just launched plans to create a giant economic zone down there,” Davidson said. And “Kota Kinabalu, Sabah is an up and coming tourist destination [which is presently] grossly undervalued and we [foresee] a very strong growth in the next five to 10 years,” Paul said.
The purchase process is made easier for English speakers by the fact that the sale and purchase agreement is in English. However, investors would still be wise to hire a lawyer to represent them.
When deciding to purchase property, the buyer must put down a minimum of 2 percent earnest money, according to Pierce, which will be forfeit if the buyer later backs out of the sale. The buyer’s passport must be submitted along with a copy of the title and the previous sale and purchase agreement so that the lawyer can prepare a new sale and purchase agreement for the transaction.
At this point, "Then they have to pay another [sum] (totalling 10 percent) when they sign the sale and purchase agreement," Davidson said. "The remaining 90 percent must be paid within 90 days. Foreigners have to get state approval to buy the property, which can take up to six months.”
Considering the loan-to-value ratios given to most foreigners, investors can likely expect to receive a loan covering approximately 70 percent of the property’s value. It is also important to note that not all properties for sale may be available for overseas investors to purchase.
“Malaysia’s land tenure is based on the Australian system of land ownership—the Torrens system. A small percentage of lands, mainly in the rural areas, are reserved for the indigenous people and cannot be owned or purchased by the non-native locals or foreigners,” Pierce said. Foreigners are also limited to properties priced at RM 250,000—approximately $75,000 U.S.—or higher.