Malaysian Property is Still a Good Deal in 2014: E&O Tells Us Why

Last year, Malaysia announced new policies for foreign property buyers. We all braced for a bloodbath, predicting something to match Singapore’s cooling measures. But talk about an anticlimax – the new policy had less impact than Navy ads have on recruitment. Here’s why Malaysian property remains attractive:

Policy Changes in Malaysia

Starting from 1st May 2014, the minimum purchase price for foreigners will be RM 1 million (previously RM 500,000). In addition, there is now a Real Property Gains Tax (RGPT). This tax is applied to your capital gains, should you sell a property above the purchase price.
The RPGT rate is 30%, if the property is sold within the first five years. From the sixth year onward, RPGT is 5%. According to investor Howard Kong, who currently owns two properties in the Istana region:
“The RPGT is to prevent overheating in the property market. They don’t want people to flip houses, they want long term investors. But there is not much impact, because if you are investing in Malaysian property you are probably planning to hold for five years or more anyway. The market here has never been good for flipping.”
The sentiment was shared by property developers E&O, during their launch of Andaman East. Special thanks to Aileen Han, Country Manager of E&O Property (Singapore).

How Do the New Regulations Affect the Property Market in Malaysia Anyway?

“We believe that the latest cooling measures, which include an increase in the Real Property Gains Tax (RPGT), are unlikely to dampen real demand. It is worth noting that the RPGT is a tax on the upside that does not impact the cost of purchase.
Nonetheless, we believe that the appeal of the Malaysian market to Singaporeans and Singapore-based residents will endure due to our proximity, shared heritage and cultural similarities coupled by the relative affordability of Malaysian properties…”
Note that the policy change has almost no impact on owner-occupiers (e.g. the Singaporeans who aren’t looking for profit, but just want a living space they can’t spit across). The RPGT won’t raise the price of the house, and owner-occupiers aren’t too worried about profit from the resale anyway.
But what about investors?

Don’t the New Regulations Make Malaysian Property Less Attractive as an Investment?

Well, let’s put it in context: less attractive compared to where? Every other country has its own regulations too. And many are comparable, or even stricter, than Malaysia’s. Aileen says that:
“With countries around the world trying to strike a balance between helping their citizens achieve home ownership and welcoming foreigners…property cooling measures do appear to be the new norm. It is no exception in Malaysia.”
Among the points Aileen raises are the fact that “Malaysia has foreigner-friendly property investment policies, which allow foreigners to own freehold and landed properties.” Note that it’s a fairly rare practice, for a country to allow foreigners to buy freehold.
“In general, Malaysia offers positive returns in both capital and rental yields. One may expect to enjoy healthy capital appreciation when purchasing directly from the developer. The margin of appreciation however depends on the timing of the investment, the exact location of the property and the strength of the developer.“
Take note about the “strength of the developer”. It’s different from Singapore, where land scarcity means that even mediocre properties sometimes luck out and deliver a good return. Stick with high-end properties when investing in Malaysia – mass market units are a dime a dozen there, and you’d be speculating on them.

But What Impact will the Regulations have on Rental Yield, Resale Value, etc?

Aileen remains confident about prospects in Malaysia:
“Demand for prime urban locations will always remain for those who can afford the exclusivity of such addresses as well as for those who aspire to do so. In fact, such properties are viewed as the prized “family inheritance” within investment portfolios as they have proven to hold their own even during tough times.“
As a private investor, Howard mostly agrees, with one caveat:
“From my experience rental yields are around 4%, and the new regulations aren’t really relevant to that. The main worry is finding a property with good management and location – there is a significant oversupply risk, with regard to mass market properties in Malaysia. But for high-end properties, potential gains are still high.”