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A GUIDE TO BUYING IN MALAYSIABy Emma Holifield, Property Frontiers, 26 February 2007. Malaysia occupies one of the most picturesque corners of the world and offers a cultural, geographic and topographical vibrancy that few other countries can match. Home to a kaleidoscope of cultures Malaysia is one of the most popular expatriate regions in the world with seven out of every hundred residents in the capital city originating from abroad. Famous for its palm fringed white beaches, gentle seas and lush rainforests, the country is also home to flourishing financial and high tech industries. Indeed Malaysia effortlessly marries colonial charm with a vibrant engulfing modernity providing eclecticism that appeals to a range of tastes. History and Where We Are Now Following the economic crisis that overtook Asia in 1997, Malaysia recovered well, and now boasts a robust, reassuring and stable economy. With healthy foreign exchange reserves, low inflation, small external debt, unemployment below 4%, GDP over 5.5% for the past three years and consumer confidence sustained near 10%, Malaysia offers a promising investment market and one which has drawn a lot of attention in recent years. Why Invest? Malaysia’s property market became markedly more appealing to investment buyers as of the first of April this year when the country eliminated capital gains tax on all property deals. Whilst sellers were previously obliged to pay 30% tax on the profit made on a property, Prime Minister Abdullah Ahmad Badawi recently announced plans to abolish the levy. It is hoped that this decision will “inject more excitement and dynamism in both the property and financial sectors” and compliment the other pro-investment incentives implemented by the government. Whilst CGT formerly discouraged property sales it is hoped that its absence will result in market liquidity and a healthier investment environment. Although the Malaysian property market is relatively undervalued compared to other countries, its robust, reassuring and stable economy and the removal of this tax should contribute to a rejuvenation of the property sector. The capital city Kuala Lumpur (KL) currently procures the majority of overseas investment, whilst resorts and islands provide healthy secondary markets. By the early noughties, demand for real estate in KL had begun to catch up with the oversupply remaining from the late 90s, and prices have been rising ever since. The property outlook for KL is therefore very positive. The government’s objective to achieve world-class city status for KL by 2020, through continual improvements in infrastructure and development of high value-added urban services, will ensure that KL retains its appeal as a hot spot for local and multinational corporations and professionals. As a result, demand is likely to remain consistent and dependable. KL’s urbanisation also plays a crucial role in adding to the city’s investment promise. In 1993, only 54% of the Malaysian population was urban, rising to 66% by 2003. Evidence suggests that this figure will reach 84% by 2023 and as a result, increased demand for housing will be generated. With the current total supply of housing being just 44% of the estimated demand, the outlook for potential investors is a strong one. In addition, the Malaysian government have made their real estate market increasingly appealing for international investors by introducing the Malaysia My Second Home Incentive. This scheme aims to encourage foreign buyers by giving them tax concessions and residency status allowing them to stay long-term in Malaysia for five years with a multiple entry visa. The Future KL property prices are expected/likely to rise rapidly over the coming months with an increased demand for serviced apartments and condominiums becoming apparent. The demand for these properties is attributed to the large numbers of professionals who relocate to the city every year. Relocation can be permanent but more commonly, people relocate for between three and six months, making serviced apartments and condos the ideal solution for their companies. This is undoubtedly the best sector for long-term investment, in that it provides potential in terms of capital appreciation whilst simultaneously generating attractive yields. Another element which should bolster international real estate sales is the introduction of a range of cheap flights from London to Kuala Lumpur. AirAsiaX, a new long haul low cost airline plans to offer phenomenally low cost flights by August 2008 with average fares about 50% of the prevailing market rates. Visitor numbers to the country are therefore expected to increase along with Malaysia’s popularity as a tourism hub. This is all good news for property gurus keen to secure shrewd investments. With the removal of CGT and access to the country facilitated, the property sector cannot fail to benefit. Where? The rise of Malaysia as a tourist destination has awoken resort markets in Langkawi and Penang where luxury property appears to be very cheap. Add to this, the year-round climate and it becomes clear that annual rental yields from short-term holiday lets can be very attractive. Long-term investors, however, should look to KL for the highest capital appreciation and the most promising yields. Prices in KL in 2004 rose 13.1% year on year, significantly above the country’s average of 5.7% Evidently, a highly desirable location for investors is in the heart of the city centre, at the core of Kuala Lumpur’s financial and business zones. Properties in this region though, tend to be incredibly rare. Hampshire Residences, however, is a development lucky enough to enjoy a location that is second to none. Situated just a stone’s throw from Kuala Lumpur’s most famous architectural structure the Petronas Towers, 200m from KLCC Light Rail Station and within easy reach of embassies, main hotels and international schools, this high-end luxury serviced-apartment building offers a tantalising investment opportunity. Another area currently evoking a lot of attention is Mont’ Kiara. Just 10 minutes from the CBD, with a high level of infrastructure, good transport links and renowned for the class and lifestyle it offers, Kiara is proving a highly desirable haven within the city. Take up rates on new developments here are nearly 100%. The i-Zen apartments are nestled within this exclusive district and epitomise simplistic elegance and modernity. Constructed by award-winning developers, the fully furnished apartments are of the highest standard and combine luxurious living with significant investment potential. Rental Potential A good rental return is around 8.5% gross. As stated previously, supply of property currently stands at only 44% of demand, meaning that the rental potential is extremely good. The fact also that investors are renting to business clients means that there is year-round potential for the most desirable properties. Purchase Process Happily, the purchase process in Malaysia is relatively familiar to UK buyers as much of the legal system is based on UK law. Non-residents have the right to own property and even apartments are sold on a form of freehold known as strata title. All foreign purchasers need to have their purchase approved by the Foreign Investment Committee (FIC) unless they have already been approved under the Malaysia My Second Home scheme. This application is simply a formality and the solicitors handling your purchase will attend to this process on your behalf. For more information, you may wish to visit: www.epu.jpm.my under the heading FIC. Purchase costs will vary between approximately 2% and 4% of the property price. Specifically costs are as follows. y Legal Fees on signing of a sales and purchase agreement and Deed of Covenants: o 1st RM100,000 @ 1% of purchase price o Thereafter at 0.5% of purchase price y Legal Fees on FIC Application: RM200 y Legal Fees for Application for State Consent: RM200 y Disbursements: RM650 y Stamp Duty on Transfer of Title: o Properties costing less than RM100,000 @ 1% o Properties costing from RM101,000 - RM500,000 @ 2% o Properties costing from RM501,000 upwards @ 3% Repatriation of funds is not a problem here, however buyers are required to disclose the source of the funds (from a property sale). All purchasers taking a mortgage loan in Malaysia will have a bank account opened for them in the country, and all other investors will be permitted to open a bank account. Taxation y Income tax is a flat 28%, and one more local tax to be aware of that is based on the rental income, is the assessment and quit rent payable by the purchaser, calculated at 12% of the rental income. y There is a 10% flat tax on repatriation of investments. Finance Finance is available to non-residents at up to 85% loan to value. Conclusion In short MMalaysia, especially Kuala Lumpur, currently offers one of the best global investment market opportunities. With no capital gains tax, ffreehold ownership available for foreign investors, affordability at a ten year high (only 18% of monthly income required to service a mortgage), GDP growth of 6.5% in 2006, a young educated population that is urbanizing, unemployment falling and wages rising the country offers investment potential that we cannot afford to overlook. If you wish to find out more about either of the developments mentioned above, please contact Property Frontiers on 01865 202700, email info@propertyfrontiers.com or visit our website www.propertyfrontiers.com |
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