New Rules for Foreigners Buying Properties in Malaysia

Malaysia has implemented a slew of measures targeted at cooling the heated property market in the recent months. Below is a summary of the measures for your easy reference.

1. Higher Processing Fees in Johor

Foreigners used to pay a flat RM10,000 processing fee when they buy a property in Johor. But not anymore. Starting 1 January 2014, foreigners buying properties in Johor will have to pay a processing fee of between 4% and 5%. This applies to both the primary and secondary market.

Example, a RM1 million property will attract a processing fee of RM50,000 in 2014 instead of RM10,000.

Expect a rush by foreigners especially Singaporeans to buy before the new fee kicks in.

2. Minimum Price of Property Purchased by Foreigner

Foreigners can only buy properties priced RM1 million and above. The previous minimum was RM500,000.

In Malaysia, not many properties are priced RM1 million and above (exceptions include Kuala Lumpur and Penang). It is possible that developers raise prices to RM1 million. Something similar along that line happen when the minimum RM500,000 was imposed years back.

If prices are artificially raised, it defeats the purpose of curbing speculation and keeping prices of properties affordable to locals.

For foreigners looking to sell, it gets tougher now unless they adjust their price expectations and sell to locals. If they are looking to sell to foreigners, there are just so many property launches especially in Iskandar that buyers are spoilt for choice.

A good guess is that foreign buyers flock over to Medini to buy properties since Medini is exempted from this minimum price.

3. Real Property Gains Tax Raised to 30%

Previously property buyers pay a real property gains tax (RPGT) of up to 10% depending on their holding period. See table below.

Holding Period	Real Property Gains Tax (RPGT)
	Companies	Citizen & PR	Non-Citizen
Up to 2 years	10%	10%	10%
Between 2 to 5 years	5%	5%	5%
Exceed 5 years	0%	0%	0%

Source: Malaysian Investment Development Authority

But in the Malaysia Budget 2014, this RPGT is raised to 30% across the board with slight variations for citizens/PRs, foreigners and companies. See table below.

Holding Period	Real Property Gains Tax (RPGT)
	Companies	Citizen & PR	Non-Citizen
Up to 3 years	30%	30%	30%
Up to 4 years	20%	20%	30%
Up to 5 years	15%	15%	30%
Exceed 6 years	5%	0%	5%

This would not deter investors as it is not an upfront tax. It only means that investors must keep their money in Malaysia longer. This is similar to Singapore’s Seller Stamp Duty except it is taxed on the real property gains and not the selling price.

4. Developer Interest Bearing Scheme (DIBS) Removed

Developers are no longer allowed to offer DIBS to buyers of properties under construction. It means buyers will have to start paying interest on their loan immediately.

For a RM1 million property and a property loan of RM800,000, a buyer have to pay interest of 4.5% or RM36,000 every year or RM3,000 a month.

5. Maximum Loan Tenure Cut to 35 Years

Property buyers can no longer take up to 45 years to repay their loan. The maximum loan tenure is now 35 years.

Taken as a whole, it will be good for the Malaysia property market as it ensures more sustainability. For buyers, it means that you are expected to pay more to the Government and keep your money in Malaysia for a longer period.

Supply, More Supply, Surprised?

The Government just released the statistics on the property market today. The numbers confirmed what analysts have been saying since June 2013 when a tighter TDSR was imposed.

1. Private property prices continued to appreciate albeit at a slower rate because developers adjusted their price expectations after the tighter TDSR rules kicked in.
2. HDB resale flat prices have started to ease as a result of HDB easing more rules to allow people to buy direct from HDB.

I am not going to harp on that issue. Let the newspapers tomorrow report on that.

Minister Khaw posted an interesting statistic (see picture below). He did not elaborate since the numbers are self explanatory.

Laymen who read the picture below will think that 2016 will see the most number of homes completed. Unfortunately that might not be the true picture.

Let me shed some light.

For every development, we know there is a estimated completion date ie. when the developer must complete the project and apply for temporary occupation permit (TOP). There is also a date for statutory completion. Do you ever wonder how the developer set those dates?

If the developer buys the land parcels from the Government to build executive condominiums (ECs) or private housing, there is a stipulated project completion period. This is the latest date the developer must complete the project and gets the TOP otherwise the Government will take back the land.

• For private housing, the project completion period is 60 months or five years from the date of acceptance of the tender bid by the Government
• For ECs, it is 48 months or four years

Then the developer has to obtain the certificate of statutory completion (CSC) within three years. This three years period is set by the Government too.

How about HDB flats you may ask?

HDB operates differently from the private sector. HDB will give you an estimated completion date and an estimated delivery possession date which is something like one year after the estimated completion date. The delivery possession date is the latest HDB must hand over the unit to the buyer. 

If the HDB flats are under the Design, Build and Sell Scheme (DBSS), the flats will be completed much earlier than the estimated completion date as it is being built by private developers. Just look at Trivelis and the BTO project beside it. The time difference between the launch of these two projects is a few months. Yet Trivelis is already 50-60% completed while the BTO has just started foundation works.

So the numbers below are based on TOP dates for ECs and private housing and estimated completion date for HDB flats. How accurate are these dates? Not very.

As this is the latest latest date the developer must complete the project, you can bet your last penny that the project will be completed much earlier than that. Whereas for HDB flats, there can be delay up to one year. If it is DBSS, it will be completed earlier.

A rough estimation is that around 20-30% of projects will be earlier than expected. So the peak in completion is likely to be in 2015 instead.

So those who have committed to a property must be prepared to take possession early. For HDB upgraders, be prepared to sell your HDB flat if you need to. As it is now, resale HDB flat prices are moderating. Coupled with mortgage interest rates that is estimated to creep up in late 2014 (if the US Federal Reserve starts to taper its Quantitative Easing), HDB upgraders must brace themselves for higher mortgage repayments by then.

Source: MND