Important Updates to Take Note if you intend to invest in Malaysian Property.

Johor is planning to impose an additional 2 per cent tariff on property buyers from overseas across all segments of the property market from May 2015.

Penang is mulling over introducing a 3 per cent levy on foreigners purchasing homes next year in 2015.

The intention is similar to Singapore’s, to prevent its own real estate market from bubbling and to placate locals who lament that foreign investors are pushing prices out of their reach. Singaporeans remain the largest foreign property purchasers in Malaysia, followed by the PRCs. For previous updates on the property scene in Malaysia, you can click here.

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In light of the property slowdown in Iskandar, the latest indicative RM1,000 psf launch price for the latest launch Southern Marina at Puteri Harbour, Iskandar had some investors gasping for oxygen.

This is because just prior to this, another project at Puteri Harbour, The Puteri Cove had launched “sea view” units, priced at between RM1,300 to RM1,450 psf and marina view” units at between RM1,500 to RM1,600 psf.

Because The Puteri Cove registered sluggish sales, the Southern Marina developers did not want to suffer the same fate.

As mentioned before, it’s hard to access caveat data of property transactions in Iskandar. One usually has to rely on an array of developer’s indicative price list to get a sense of where the price is going.

Interestingly enough, I managed to dig out an old price list of Encorp Marina. I had been interested to buy a marina/sea fronting unit back in 2012 but as the better units were blocked for sale, leaving only the ones at the lower floors, I walked away. A quick look at the price list showed that prices for the better units were going for about RM1,250 psf.  Hence, prices have indeed corrected since 2012.

Country Gardens which launched 9,600 units for sale in Danga bay still has about 60% of inventory stuck. Guangzhou R&F Properties, which has launched 3,000 units for sale in Tanjung Puteri recently had its credit rating downgraded to BB-, as it is not expected to hit its sales target.

For those who have bought into Iskandar, be mindful of the latest pricing development there.  Most projects won’t be completed until 2016/2017 and already some developers have issued delay notice to buyers. If you haven’t already profited by flipping your Iskandar property, be prepared to hold on for an extended period.

Douglas Chow

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Property oversupply across the causeway?  Well, Johor Real Estate and Housing Developers Association (Rehda) chairman Koh Moo Hing thinks so as he cited the flooding of mega projects by China property developers.

The number of new homes being built in Johor is estimated to be about 40 to 45% of the current stock.  Recent launches in Iskandar range between RM800 and 1,200 per square foot, with prime units going for RM1,800 psf and above.  The entry of China-based Country Garden Holdings, with its mega-launch of 9,000 apartment units at one go has gotten local developers worried, with some believing the magnitude and scale of such launches could lead to a property bubble.  What is interesting is the unrefuted rumour that Country Garden has been offering its Chinese buyers a deal that packages the purchase of a property in China with a unit in Iskandar to boost sales.

Close at Country Garden’s heels is Hong Kong-listed Guangzhou R&F Properties, which recently bought 116 acres in Johor Bahru from the Sultan of Johor for RM4.5 billion to develop what has been said to be  another mega-mixed development.

Not far behind is Hao Yuan Investment, a China-linked company that is forming a joint venture with Iskandar Waterfront Holdings to develop 15 hectares in Danga Bay.

Post-Malaysia Budget 2014 has seen poor take-up rates with developers failing to register healthy bookings for new projects even in the prime area of Puteri Harbour. For those not yet invested in the property market across the causeway but are thinking of doing so, do conduct your due diligence!  This is critical in the face of a softening market across the Causeway.

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The air-con to chill and rein back property speculation has been turned on full blast in Malaysia with the announcement of Malaysia’s Budget 2014.  Right now there is no clarity if it applies to all of Malaysia, or if certain strategic zones such as Iskandar will be exempted.

TO SUMMARIZE

1)      === Real Property Gains Tax (“RPGT”) ===

First, a bit on RPGT.  RPGT is imposed on the net gains from the disposal of the property after deducting the acquisition price and other expenses incurred until the property is disposed. Other expenses include stamp duty, legal fee, cost of renovation, commission for sales and administrative payment. RPGT exemption is given for up to RM10,000 or 10% of the net gains, whichever is higher, from the disposal of real property by all individuals.

For Malaysian Citizens and PRs

30%, for properties disposed within three years of purchase

20%, for the disposal of properties held for four years

15%, for the sale of properties held for five years.

0% for sale of properties held for more than five years

For Foreigners

30% for properties disposed within five years of purchase,

5% for properties sold after being held for more than five years.

(Effective date –  For disposal of properties and shares in real property companies from 1 January 2014)

2)      === Minimum price of property that can be purchased by foreigners ===

To be raised to MYR1m (SGD391K), from MYR500,000.

3)      === Developer Interest Bearing Scheme (DIBS) ===

To be outlawed.  Developers can no longer incorporate interest rates on loans in house prices during the construction period. Financial institutions are prohibited from providing final funding for projects involved in the DIBS scheme.

WHAT NOW?

Analysts were largely surprised by the weight of the cooling measures, expecting a lighter touch.  To what extent will savvy investors be put off by the increased RPGT?  One thing’s for sure.  The Malaysian government wants you (as a foreigner) to be a long term investor in higher value property, not a speculator.

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Where are the facts on Iskandar Malaysia?

Everyone these days seems to be saying, “Let’s go to Iskandar for our sure-win property investments!”

Agents are sprouting anecdotes about prices jumping in highly sought after areas such as Medini and Danga Bay. The question is where are the hard verifiable figures?

In Malaysia, as a real estate practitioner, you can access data compiled by the Valuation and Property Services Department, a government agency, through its website – Jabatan Penilaian and Perkhidmatan Harta (JPPH) but presto, there is nothing much to be found about Iskandar property market statistics.

I have no idea if any property agents and consultants in Singapore actually keep track of sales volumes and price trends there. For me, I rely on my contacts in Malaysia to give me info on the ground. What to do, as there is no such Malaysian equivalent of our Urban Redevelopment Authority’s website to check on any amount of information, including the number of homes sold in a particular development last month and transacated prices among other information.

And the best part is, few developers publish official statistic information on their projects. Don’t you feel frustrated if you want to monitor property trend? The lack of good quality property information about Iskandar only facilitates people with vested interests to cherry-pick anecdotal data to talk up the market.

I’m not alone who take that stand. CBRE Malaysia’s associate director of estate management Kevin Goh said that unscrupulous agents and developers sometimes use the information gap to make false claims about their properties.

For example, marketers may claim that the project is 80 per cent sold and selling fast when the real number might be closer to 30 per cent.

Hopefully, when Iskandar matures and the sub-sale and resale markets are more established, good quality information will be more easily available. That will make it harder for touts to make inflated claims.

Without access to common property comparables like psf and rental yield, buying an investment property in Iskander is as good as buying a car without test driving it.

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D’Esplanade Residence @ KSL City Brochure Picture

The same project in progress

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With all the news on numerous Singaporeans buying homes in Iskandar, one would have thought that the past reputation of uncompleted homes, abandoned projects or delays in completion haunting Malaysia is gone.

But it appears not to be.

Just recently, a mixed development project consisting of hotel, shopping mall and residential units KSL D’Esplanade Residence, minutes away from the Causeway found itself in the limelight after irate buyers complained of delays to the press.

Buyers say that they were given conflicting information on the completion dates of the project.

Here’s what the developer said – “The 80 per cent completion rate cited in 2011 referred to the lower floors and that “every floor has a different completion date. But projects first get three years unless you apply for an extension, which we did not plan for. If we had applied for the extension to five years, this year would have been the fifth year, and we’d be in time to complete the project.”

The firm said the sales and purchase agreement begins only on the date of purchase, not the day which construction started, meaning every buyer’s three-year duration started at a different date.

That’s not all.  According to the brochures, the hotel would have an 18-hole mini-golf course but buyers found out later it had been replaced by a water theme park.  An exasperated Singaporean buyer commented, “I did not buy the unit to stay next to a wonderland.”

Ouch! So the completion date of the project is a moving target. And the sales brochure is a magician spell book. Just look at the brochure picture vs the project in progress. Do they look the same?

Don’t forget your due diligence.

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Not entirely unexpected, Johor state government said it would raise tax rates for foreigners owning properties there by end 2013. It is not likely to be substantial and definitely as chilling as Singapore’s property cooling measures.

Currently, property owners in Johor pay two tranches of property tax. The first is an assessment tax of up to 6 per cent per annum, based on the annual rental value of the property. This could raise to 10%. They also pay a second component known as a quit rent of one to two sen per square foot annually. In comparison, an annual property tax of 10 per cent of the estimated annual rental value applies in Singapore, with lower tiered rates of zero to 6 per cent for owner-occupied homes.

According to Johor state’s Chief Minister, the tax rates will go up on about 130,000 foreign property owners, of which 90 per cent are Singaporeans. Currently, foreigners can only buy properties above RM500,000 (S$202,400) in Johor.

I’ve been to the Iskandar region and I must say I’m pretty impressed by the roads and pace of development. Still, I maintain that there is no active resale market in that area and investors should be prepared to stay over in Iskandar should there be no ready tenants. Also, agents marketing properties across the causeway may not want to tell you that there is a Real Property Gain Tax (RGBT) of 15% on any property sold in the first two years, and 10% on the third to fifth year!

Be Savvy and do your due dilligence!