Iskandar Malaysia will be a challenging market to maneuver from 2014 onwards. Here are ten tips to help you navigate your way post-Budget 2014.
By Khalil Adis
Iskandar Malaysia was mooted in 2005 by former Malaysian Prime Minister Abdullah Badawi and is now the favourite investment destination among Singaporeans. According to UEM Sunrise, Singaporeans accounted for around 74 per cent of property buyers in Nusajaya while Iskandar Regional Development Authority (IRDA) puts Singapore as the top foreign investor as of March 2013 at RM6.608 billion.
Following Prime Minister Najib Razak’s Budget 2014 announcements two weeks ago, foreigners will be affected by new regulations that will kick in effectively from 1 January 2014 and/or much later. The new measures include an increase in minimum sum from RM500,000 to RM1 million. Another significant change is the increase in the Real Property Gains Tax (RPGT) from 15 per cent in the first to third year and 10 per cent in the third to fifth to 30 per cent flat from the first to fifth year and 5 per cent from the fifth year onwards. Previously no RPGT was applicable for foreigners and companies after the fifth year.
Within the state of Johor, a new levy will also be implemented from a flat rate of RM10,000 to 4 to 5 per cent of a property price* from next year onwards. Bumiputras will also not be allowed to sell their property in the resale market to foreigners. With so many rules and regulations that foreigners need to be mindful of, here are ten investment tips to help you navigate your way to Iskandar Malaysia from 2014 onwards.
Tip one: Invest in shop lots
The supply for shop lot units in Johor is limited compared to residential properties. According to the Malaysian Ministry of Finance Valuation and Property Services Department (NAPIC), there is new supply of 6,048 and 3,601 commercial units in the first and second quarter of 2013 as well as 1,604 and 2589 completed units in the first and second quarter respectively. In terms of demand, shop offices are the most in demand among Malaysians according to iProperty.com’s second half of 2013 survey at 16 per cent compared to other commercial properties.
In comparison, the residential sector is looking at a bumper supply of 964,982 units (697,753 – existing stock, 113,583 – incoming supply, 153,582 – planned supply) in the second quarter of 2013. This means it will be challenging to rent out your property or to sell it in the resale market as this total supply is more than Kuala Lumpur’s 496, 238 units (425,199, existing stock, 48,543 – incoming supply, 22,496- planned supply). However, do bear in mind from 2015 onwards, government service tax (GST) applies for properties with commercial titles.
Tip two: Invest in Medini
Medini is now the latest foreign investors’ darling as this is the only place in Malaysia where foreigners can still purchase properties below RM1 million in 2014.
Designated at a free trade zone, the federal government has lifted restrictions for foreigners here to ensure Medini will be a buzzing district once the Rapid Transit System (RTS) network connects to the MRT line by 2018. The RTS station will be located just next to LEGOLAND Malaysia. Medini is also a prime area where Khazanah Nasional and Temasek Holdings are involved in two joint-venture projects – Afiniti Medini and Avira Wellness Centre.
Property developers in Medini say they are seeing interest among buyers in the area.
One such development is Paradiso Nuova by Zhuoyuan Iskandar where prices range from RM600,000 to RM1.5million.
“About 60 per cent of our units fall below the RM1 million mark,” said Liang Thow Ming, director of sales and marketing for Zhuoyuan Iskandar. “With the recent budget announcement, foreigners who are interested to invest in other parts of Malaysia and with a budget of below RM 1 million, will now be diverted to Medini creating a surge as you have mentioned. Projects in Medini like our Paradiso Nuova will benefit from this new measure.
Liang adds that around 60 per cent of their buyers are foreigners with Singaporeans forming the bulk.
There are also other incentives that you can apply if you are looking to live, work and play in Iskandar Malaysia. Called the ‘Medini Incentive Support Package’, foreign knowledge workers are exempted from RPGT when they dispose their land and properties in Medini until 2015 and 2020 respectively.
To qualify for the above scheme, you must have a Bachelor’s or Master’s degree with at least ten years of professional work experience in a qualifying activity or have a Ph. D. with at least five years of professional work experience in a qualifying activity.
Tip three: Take advantage of the ‘15 per cent tax rate scheme for knowledge workers in Iskandar Malaysia’
If you intend to work long-term in Iskandar Malaysia, then take advantage of this additional incentive. First announced by Prime Minister Najib Razak during Budget 2010, this scheme is aimed at foreign knowledge workers and returning Malaysians to live, work and play in Iskandar Malaysia so as to spur the growth of this special economic zone. This scheme will allow you to enjoy a preferential flat rate of 15 per cent tax on your employment income.
In order to apply for this scheme, you must be working in the nine promoted sectors that IRDA has outlined. They include tourism, financial advisory & consulting, education, healthcare, creative industries, electrical & electronics, logistics, petrochemical & oleochemical and food & agro processing. You can apply via your employer.
Tip four: Go for landed terrace homes for capital gains
With Iskandar Malaysia poised to be the next top investment destination, landed terrace homes will be popular. If fact, they are the most in demand property among Malaysians. According to iProperty.com’s survey, 72 per cent of Malaysians prefer buying terrace homes. In addition, majority of them (35 per cent) have a budget of between RM350,000 to RM500,000.
The challenge from next year onwards is to find the sweet spot that are still within the budget of Malaysians since foreigners can only purchase properties above RM1 million. iProperty.com’s survey revealed that those with a budget above RM1 million is only 4 per cent. However, the survey is spread across Malaysia and does not reflect the ground reality in Iskandar Malaysia. In fact, terrace homes at Horizon Hills that was launched in 2008 at around RM288,000 are now commanding between RM860,000 to RM1.6 million in the resale market. The resale market in Horizon Hills is very active with most of the buyers comprising locals. There is good room for capital appreciation for landed terrace homes in Iskandar Malaysia but you must take long-term investment horizon.
Tip five: Condominiums are usually for rental returns
Malaysians perceive condominiums for rental returns as opposed to capital gains. Using Ujana as a benchmark, a three-bedroom there is currently transacting for RM4,000 in rent per month. With units there for a three-bedroom valued at around RM800,000, this translates to a rental return of 6 per cent. Majority of the tenants in Ujana are expatriates teaching at EduCity.
However, the condominium market in Iskandar Malaysia will be challenging. According to the NAPIC, the state of Johor is looking at a supply of 964,982 residential units (697,753 – existing stock, 113,583 – incoming supply, 153,582 – planned supply) in the second quarter of 2013. This means it will be challenging to rent out your units.
Tip six: Invest long-term
Many Singaporeans have the perception that the way the property market works here is similar to Singapore’s. For example, many automatically assume they can easily rent out their properties after the project achieves its Certificate of Fitness (CF) upon completion. Well, this is not true as the catalytic industries that are currently being developed in Nusajaya are still in the early stages of development. They will need some time to take root to attract a substantial working population. Iskandar Malaysia’s population currently stands at around 1.4 million in a land area covering 2,217 sq km. This is not substantial enough to support the rental market. In comparison, Singapore’s entire population currently stands at around 5.2 million with a smaller land size of 714.3 sq km.
Another assumption is that flipping can be easily done. However, not all developers in Iskandar Malaysia allow a subsale transaction. Even if this can be done, there are other local considerations investors need to be aware of. They include whether the property type will appeal to locals, if it is within their budget and if banks can match the asking price. Having these assumptions based on Singapore’s property market are especially dangerous, especially for those looking to make a quick profit and do not have strong holding power.
Also, according to iProperty.com’s survey, Iskandar Malaysia is perceived by respondents in Malaysia as the next top investment destination, outside Selangor. This is followed by Georgetown, Penang and Nusajaya, Johor. This means, there is good potential for capital appreciation of your property, since this marks a significant shift in interest among Malaysians from Penang in its previous survey. In addition, by investing long-term, you do not have to pay the hefty RPGT rate that will kick in by 2014.
Tip seven: Look for bulk purchase deals
Bulk purchase deals enable you to enjoy significant cost savings as opposed to buying as an individual. With an increase in the minimum sum from RM500,000 to RM1 million, every cost savings count.
Tip eight: Buy properties nearing completion
For those of you who are not familiar with Iskandar Malaysia and want some peace of mind, you may want to buy properties that are nearing completion. This will at least help alleviate concerns you may have on developers who do not have a strong track record but have the financial means to complete a project. However, do bear in mind that properties nearing completion will cost significantly higher that the initial launch price as the construction costs have been factored into it.
Tip nine: Invest in Johor Bahru Sentral
A rejuvenated and greener Johor Bahru looks set to rise by 2018 that will coincide with the opening of Tanjung Puteri MRT station that will connect to Singapore’s Thomson Line via Woodland North MRT station. The federal government has so far set aside RM1.8 billion for Johor Bahru’s rejuvenation that will include the opening of Sungei Segget (where Jalan Wong Ah Fook is located) in 2015, increase in the number of police posts and CCTVs, the opening of Angry Bird Theme Park in 2014 next to Menara Komtar as well as Hilton hotel and high-end residences (Suasana) during the same period. A new CBD zone after Menara Komtar is also in the pipeline, as outlined in IRDA’s new masterplan and zoning in the area that will include park connectors. The new Johor Bahru is modeled after tourism attractions in Venice and Amsterdam which the authorities hope will bring the river back to life once Sungei Segget’s rehabilitation project is completed.
Tip ten: Invest in Danga Bay
DangaBay is undergoing massive transformation and will be a bustling metropolis come 2025 once the large-scale township development by CapitaLand Malaysia is ready. This joint-venture project by CapitaLand, Temasek Holdings and Iskandar Waterfron Sdn Bhd is CapitaLand largest investment by far in Malaysia valued at RM811 million. To be developed in phases over the next ten to twelve years, Danga Bay will soon be home to a premier waterfront residential community comprising high rise and landed together with marinas, shopping malls, F&B outlets and restaurants, serviced residences, offices and recreational facilities.
*the state levy has now been revised at 2 per cent of the property purchase price.
This article was first published by iProperty.com Malaysia with minor edits.