A Step-By-Step Guide to buying the Right Property
Investing and buying properties anywhere in the world can be a tough and time consuming challenge. The Step-By-Step Process allows prospective investors and property buyers to source out the required information to make an informed and knowledgeable decision on property purchases in Malaysia.
There are certain points that investors have to be aware of before the buying process itself.
The Malaysian residential property sector is undervalued by regional standards, but recent government policies have been put into place to address the shortfalls faced by foreign buyers and investors. Currently as a foreigner, there are no limits to how many residential properties can be owned. Real Property Gains Tax (RPGT) have been waived and foreigners can repatriate funds back to their country of origin with ease.
On average it takes about four to six months for a foreigner to transact a property. Non-residents are subject to 28% tax on rental income or an effective rate of 20% to 25% after allowable business expense deductions. Gross rental yields are about 5 % to 7% and possibly higher in selected areas.
Decide on your budget and match it to the type of property you desire. As a foreigner there are four types of properties to choose from. Foreigners can buy apartments, land, landed residential properties or commercial shop-offices.
If the property is from the secondary market, allocate a period of four to six months for the deal to be concluded. Avoid leasehold properties if possible as the transaction will test your patience. Historically leasehold properties trade at discounts to freehold properties and it also takes longer, about seven to ten months for the transaction to be completed as state authority approvals are required.
For properties acquired from a developer, the duration will be spread over the physical property construction. The developer will progressively bill the owner or bank as the construction progresses. Normally delivery of the property is scheduled within two to three years from the launch of the development.
All developers have to allocate 30% of all units built to Bumiputras at a 5% discount to the listed price. If unsold, most developers are able to get a ‘Release from the authorities if they show proof that they were unable to sell the units. Foreigners are allowed to buy these units in the secondary market, however potential problems may arise if the property is leasehold and has yet to receive its strata title, the state government still has to approve the sale.
Foreigners can source financing from a local bank and there are now no restrictions on the number of loans that can be applied for. Typically banks will finance up to 70% to 90% of the property value, ensure that the loan process is under process the moment the Sale & Purchase Agreement is signed.
There are four options once the property has been purchased, occupy the property, leave the property empty, engage a caretaker or put it on the rental market.
To achieve the best rental returns on the property, renovate the property so that it caters for the target market you require. Depending on the state of the property, the Rule of Thumb for renovation cost is estimated at RM150/sq.ft.
Rental income derived from the property is taxable, as a non-resident individual buyer, the taxable rental income is subject to a flat rate of 28%. In the case of a company owning the property, the allowable deduction rate is 25%*. If the company owns more than three properties, it is then entitled to full deduction on property-related expenses against the rental income.
Once the type of property, location, price and other particulars have been identified, it is vital that a background check on the developer and its track record is carried out. This typically includes the developer’s financial standing, debts, necessary permits and approvals, particulars of past, present and other on-going projects being undertaken.
It is wise not to be taken in with glossy brochures and show units as these do not necessarily reflect what will be in the property that is being purchased. Typically show units are upgraded with fancy fittings and furniture that are not part of the original property.
Before making a decision on the location of the property take into account the positioning of the property whether it is east facing, whether it is at a dead end lane, what are the other facilities or amenities next to the property, whether is it is located next to a highway, factory, vacant land etc. These factors are crucial to the future capital appreciation of the property and cannot be determined in the show unit or brochure.
Investors should also be aware of the type of material and fittings used in the interior of the property. Shoddy workmanship can drastically reduce the yields on the property and it can be difficult to dispose of at a later date.
Once the property has been identified and the other factors have been verified and cleared, before the Sale & Purchase Agreement is signed make sure that there are no hidden costs incurred. It is also vital to make an informed and knowledgeable decision based on the growth and capital appreciation potential of the selected property.