Crossing the Causeway to buy a home

Against the backdrop of high property prices in Singapore, a hike in stamp duty, and loan limits on second homes, combined with tough rules restricting foreigners from buying homes, many Singapore-based property investors are looking at opportunities outside the island state, in search of solid capital appreciation and rental yield.

According to iProperty’s Asia Property Market Sentiment Report (APMSR) H2 2014, Malaysia remains Singapore’s top investment choice for overseas property investment; 31 percent of nearly 3,000 respondents chose it as their preferred market.

Iskandar Malaysia is the stronghold for investors, with 58 percent of respondents stating investment as the top reason for purchase. 54 percent of respondents cite affordability and 69 percent proximity to Singapore as reasons to buy.

HSBC’s International Property Investment report separately studied 7,000 affluent investors across Asia, reporting that Malaysia was the top overseas location for Singaporean investors. This echoed findings in the APMSR H2 2014 that found that of respondents who owned property overseas, most (42 percent) owned property in Malaysia.

Malaysia - a good investment option?

Singapore’s competitive economy and high cost base, coupled with social-economic pressures on the population, make Malaysia an attractive haven for many. The country offers affordable homes with a well-regulated property ownership regime, along with a secure, long-term investment environment.

According to CBRE Malaysia, in spite of the curbs, Malaysian properties are cheaper than those in Singapore. A 1,000 sq ft condo in the city-state sells for USD800,000 (MYR2.61 million) to USD960,000 (MYR3.14 million), while a similar-sized flat in Kuala Lumpur goes for about USD374,000 (MYR1.22 million).

An attractive SGD/MYR exchange rate draws Singaporeans when, based on the iProperty survey, 40 percent are looking to pay less than S$500,000. The strengthening of the Singapore dollar against the Ringgit, coupled with low interest rates and affordable prices, further encourages this demand.

Malaysian property on average provides better rental yields than Singapore. Real estate consultancy Knight Frank notes luxury residences in Malaysia sell for between USD 2,300 and USD 5,600 per square meter, much lower than USD 27,600 to USD 33,700 in Singapore. Average rental yields are also more attractive in Malaysia, at 4 to 6 percent, compared to 3 percent in Singapore.

An important catalyst in enhancing cross-border integration and investment is the planned high-speed rail link between Malaysia and Singapore, and the increasing number of multi-billion dollar commercial and residential projects in Iskandar, Johor.

The Iskandar question

Iskandar Malaysia remains a strong factor in Johor property, with projects largely marketed to savvy Singaporean investors and other foreign buyers. The rapidly-developing region’s appeal is growing for Singaporeans and expats seeking a better value property investment, with an easy commute to Singapore.

Due to its proximity, affordable properties, low cost of industrial space, and friendly “doing business” environment, Iskandar Malaysia is a favoured choice by both commercial and residential buyers. Several big names such as Hersheys, Koh Brothers, BioCon, and Compass Wool are planning to set up plants there, encouraging industrial growth in the area.

Iskandar is also a darling of Chinese developers. With a challenging property market in China, many developers are looking for better returns, with Iskandar featuring prominently on their radar.

Iskandar’s unique position close to Singapore opens up tremendous purchasing power for developers, offering Chinese developers something Singapore cannot — an expanse of space needed for large-scale projects.

Developers with projects in Iskandar include: Country Garden, which last year launched 9,000 Danga Bay units at one go; Afiniti Residences, a condominium that sold out in a day; and Guangzhou R&F Properties, to name a few.

It’s not all milk and honey across the bridge

In October last year, the Malaysian government announced a slew of property cooling measures to cool the property market. These included raising capital gains tax for foreigners to 30 percent for real estate sold within five years, and doubling the minimum purchase price for foreign property buyers to RM1 million. Iskandar’s Medini was exempted from these measures.

While the cooling measures’ aim was to take the wind out of the market’s sails, concerns were expressed by property experts, developers, and homebuyers that these measures would adversely affect the property landscape.

Although the government needs to be sensitive to housing affordability for its citizens, it also needs to manage Malaysia as a property investment destination. Property experts are actively lobbying the government to relook at the cooling measures in advance of the upcoming Budget 2015.

Singaporean buyers continue to be interested in Malaysia, with Kuala Lumpur, Penang, and Iskandar as favourite markets. Kuwait Finance House Research (KFHR) has reported that despite Malaysia’s cooling measures, Iskandar Malaysia is expected to continue as the preferred destination for both domestic and foreign investment.

Singaporean investors are looking to take advantage of this strong momentum, supported by the favourable Singapore dollar, strong rental market, geographic proximity, and affordable pricing options. Malaysia will continue to be the preferred overseas investment choice for Singaporeans to invest in for the long-term.