Singapore houses comes in two price ranges: Expensive, and too expensive. So when it comes to investment properties, our options are pretty limited. We’re either buying property overseas (preferably Malaysia), or planning a budget that involves boiled toenails for dinner. I vote the former. So in this article, we’ll look at the pros and cons of buying property over the causeway:
Drawback #1: Dear, I think I left our house keys back in the Bedok office.
The Pros of Malaysian Property
The driving factors for Malaysian property are the Iskandar project, and the overheated local market.
Iskandar is a special economic development zone. Simply put, businesses are incentivized to set up there via government policies. This is expected to result in a demand surge, for both Iskandar’s residential and commercial properties. Right now that’s attracting investors like a Hello Kitty store does 12 year old girls.
The other factor is the current lack of affordability, in Singapore’s property market. Local prices have been rising since 2008, and were barely slowed by seven rounds of cooling measures. That leads to several upsides in buying across the causeway:
- Escape Home Loan Restrictions in Singapore
- More Land for Less Money
- Lower Stamp Duty
Escape Home Loan Restrictions in Singapore
And when I saw the bank’s parking lot, I knew the new cooling measures were out.
The last cooling measure introduced new loan restrictions. In brief, these capped loan-to-value (LTV) ratios at 60% – 40%, if the buyer has an outstanding home loan.
In Singapore, most private housing in the $1.3 million – $2 million range. Wannabe landlords (who haven’t paid off their last home loan) are thus faced with down payments of $650,000+. That should be pretty affordable, if you work and save for 107 years.
Meanwhile in Malaysia, the LTV for housing loans remains at 70% – 80%. This, coupled with the lower property costs, results in something you could feasibly buy now.
(Or you can also try free sites like SmartLoans.sg. Maybe one of the mortgage specialists can find you a better loan).
More Land for Less Money
Have you noticed how much open space there is in Singapore?
Me neither. The Iskandar region is about three times the size of Singapore, let alone places like Penang. According to Singaporean Aileen Mah, who recently bought property in Malaysia:
“I got a place in Nusajaya (In Johor Bahru – Ed.). It was a choice between that or a four room flat in Singapore (Resale flat – Ed.).
Our place there was only SGD $110 per square foot, so obviously we got way more room than the flat. I actually have a back yard to grow my plants. That would have been impossible in Singapore.
I think most people buy property in Johor to rent it out. But my personal opinion is that it’s good for retirees like myself, or like my daughter-in-law, because her job doesn’t require her to visit the Singapore office all the time. It’s better quality of life.”
Lower Stamp Duty
How come every time a Minister mentions low taxes, we seem to get poorer?
Singaporeans pay 7% Additional Buyers Stamp Duty (ABSD) on their second property, and 10% on the third. For foreigners and Permanent Residents, the rates are even higher.
But property stamp duty in Malaysia ranges from just 1% – 4%, depending on property value:
- RM100,000 (Approx. SGD $40,000) – 1% stamp duty
- RM 100,000.01 to RM 500,000 (Approx. SGD $40,000 – $201,00) - 2% stamp duty
- RM 500,000.01 to RM 2,000,000 (Approx. SGD $201,000 – SGD $803,000) – 3% stamp duty
- Anything higher – 4% stamp duty
The downsides really depend on how you’re investing. I spoke to Alex (not his real name), who’s company handles marketing for several Malaysian and Singaporean developers.
“Malaysian property is not good for house flippers, those looking for fast and high resale gains. From what I see, it’s better for landlords, because of historically high rental yields in Kuala Lumpur, Penang, and Johor Bahru.
So if you ask me what the drawbacks are, I can only say it depends on your expectations. You expect it to be like overseas properties in the west, where you can buy at low cost, do it up, sell it high the next year…you are headed for a fall.”
Besides that, Alex, highlighted some other problems:
- Higher Home Loan Interest
- Possible Oversupply (Specific to Iskandar)
- Currency Fluctuation
- Untested Resale Market (Specific to Iskandar)
Higher Home Loan Interest
I leave my home loan statements on the table. It makes burglars leave out of sheer pity.
Singapore’s home loan interest rates have been around 1.7% for the past 10 years. In Malaysia, the average rate is between 4% – 5%.
Depending on the loan quantum, we could be looking at a difference of several thousand dollars a month. It also frames the whole “not good for resale” argument. At 4% – 5% interest, capital gains die faster than dignity on Stomp.
The more interest you pay, the less you ultimately make.
Possible Oversupply (Specific to Iskandar)
With everyone rushing towards Iskandar, is there a threat of oversupply? Alex drops a veiled hint:
“It hasn’t happened yet, and I don’t want to make any direct statements in that regard. But I will point out that Iskandar is much bigger than Singapore, yet the projected population is only 1.3 million people in 2025.”
Since I don’t work with developers, let me rephrase that (minus plausible deniability): Oversupply is unlikely for now. But give it around 10 years, and it could happen.
At present, investors are banking on the proposed high-speed rail project. Supposedly, this will cause a population boom, and generate demand to match the supply. But it’s all speculative, and we’ll have to see again in 2025. Follow us on Facebook, and we’ll keep you updated.
Bank (Noun): A loanshark who accepts more than one currency.
This one’s pretty obvious: The exchange rate between the ringgit and Singapore dollar fluctuates daily.
By the time you sell in 10 or 15 years, currency fluctuations could result in you making a lot less. It could also mean making more, but pessimists survive longer in this game.
Untested Resale Market (Specific to Iskandar)
Are you a risk taker? Because right now, no one’s sure what the resale market will be like in Iskandar. Sure, there’s some market history, but Alex says:
“The whole situation in Iskandar is different now. It’s almost as if there’s no market history to track, when it comes to resale. Everything is so new, and is just happening.
It’s very different from Singapore, where you can look at any district and say ‘Oh, historically, the median COV here is so-and-so’. In Iskandar, you want to talk about resale, it’s a guessing game. There’s no way around that.”
Alex also points out that Malaysia has a counterpart to Singapore’s Seller’s Stamp Duty (SSD). The Real Property Gain Tax (RGBT) is 10% on any property sold in the first two years, and 5% on the third to fifth year. So forget about house flipping.
I asked if Alex had any parting advice:
“If you are going to buy property in Malaysia, always compare it to other property in that same area. Don’t compare to property in Singapore.”
Do you have property in Malaysia? Comment and tell us about it!
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