With the sky high property prices in Singapore, many here have mulled over the possibility or potential of acquiring an overseas property. What’s more, with news of people profiting substantially from rental yield, it is hard not to think about buying a much cheaper property with the extra cash you might have instead of it sitting in the bank earning miserable interest rates.
Before you heed your impulses to buy into overseas property such as those in neighbouring Malaysia, here are some things you might want to consider first.
Firstly, ask yourself the reason for wanting to acquire that property overseas. Is it for investment or personal stay? You may be interested to know that the Malaysian property market for example, favours investors and not flippers. This means that developers in Malaysia mostly do not allow investors to sell off their property within the construction period. Malaysia also has a Property gain tax that is levied if you sold the property within a short period of time. The tax will be 10 percent within two years and5 percent between third to fifth year. There is even a minimum purchase price of foreigners.
Another key information you need will be the costs involved in the acquisition. This does not mean only the upfront payment, but also the financing costs. Acquisition costs include other miscellaneous fees such as stamp duties, legal fees, disbursement fees and obviously the purchase price. More importantly, the home loan interest in Malaysia is much higher than those locally.
Singapore’s home loan interest rates have been around 1 to 3 percent for the past 10 years. In Malaysia, the average rate is between 4 to 5 percent. Depending on the loan amount, we could be looking at a difference of few thousand dollars a month. The high loan interest will ultimately eat into your capital gains.
If you are buying for investment purposes, do note that the rental market can be vastly different from Singapore. Singapore is land scarce and has in recent years become a hot destination of relocation for expats, thus driving up rental prices. Compared to a similar destination like Hong Kong, you might make better gains renting out a Singapore property compared to that in Hong Kong.
Singapore has been a property hub for a long time and most people will not worry too much about resale value of their property assets. However, in other countries this may not be true. In Malaysia, especially in the new developments of Iskandar, the future of their resale value is still a mystery and may take more than a decade to find out.
A property purchase anywhere is a big decision because of the costs involved so it definitely warrants your time to find out about every detail. To buy a property overseas in an unfamiliar market would require even more due diligence. Take your time to speak to different people before taking the plunge!