With the zero-rated Goods and Services Tax (GST) since 2018 and the temporary exemption on stamp duty and Real Property Gains Tax (RPGT) until December 2021, word on the street is that it’s a good time to invest in property right now. In the first half of 2020, growth of residential house prices dropped to 1.1% from 2.2% in the same period in 2019*. Let us guide you through the ins and outs of property investment.
Types of real estate
There are three main types of real estate categories in Malaysia: residential, commercial, and industrial.
Residential properties are those used for housing and non-commercial purposes such as condominiums and terrace houses. More than half (65.2%) of the real estate transactions in H1 2020 belong to this category, so out of all three categories, residential properties are the most sought after. At the same time, residential properties have the largest overhang of more than 31,000 units in H1 2020. This means that while it’s a buyer’s market, owning a residential property may not bring very lucrative returns in rental income or resale value at the moment, as there’s plenty of competition to keep prices down. One note to add is that if the property you're eyeing is Green Building Index-certified, you can get a preferential green residential property loan that’s lower than the usual rates.
Commercial properties are those used for business activities such as shop lots and office units. Locations in busy neighbourhoods are almost guaranteed a steady rental demand and yearly appreciation. The downside is that a brick and mortar space is becoming obsolete for many industries. Reselling or renting out a commercial property could become a challenge with the current preference for work-from-home arrangements.
Industrial properties are used for manufacturing or production purposes, such as factories and warehouses. These properties may have a smaller market, but once a tenant is secured, they usually stick around longer due to the more permanent nature of industrial businesses.
Leasehold vs. freehold
There is a common perception that freehold is better than leasehold. Freehold properties are more attractive to buyers because land ownership is theirs forever. Leasehold properties belong to the owner only for a limited time, usually 99 years, yet they’re also cheaper due to this reason**. If you’re buying to rent, it doesn’t really matter if the property is leasehold.
Location is the prime factor affecting price and potential return on investment. A property that is in a central location will add significantly to demand and hence the rental income or resale value would be higher. In the Klang Valley, scoring a property that is centrally located comes with a hefty price tag. A good alternative is to look for properties that are well-connected to transport hubs.
Profiting from your investment
Investors count on capital appreciation to resell a property at a higher price, or they lease the property to earn rental income.
When you purchase a property in Malaysia, you are required to pay the legal fees, stamp duty (exempted until 2021), and valuation fee, which all adds up to quite a lot.
Ultimately, what you can make from your investment depends on all key factors above as well as your investment goals. Good luck property hunting!
This article is for informational purposes only and CIMB does not make any representation and warranty as to the accuracy, completeness and fairness of any information contained in this article. As this article is general in nature, it is not intended to address the circumstances of any particular individual or entity. You are advised to consult a financial advisor or investment professional before making any decisions based on the information contained in this article. CIMB assumes no liability for any consequences arising from your reliance on the information presented here.