What You Can Do If You (or Your Parents) have Invested in a Property in Malaysia?
To start things off, kindly note that I am no expert in property, neither am I good in investing in properties. This is just a sharing of my personal opinion, so if anyone intends to invest in Malaysia properties, kindly do your own due diligence. For heads up, I am a Malaysian. Hence, I am not restricted to certain policies that foreigners have to adhere to when buying properties in Malaysia. However, to make this discussion fair and as unbiased as possible, I will be discussing the following points from the perspectives of a Singaporean/ foreigner who currently owns a property or multiple properties in Malaysia.
I decided to write about this topic because I am in a Whatsapp group together with many other Singaporeans who have bought a property in the same project in Johor Bahru, Malaysia. A couple of them has expressed their concern with the depreciating Malaysia Ringgit (MYR) against the Singapore Dollar (SGD), and are worried about the outcome of their investment. For your information, MYR has depreciated against the SGD by approximately 4.1% year to date, falling from the exchange rate of SGD 1 : MYR 3.097, to an all time high of SGD 1 : MYR 3.223. So in this post, I would like to try to identify the concerns, and try to shed light on these concerns from a positive perspective, and what could be done.
Let's first delve into some factors of concern, and the reasons to these concern.
1) They see it as a depreciating asset.
No doubt, the depreciating Ringgit is causing some concern among Singaporeans, especially how it causes the value of the property to fall in Singapore Dollar terms. Hence some will think that they had bought a loss-making investment property. If a depreciation of 4.1% year to date is not scary enough, over the past 10 years, the depreciation is an astonishing 22.7%, falling from SGD 1: MYR 2.490 in August 2012. Even if they are able to sell the property at their purchase price, the depreciating Ringgit against Singapore Dollar will result in a loss immediately.
2) Massive oversupply of properties in Johor
With the massive oversupply of condominiums and apartments in Johor, that will definitely depress the prices of properties. No thanks to the “invasion” of the Chinese developers like Greenland Group, Guangzhou R&F Properties Co and of course, Country Garden Holdings Co, just to name a few. They have flooded Malaysia, especially in the Iskandar Malaysia region in Johor, with massive supply of high rise condominiums. Personally I place the responsibility on the Government, which, with the lack of proper planning, issue license like there's no tomorrow to the developers. The lack of foresight and analysis of the long term impact resulted in the oversupply conditions we see nowadays, most prominently in Penang and Johor.
3) Singaporeans cannot buy properties below RM 600K in Johor.
With the floor price in place (to cater the lower priced properties for the locals), many foreigners see a lack of catalyst to push the property prices higher from purchase price. This is because they can only access properties which are already higher priced, hence profit margin may be limited. Moreover, this criteria limits the pool of resale buyers to other foreigners only, as locals have more affordable choices to consider.
4) The onset of travel ban due to Covid-19 forced them to abandon their properties for 2 years.
The “historical” implementation of the travel ban, even between Singapore and Johor, Malaysia due to Covid-19, is basically a great reset to everyone. No one would ever thought this is a possibility before 18th March 2020. This has a major impact on foreigners who had purchased properties in Malaysia as a vacation/weekend home, or as an investment property for rental, which has yet been rented out. The almost 2-year restricted travel between Singapore and Johor has caused immense stress to Singaporeans who have no choice but to leave their homes empty. This is made worst with news where some empty landed properties in certain areas in Malaysia had been “invaded” by buglars who broke into the unit to remove all valuables. This event definitely made many Singaporeans and foreigners rethink their decision to invest in a property in Malaysia.
However, personally, I believe not all is doom and gloom, as there are bright spots and plus points to owning Malaysia properties, and there are possible ways to get around the problems stated above if you currently own one (or more) properties in Malaysia. This is an especially important mindset to have, as we just got to make the best out of the situation instead of just complaining right?
1) Problem of depreciating Ringgit can be bypassed.
Despite the depreciation of Ringgit against Singapore Dollar, my perspective is that as long as the proceeds of the sale is kept in Ringgit, then there will not be a depreciation issue. It may sound like I am avoiding this issue like an ostrich, but, being in close proximity, I believe many Singaporeans like to make short/ weekend trips to Johor to buy groceries, pump petrol, enjoy a short getaway etc, especially in current times where prices of essentials are rising due to high inflation. These trips means the Ringgit will be required quite frequently. Thus keeping the sale proceeds or rental income in Ringgit is not necessary a bad idea. The bulk of the amount can be kept in Fixed Deposits (which can generate an interest of approximately 2.5% and above), while the rest in savings account for weekly/ monthly purchases.
2) An affordable retirement home.
One main reason why some Singaporeans decide to buy a property in Malaysia, is probably to have the chance to own a landed property, or a large private condominium. In Singapore, an “Outside-Central-Region” (OCR) private property will easily cost upwards of SGD 850 ~ SGD 1,000 psf. This equates to a massive SGD 850K to SGD 1M for a 1,000 sqft unit. A similar unit in Johor will only cost a fraction of the cost. Even the most upscale condominium in city center of Johor Bahru, The Astaka, it's units are going at about MYR 1.9M (SGD 600K based on SGD 1 : MYR 3.2 exchange rate) for a 2,200 sqft unit. Similarly, a landed property in Singapore cost upwards of SGD 2.5M, which is out of reach for many people. A similar landed property (which is not seen as attas housing in Malaysia) just cost upwards of MYR 400K. At MYR 600K (the minimum price of property which foreigners can buy, which is just SGD 188K), that can definitely fetch a decent double storey landed terrace house in Malaysia. I know of Singaporeans who decided to retire in Johor Bahru, Malaysia. They rent out their HDB in Singapore for a rent of approximately SGD 2.5K, and this amount is more than sufficient to cover the mortgage of their Malaysia property. If the property is fully paid, SGD 2.5K is more than sufficient as monthly expenses for a comfortable retirement in Johor.
3) Fulfill many individual's wish to live in landed properties.
For individuals who like bigger spaces and hope to live in landed properties, Johor Bahru provides the opportunity and supply that is within the budget of many Singaporeans. As mentioned above, there are Singaporeans who rent out their HDB in Singapore to collect rental in SGD, and stay in their landed property in Malaysia. They are comfortable with that, because there is little difference in terms of language, culture and food between Johor and Singapore, and the pace is definitely slower and less stressful in Johor than in Singapore, which makes it more relaxing and chill. The land in the house can be used for simple gardening, which is something which many retirees may like.
4) A depreciating ringgit also means a decreasing outstanding mortgage loan.
I believe most, if not all of the foreigners who bought properties in Malaysia will take a mortgage loan in MYR. With this, a depreciating MYR against SGD will mean a cheaper outstanding mortgage loan, which takes less SGD to pay back (assuming property is for own stay and not for rental). This is definitely a plus point from the perspective of personal finance as outstanding debt becomes cheaper (even in the backdrop of rising interest rates in current climate).
5) A form of legacy for your children.
Most properties in Malaysia are freehold (except for KL properties where most are 99-year lease). Therefore, if it is not turning profitable, it can be gifted to your children in future. I believe your children will not say no to such a gift, as no matter what, it is a tangible asset (it will not go to zero value).
So, I hope the above perspectives can help individuals who already own properties in Malaysia to view it with some positivity. I believe it all lies in the perspectives and mindset. Just got to make the best out of your decisions. You can choose to cut loss if you still think it's a bad decision by selling at a loss. Else, just got to work around any difficulties faced and accept your decision made prior. Hopefully you find this piece useful, and if you have any other ideas, do share with everyone! For me, I will retire in Malaysia in future and stay in the property I call home, when the time comes. For now, Barista FIRE, here I come...!