With Karate Mates after class 4 years ago
This is a post to remind people of my vintage, the young old of this fact. Right now, we are on the cusp of getting our CPF funds, and some of us would receive bonus funds from inheritance, or Singtel preference shares.
Recently I have had some interest in Malaysia, and there are schemes called Malaysia My Second Home which intends to attract people, especially retirees. There are essentially 3 categories. I will delve into the top 2.
Platinum
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Age (Min) 25+ ;
Fixed Deposit : USD 1 M
Property Purchase : RM 2,000,000 +
Pass Duration : 20 years.
One Off Participation Fee : RM 200,000 (S$ 55,000)
Gold
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Age (Min) 25+
Fixed D : USD 500 K
Property Purchase : RM 1,000,000+
Pass Duration : 15 years
One Off Participation Fee : RM 3,000
SEZ Category
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Age (Min) 21 +
Fixed Deposit : USD 50,000
Pass Duration : 10 Years
One Off Participation Fee : RM 1,000
Property Purchase : Direct from Developer.
Lets get to the chase. If someone from Singapore purchases a property (for example) for
Purchase Price : RM2,000,000
Foreign Buyer
Stamp Duty (8%) : RM 160,000
Other Fees (3%)
(Legal, Processing) : RM 60,000
Total Purchase Price : RM 2,220,000 (estimated only) (S$710,000)
Foreign Buyers MUST HOLD for minimum 5 years, else there will be Real Property Gains Tax. (RPGT).
Sell Within 5 Years.
RPGT : 30%
IF sell at RM 2,200,000
Tax is 30% of 200,000 ; which is RM 60,000
Agent Fees (2%) : RM 44,000
Total Extra Expenses : RM 104,000
Therefore, NET Profit / Loss : (RM 124, 000) (S$ 40,000)
Opportunity Cost
While this still appears to be a sensible move to some, do look at the opportunity cost if the buyer only has one home and he sells it to move to Malaysia. This may not be a wise move, if the property in Singapore still has 60 or more years left in the lease (for HDB properties which are 99 year leases), and in actual fact, the price might appreciate over the 5 years of living there.
Most Properties Depreciate in Value over Time in Malaysia.
With abundant land, developers always build new and push the envelope and price levels slightly higher (but not too high). So after 5 to 10 years, there will be newer condominiums and houses aplenty nearby with newer features and practically at the same price point.
If your property price drops, then its a nett loss regardless.
Currency Depreciation - Fluctuation
After selling,there is the currency fluctation, so RM has been strengthening these past 6 months whereby the last 12 months it was weakening. If the resident can afford it, then he can hold it. If the RM when property is purchased is S$1 to RM 3.1 and 5 years later, it is S$ 1 to RM 3.5.
Using the example for RM1,000,000. The purchase price is S$ 322,580 at S$ 1 to RM 3.1
If the property is sold at exactly the same RM1,000,00 at S$ 1 to RM 3.5. The sales price would fetch $285,700.
When he changes back to S$, he effectively loses $36, 880.
Bottom Line.
Retirees must be flush with cash to opt for the MM2H (for Gold Status, it is USD 500K or close to S$ 700K in liquidity to park in Malaysian approved bank) ; Only 50% maximum can be used to purchase the property (that is USD 250K or S$320,000 or RM 990,000), so the remainder must be borne from the MM2H resident to cover, and that would be easily another RM 500,000.
Bottom Line, S$ 750,000 in FD and another $150,000 for property purchase, so that is close to S$ 900,000 or even $1,000,000.
With so many factors weighing in on foreign ownership (MM2H fees, RPGT, Stamp Duties and Excess Fees, and potentially disadvantageous exchange rate), perhaps, in the overall scheme of things, it might be better for the foreign investor to rent the property for a duration and understand all the pitfalls first hand then decide to buy under MM2H or SEZ plan when he feels comfortable.
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