The year 2013 is widely seen as the year when property prices are expected to rise due to faster and higher pace of inflation as well as rising commodity prices. With the election finally behind us, many property buyers are beginning to reassess their next move.
Residential properties will still do well in terms of numbers. For certain areas, prices will increase. But overall for this year, there will be an adjustment in terms of prices, which are expected to moderate. The property prices in Malaysia will continue to rise in the coming months, but at a slower rate possibly in single digits.
What has actually caused the serious price increase over the short span of time to the level we have never seen before, is low interest rate. The lowest BLR in Malaysia was logged in 2009 at 5.55% and the highest level was 12.80% in 1984. Taking this into consideration, the average BLR in Malaysia for the past 28 years is about 8%.
The margin of financing is also known as loan-to-value ratio. It is the home loan amount expressed as a percentage of your property’s value. The lower the margin, the more “equity” there is in the property. The margin of financing can go up to 95% of the value of property, and is assessed based on:
i. Age of borrower
ii. Income of borrower
iii. Type of property
iv. Location of property
Some mortgage lenders may impose an early settlement penalty if the loan is paid off in full within a lock-in period, including refinance the loan with another lender. However, it depends on the term & size of home loan, the charge can be quite significant.
There are a number of related costs such as professional fees and government charges that you would have to pay when you get a home loan. Some common fees and charges you would expect to pay include:
i. Stamp Duties Fees: Sale & Purchase Agreement – ranged from 0.5% to 1.0%, Loan Agreement – 0.5% and Transfer of Title (MOT) – ranged from 1.0% to 2.0%
ii. Disbursement Fees: vary by state, land office and property type. Includes land search and bankruptcy search
iii. Processing Fees: one off charge by the lenders (can be up to a few hundred ringgit).
Scarcity of land has caused to the escalating prices of housing in Penang. The current average condominium price on the Penang island itself is RM450,000 while the median household income is RM52,884, which is equivalent to RM4,407 per household (Source: Penang Monthly, 2012). In fact, the house prices on the island have increased by 50% over the last 5 years.
However, the middle income groups have not experienced an increase in their wages, and the cost of living continues to rise on yearly basis, which biting into any income growth. As a whole, the ratio for Penang state is 5 (RM265010/RM52884), which has been risen from 4 in year 2006.
In comparison, the house price-to-income ratio for US was 3 until 2000, and it rose to 5.8 by 2006, before the subprime crisis. In UK the ratio reached 11 in 2008, just before the credit crunch. The above figures are obtained from October 2011 research on ‘Supply and Demand in the Penang housing market: Assessing Affordability‘ published by Penang Institute.
Do you ever ask yourself should I invest in property at a young age? If you are always looking for something to generate quick riches, then this is not the right path for you to take.
As everybody known, we have seen some huge rise in prices over the years and it is true that property prices tend to run in cycles. As such, we will see more price increases in years to come, despite there’s a negative sentiment around the globe.
Rental income is liable to tax if the property is situated in Malaysia. This is applicable even though you are not residing in Malaysia or may be a non-resident. Rental income is taxable when it is due and payable to the property owner.
For example, your tenant rented your property from Aug 2012 – Dec 2012. He paid the rent for this period. In Jan 2013, you need to declare the rent for Aug – Dec 2012 in year of assessment 2012 as the rent was due and payable to you in 2012.
The rental is taxed on all the joint owners based on their share in the property, regardless which party receives the rent or whether the owners paid for the property.
Costs you incur to place the property in service, manage it and maintain it are usually deductible. Even if your rental property is temporary vacant, the expenses are still deductible while the property is vacant and held out for rent. Deductible expenses include but not limited to the following: