Malaysia’s MM2H Program Gets Even Better
Malaysia is an attractive place for foreigners to call home. And for many reasons…
The warm, tropical climate and almost complete absence of any natural disasters is enough incentive for some.
English is widely spoken throughout the country—in fact, there is really little reason to learn another language.
Permanent residency is offered and comes with a host of incentives to entice foreigners here.
The diversity of its people, who comprise an assortment of Malay, Chinese, and Indian ethnicities, creates a unique culture. As a result, foreigners invariably find Malaysia to be an extraordinary place to partake in a diversity of traditions, foods, and festivals.
Malaysia is also one of the few countries in Southeast Asia that allow foreigners, regardless of whether they are permanent residents or not, to purchase land, houses, or condominiums for their primary residence or to produce income.
And, it’s one of only a handful of countries that allow foreigners to take out a mortgage. Nonresidents who meet the bank’s qualifications can receive financing for up to 60% of the total value of a property. And, those who participate in the Malaysia My Second Home (MM2H) program, which grants permanent residency to foreigners, can receive financing for up to 80% of the total property value. Local banks will usually require that the loan be repaid by the time the borrower reaches 65 or 70 years of age.
The Malaysian government maintains that housing should be, first and foremost, for Malaysians. As the economy has grown, Malaysians have been able to spend more money on housing. Accordingly, the minimum purchase price requirements that apply to foreign real estate investors have been set purposely higher than most Malaysians can afford. This restricts foreign buyers to the luxury housing market.
The minimum purchase price for foreign property transactions has increased several times over the past decade. As recently as 2009, a foreigner could buy any real estate in Malaysia for as little as RM250,000 (about US$73,600 at that time). This minimum purchase price doubled in 2010 and again in 2014.
In early 2014, the government changed the existing housing laws. For the first time, MM2H visa holders could take advantage of a reduced minimum purchase price for real estate in some Malaysian localities. Although a minimum price of RM1 million (about US$310,100) has been established, some states and municipalities offer incentives to foreign permanent residents.
As of March 2014, MM2H visa holders can purchase property in the state of Perak, which includes the city of Ipoh, for just RM350,000 (US$108,530)—a significant reduction from the RM1 million required for non-MM2H holders.
Meanwhile, the minimum purchase price of property in the state of Sarawak, including the city of Kuching, is now RM300,000 (US$93,026).
Effective this February, the state of Penang, including the internationally famous food and heritage city of George Town, allows permanent residents to purchase property for RM500,000 (US$155,044), in addition to paying a state levy of 3%.
On the island of Penang, those without the MM2H status are limited to purchasing property with a minimum value of RM1 million for a condominium, or RM2 million (US$620,174) for landed property, in addition to the state levy of 3%. Foreigners with permanent residency can purchase a condominium in Melaka for RM500,000, but the minimum purchase price for landed property is set at RM1 million. Reports differ, but the official government MM2H website states that the minimum purchase price for property in Kuala Lumpur is currently RM1 million regardless of residency status.
Until this year, the lack of capital gains taxes had made real estate attractive to investors. Foreigners from Singapore, East Asia, and elsewhere have purchased property with the intention of flipping it for profit a few months or years later.
The change in the Real Property Gains Tax (RPGT) is the most significant law affecting the purchase and sale of real estate by foreigners. The RPGT was enacted in January 2014 to dampen what the government believed was foreign over-speculation in the real estate market. This new capital gains tax assesses foreigners a 30% tax on any property that is sold within the first three years of purchase for permanent residents—or sold within five years for nonresidents.
Permanent residents are assessed a 20% RPGT if the property is held for less than four years and a 15% RPGT if the property is sold within five years. If the property is held for more than five years, nonresidents will be assessed a RPGT of 5% on selling. No RPGT is assessed for permanent residents who sell their property five years after the date of purchase. There is a one-time-only exemption on the RPGT if the individual sells a residential property and no RPGT assessed if the property is transferred from one family member to another.
Although the state of Johor Bahru requires that foreigners purchase property at the normal minimum price of RM1 million whether they have permanent residency or not, there is no minimum price requirement in Johor Bahru’s township of Medini. Medini is located in Nusajaya, which is part of the Iskandar Malaysia Special Economic Zone that encompasses the majority of Johor Bahru’s metropolitan area. Iskandar is Malaysia’s largest single urban development project to date. Key features of the Medini project include several low-density residential developments with amenities that include golf courses, a health and wellness village, swimming pools and Jacuzzis, 24-hour security, access to several international schools and universities, prime shopping areas, and an easy commute to Singapore.
Foreign real estate investors are also exempt from the RPGT when buying property in the Medini development. This is currently the only place in Malaysia that does not assess the RPGT, so purchasing a home here can be an attractive short-term investment. The average residential value for property in the state of Johor has increased more than 45% over the past five years, compared to an average of just 30% in the rest of Malaysia. Foreigners must pay a state levy of 2% or RM20,000 (US$6,224), whichever is higher, when purchasing property anywhere in the state of Johor.
This is the first time that MM2H visa holders have a real advantage over nonresident foreigners in the real estate market. Although the RPGT applies to all foreigners buying real estate (other than in Medini), the lowered minimum purchase requirements offer MM2H holders an incentive to buy, rather than rent, their home. The additional incentive of eligibility for 80% mortgage financing is another advantage for permanent residents. Complete information about the benefits and requirements for the MM2H visa can be found on the official website.
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