Malaysia Restraining Its Own Singapore Property Boom: Mortgages

The Ariza Courtyard Terrace, an Eastern and Oriental Bhd. development, sits in Seri Tanjung in Penang. Photographer: Goh Seng Chong/Bloomberg

Chris Metcalf commutes for 45 minutes to Singapore each day from Iskandar, a region just over the border in Malaysia, to work as a lawyer at Clyde & Co LLP.

“It’s too expensive to live in Singapore,” said Metcalf, who moved across the Johor Strait in June after finding he could no longer afford the island-state on a local salary and with four children. “We’re selling a house in the U.K. and when we do we’ll consider buying in Malaysia because it’s definitely better value.”

Malaysia is seeing the spillover from Singapore’s four-year property boom and its subsequent efforts to cool the market. Prices of homes at Horizon Hills, where Metcalf now lives, have jumped almost threefold over the past five years amid a flurry of foreign buying, according to data from property broker Knight Frank LLP.

Now Malaysia is taking steps to prevent its own real estate inflation from emerging and appeasing locals who say they can no longer afford to own a home. In last month’s budget, Prime Minister Najib Razak doubled the minimum amount foreigners must spend on property and raised the capital gains tax to 30 percent on homes they sell within five years. The local governments of southern Johor state, where Iskandar is based, and Penang to the north, are considering additional tariffs on overseas buyers.

While Horizon Hills surrounds a golf course and is luxurious by Malaysian standards, homes cost far less than in Singapore. Four-bedroom houses in the 1,200-acre (487-hectare) development, popular with expatriates, are advertised online at $270 per square foot, compared with the $503 per square foot asked for a four-bedroom public-housing flat in Singapore’s central Bishan district.

Comparative Costs

The average price of a new 1,000-square-foot (93-square-meter) condominium in Singapore is between $800,000 and $960,000, according to London-based broker Savills Plc. A similar-sized place in Kuala Lumpur costs about $374,000, according to CBRE Group Inc.’s Malaysian unit.

Singapore has ramped up efforts to bring down housing costs with measures such as linking borrowers’ maximum debt levels to their incomes, higher stamp duties and capital gains taxes. Home prices have still jumped 40 percent to a record since the island-state started introducing curbs four years ago. The gains led to Singapore being ranked the most-expensive city to buy a luxury home in Asia after Hong Kong by Knight Frank in a wealth report in March.

Malaysia Attracts

The difficulties of purchasing in Singapore have prompted potential buyers to explore Malaysia.

“Malaysia has certainly been the recipient of a lot of Singaporean money since the tighter cooling measures here,” said Nicholas Holt, Knight Frank’s Asia-Pacific research director. “Singaporeans probably top the list in terms of overseas buyers in Malaysia, most notably in Iskandar, but also in Kuala Lumpur and Penang.”

That’s prompting Malaysia to act, joining Hong Kong and mainland China in seeking to cool surging housing markets to help combat concerns over affordability and prevent a housing debacle from emerging in the financial system.

Malaysia’s central bank shortened the maximum length on mortgages in July, saying household indebtedness had risen by an average 12 percent per annum in the past five years. Last month, the government barred developers from helping home buyers by absorbing some interest payments on loans.

Malaysians have accumulated Southeast Asia’s highest level of household borrowings at 80.5 percent of gross domestic product, according to Bank of America Corp.’s Merrill Lynch unit.

Priced Out

B. Shashikumar, a 32-year-old Malaysian bank manager, wants to buy a home before he gets married.

“Even with my 5,000 ringgit ($1,568) monthly salary, I can’t buy a house in Kuala Lumpur or Selangor below 300,000 ringgit,” said Shashikumar, who typically spends three hours each day commuting to and from work in Malaysia’s capital from Shah Alam, a city where he lives with his parents. “I’ll have to find one in another state. It’s difficult to get high loans for a house in the city.”

Average Malaysian home values rose 43 percent to a record in the four-and-a-half-years to June, according to government data. Prices in Kuala Lumpur climbed 62 percent to 605,711 ringgit between the start of 2009 and the end of the second quarter this year, said CBRE, citing government data. They rose 49 percent to 298,697 ringgit in Penang and 37 percent to 187,644 ringgit in Johor during the same period, the data showed.

http://www.businessweek.com/news/2013-11-19/malaysia-restraining-its-own-singapore-property-boom-mortgages