The current social unrest in Hong Kong has led to a rising number of applications for emigration. Malaysia has been one of the most popular destinations thanks to the MM2H (Malaysia My Second Home) programme which allows Hongkongers to obtain a 10-year residence permit without having to move to Malaysia.
Most emigration consulting agencies have received a lot more inquiries about MM2H as protests have raged in Hong Kong in the past few months, while exhibitions featuring Malaysian property have been mobbed by Hong Kong people.
The beauty of this emigration initiative is that you are not required to move and live in Malaysia, and the cost of investment is incredibly low. If something serious happens, or if it becomes too dismal to stay in Hong Kong, you can move straight away.
Driven by a commission-based incentive offered by property developers, most emigration consultants encourage clients to buy an apartment in a condominium in order to obtain the MM2H permit. However, this is not the only way.
Furthermore, if you are a property owner in Hong Kong, there is another way to obtain the MM2H permit at zero cost, simply through refinancing. Here is an example:
Let’s imagine your flat in Hong Kong is valued at HK$7 million and the existing mortgage is equal to HK$3.6 million. By refinancing your mortgage to another bank, you can cash out HK$600,000 and then transfer this to your Malaysian bank account as time deposit.
As a consequence, the MM2H capital requirement is already fulfilled. But wait a minute; you have to pay the interest for the HK$600,000 cashed out, right? In fact, there is a positive carry going on here. Hong Kong banks charge a 2.5 per cent interest rate for your HK$600,000 but the Malaysia time deposit offers you 4 per cent to 4.5 per cent. In spite of the currency risk, there is no any other cost that concerns you. In short, the interest you gain from the time deposit in Malaysia can largely balance out your mortgage interest. Most importantly, you will get your MM2H permit.
The permit is for people who not only want to keep their Hong Kong business and assets, but also want a back door available. You can leave for a while no matter what happens and come back to Hong Kong when things look settled or resolved. As a matter of fact, most of us do not want to permanently relocate to another country, but as the political chaos is getting more serious, having a “Plan B” is the rational thing to do especially for the sake of kids.
A successful MM2H application entitles three generations of the applicant’s family to live in Malaysia for 10 years, and the permit is renewable.
Although the majority apply for the MM2H programme through emigration consulting agencies, you can actually do it on your own. Simply search “MM2H” online, download the application form from the official website and submit the required documents such as income proof, bank statements, certificate of no criminal conviction and go through the normal vetting process. Once the application is approved, you can open a Malaysian bank account and transfer the required capital.
There are two ways to open such an account. You can open an overseas account in a Hong Kong bank that has branches in Malaysia, or you can go to Malaysia in person and open a foreign account there. You also need to buy insurance and undergo a health check-up in Malaysia. If you use an agency, all these will be arranged for you. Nevertheless, if you want to save some bucks, you can do it on your own.
Despite the fact that time deposit alone is enough to meet the investment requirement for MM2H, many Hongkongers prefer to hold “bricks” rather than cash. They may prefer purchasing a house there as a hedge against inflation in lieu of holding deposits. I myself prefer to hold bricks.
During my visit to Malaysia for the purpose of bargain hunting, I found that while property exhibitions held in Hong Kong predominantly focus on new properties, second-hand homes actually have a greater bang for their buck. First-hand properties which target principally mainland and Hong Kong buyers have a significant price premium behind them.
Take KLCC as an example. A first-hand property near the Petronas Twin Towers can be priced at HK$4,000-HK$5,000 per square foot, while a second-hand, 10-year- old property nearby (only in walking distance) can be priced at just HK$1,500 per square foot. Therefore, if you want to buy a Malaysia property as a means for MM2H, look into the second-hand property market but not just the first-hand market.
Similarly, you can opt to refinance your flat in Hong Kong to draw cash to purchase of a property in Malaysia. Even if the cash-out amount is insufficient to pay off the property, you can mortgage the rest at a local Malaysian bank. Alternatively, you can get this loan from HSBC Bank Malaysia if that would give you more confidence.
The interest rate is around 4 per cent to 4.5 per cent, which is higher than that in Hong Kong and the term period can be up to 35 years. However, rental yield in Malaysia typically stands at 5 per cent to 6 per cent depending on the conditions and furnishing of the flat. The occupancy rate in KLCC is relatively low as there is a supply glut, but you can try Mont Kiara where the best international schools are located and many expat families are based.
Raymond Chong is managing director at mortgage referral brokerage firm StarPro Agency
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