Banking on Property
What Makes Malaysian Property Attractive?
Positioning the Malaysian property market to the world is a powerful way to enhance property asset values
As rapidly developing country, Malaysia’s property market is one of the key drivers and engines of economic growth spearheading its transformation.
In its bid to make Malaysia an international property investment hub, the Malaysian Government relaxed various property rulings that took effect from the end of 2006. Previously, cumbersome approval processes and punitive Real Property Gain Tax (RPGT) were regarded as some of the hindrances that stood between potential investors and the properties they wished to acquire. Consequently, Malaysian property prices, particularly those of the high-end segment, remained stagnant and lagging behind neighbouring countries – and this situation was further compounded by softer domestic demand over the previous two years.
The recent policy relaxation has spurred foreign interest and fuelled domestic demand, after this two-year lull. Other recent measures to revive the residential real estate market include the reduction of stamp duty, reduction of red tape for developers obtaining approval/permits, easier foreign ownership, and a higher withdrawal limit from the Employees’ Provident Fund (EPF) to service mortgage payments.
Analysts today concur that the Malaysian property sector will experience twin engines of growth, with both foreign and domestic demand boosted by improved consumer sentiment, a buoyant stock market, and a relatively gentler interest regime.
Despite the fact that the Malaysian property market is capitalising on its recent “international” positioning - that should witness an upswing in capital values - property prices are still competitive by regional standards. Furthermore, the Ringgit is fairly undervalued and there is a return of domestic demand.
Such a paradigm shift has duly translated into positive policy changes within the property sector over the past year; thereby benefiting foreign buyers and investors. The policy changes in 2006 include the removal of the limit on the number of residential or commercial properties loans that can be obtained by foreigners. Prior to 2006, foreign investors were only allowed to obtain loans on a maximum of three properties.
Easier Means of Ownership
Foreigners can now purchase residential properties worth more than RM250,000 per unit, without seeking prior approval from the Foreign Investment Committee (FIC). There are also no restrictions in terms of usage of the property or the number of properties bought. The RPGT was abolished with effect from 1st April 2007. Previously, property investors had to pay 30% RPGT if the property was disposed off within 5 years.
Nevertheless, all foreign transactions still require the relevant state authority’s approval, as property transactions fall under the ambit of the individual states that the property is located in. This process usually takes up to three months and can be longer if a leasehold property is concerned.
There are still restrictions with regard to commercial and industrial land purchase, although these may be gradually relaxed in time to come. FIC approval is still necessary for non-residential property transactions, as the recent policy changes only apply to residential properties. The processing time has been shortened from three to six months, to one to three months.
Foreign investors are allowed to buy commercial buildings or development land. However, these acquisitions have to be registered under a locally incorporated company with minimum 30% Bumiputera equity ownership - which has to be complied with, within two years from the date of obtaining FIC approval.
With more liberalised policies, Malaysia has been witnessing a surge in foreign interest for local properties. Indeed, Malaysian property developers continue to report higher take-up rates by foreign buyers.
Analysts concur that the abolishment of the RPGT, competitively priced properties compared with those of other countries around the region, an appreciating Ringgit and a stable economy will further strengthen interest from foreigners and have a positive impact, especially on upmarket properties. Furthermore, demand is expected to be further boosted by the growing expatriate market as Foreign Direct Investment (FDI) improves.
The improving prospects of the Malaysian property market have also drawn the interest of reputable, foreign real estate investors. Indeed, Malaysia has witnessed an increase in the number of foreign developers entering the local real estate sector, over the last few years.
As far as residential properties are concerned, high-end developers are best leveraged at this point in time. Analysts point out that foreigners are more likely to converge on high-end properties in prime locations like KLCC, Bangsar, Mt Kiara, Damansara Heights, Ampang, Bukit Bintang and Kenny Hills in the Klang Valley. In addition, residences in the Northern Corridor, covering the states of Perlis, Kedah and Penang, and the Southern Corridor of Johor are also in foreigners buy list.
Simultaneously, the residential up-graders’ market is also set to benefit, as home owners dispose of their existing properties, and upgrade to a larger or better located property as well as to invest for capital appreciation.
All factors considered; it is more than safe to surmise that the Malaysian property market is set to strengthen and grow in the upcoming years on a two-pronged front - through foreign investments and domestic demand. In terms of Value-For-Money, Malaysian real estate – both commercial and residential – offer good Returns-on-Investment, as long as the location chosen is viable, and the necessary procedures in acquiring the property concerned are adhered by.
- UBS Asian Market Outlook Oct 2007
- UBS Malaysia’s Real estate Market Report Oct 2007
- DBS Group Research July 2007
- Deutsche Bank Malaysia’s Property Sector Report April 2007