Andy Davison looks at some potential problems facing the Malaysian property industry and suggests how Malaysia My Second Home and attracting multinationals to set up HQs here could help.
The Malaysian property industry is facing a few challenges. The rate of construction is not slowing down, yet there is no sign that a large number of people are coming to live here. No one questions the fact that there are not enough affluent Malaysians to take up the all the new high end properties being constructed, so foreign buyers are essential or the property industry will take a tumble and that will, almost certainly, impact the whole economy. Many of the current buyers, in fact probably the majority, are investors. From a simplistic perspective one could argue it does not matter who buys as long as the properties are sold but this is a shortterm and potentially disastrous situation.
The reality is that investors want a return for their money. If they buy a high-end property they either want to sell it on to someone who will live there or find a tenant. Given the rapidly rising prices in central KL it would take an expat with a generous housing allowance to pay the kind of rents which would produce a reasonable yield on the investment. It is very unlikely more than a handful of Malaysians would be willing to pay the kind of rentals the properties command.
One source of high paying tenants are large international companies. We have suggested to the Ministry of Finance that they start looking at encouraging multinationals to set up regional headquarters here. For many years Singapore and Hong Kong have been the countries of choice for those multinationals that set up regional headquarters in Asia. We think Malaysia is now in a position to challenge that perception. Some of the reasons, like quality of housing and poor infrastructure, which excluded Malaysia from consideration in the past are no longer valid. On top of that Malaysia has a significant advantage when it comes to costs as it is a significantly cheaper place to live and rent property. Even the higher rentals that people would expect on newer developments in central KL would be much cheaper than average rentals in Singapore and Hong Kong.
We have been told that a key problem for many multinationals is that the rules in Malaysia are apparently not that attractive compared to other countries and the immigration department is much tougher on giving out work permits. The latter is apparently still a real problem or perceived to be a stumbling block. It is our view that addressing these issues and actively marketing Malaysia as a place to situate your regional HQ would generate considerable interest from some multinationals. Not only would it generate substantial foreign exchange for Malaysia but it would raise the country’s profile internationally and, of course, be welcomed by the property industry.
Another obvious source of house sales is the Malaysia My Second Home programme. Having said that, many visa holders do not buy property as they only spend a few weeks or months here each year – others just take the visa as an insurance policy against problems in their home country. However it is now getting clearer which nationalities are most likely to buy property. The government seems reluctant to spend money promoting the programme or address the various issues which could make the programme much more attractive. The result is declining approvals with the number of approved applicants falling in 2006 and again in 2007 and no sign of any upswing this year.
The Economic Planning Unit has agreed to give funds to a newly created entity called Malaysia Property Inc which is tasked with raising awareness of Malaysian property internationally. It is clearly very necessary. Many people know about Bali and Thailand, which have been attracting foreign buyers for many years, but Malaysia is not on most people’s radar screen when it comes to buying property. Government restrictions on foreigners buying, plus the inability to obtain financing, made it unattractive. On top of that the designs and quality were often mediocre.
Much of that has now changed. Banks like CIMB have adopted much more expat friendly banking policies and designs and construction quality is much improved. Beautifully landscaped, resort style developments and modern apartment blocks with a wide range of facilities are now quite common. Malaysia also benefits from being the only country in Asia where foreigners can buy freehold land, put their own name on the title documents and have the legal agreement in English. I have been asked to be an advisor to this group and it is clear they are taking their brief very seriously. It is to be hoped the government listens to their recommendations and is willing to take the steps necessary to avert the potential problems for the property industry.
The Malaysian property industry is facing a few challenges. The rate of construction is not slowing down, yet there is no sign that a large number of people are coming to live here. No one questions the fact that there are not enough affluent Malaysians to take up the all the new high end properties being constructed, so foreign buyers are essential or the property industry will take a tumble and that will, almost certainly, impact the whole economy. Many of the current buyers, in fact probably the majority, are investors. From a simplistic perspective one could argue it does not matter who buys as long as the properties are sold but this is a shortterm and potentially disastrous situation.
The reality is that investors want a return for their money. If they buy a high-end property they either want to sell it on to someone who will live there or find a tenant. Given the rapidly rising prices in central KL it would take an expat with a generous housing allowance to pay the kind of rents which would produce a reasonable yield on the investment. It is very unlikely more than a handful of Malaysians would be willing to pay the kind of rentals the properties command.
One source of high paying tenants are large international companies. We have suggested to the Ministry of Finance that they start looking at encouraging multinationals to set up regional headquarters here. For many years Singapore and Hong Kong have been the countries of choice for those multinationals that set up regional headquarters in Asia. We think Malaysia is now in a position to challenge that perception. Some of the reasons, like quality of housing and poor infrastructure, which excluded Malaysia from consideration in the past are no longer valid. On top of that Malaysia has a significant advantage when it comes to costs as it is a significantly cheaper place to live and rent property. Even the higher rentals that people would expect on newer developments in central KL would be much cheaper than average rentals in Singapore and Hong Kong.
We have been told that a key problem for many multinationals is that the rules in Malaysia are apparently not that attractive compared to other countries and the immigration department is much tougher on giving out work permits. The latter is apparently still a real problem or perceived to be a stumbling block. It is our view that addressing these issues and actively marketing Malaysia as a place to situate your regional HQ would generate considerable interest from some multinationals. Not only would it generate substantial foreign exchange for Malaysia but it would raise the country’s profile internationally and, of course, be welcomed by the property industry.
Another obvious source of house sales is the Malaysia My Second Home programme. Having said that, many visa holders do not buy property as they only spend a few weeks or months here each year – others just take the visa as an insurance policy against problems in their home country. However it is now getting clearer which nationalities are most likely to buy property. The government seems reluctant to spend money promoting the programme or address the various issues which could make the programme much more attractive. The result is declining approvals with the number of approved applicants falling in 2006 and again in 2007 and no sign of any upswing this year.
The Economic Planning Unit has agreed to give funds to a newly created entity called Malaysia Property Inc which is tasked with raising awareness of Malaysian property internationally. It is clearly very necessary. Many people know about Bali and Thailand, which have been attracting foreign buyers for many years, but Malaysia is not on most people’s radar screen when it comes to buying property. Government restrictions on foreigners buying, plus the inability to obtain financing, made it unattractive. On top of that the designs and quality were often mediocre.
Much of that has now changed. Banks like CIMB have adopted much more expat friendly banking policies and designs and construction quality is much improved. Beautifully landscaped, resort style developments and modern apartment blocks with a wide range of facilities are now quite common. Malaysia also benefits from being the only country in Asia where foreigners can buy freehold land, put their own name on the title documents and have the legal agreement in English. I have been asked to be an advisor to this group and it is clear they are taking their brief very seriously. It is to be hoped the government listens to their recommendations and is willing to take the steps necessary to avert the potential problems for the property industry.
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