Golden opportunity
Malaysia’s valiant efforts to lure foreign property investors may finally be paying off, says Andre Cooray
Given its growing economy, stable government and popularity as a tourist destination, Malaysia has been strangely undervalued by investors from overseas. But a wave of government incentives, plus the promise of good rental yields and low interest rates, is gradually sparking interest in the property market – as is the fact that the country seems to be taking the global credit crunch very much in its stride.
“Malaysia hasn’t seen damage like other parts of the region [in terms of the global crisis] and property is so cheap. For HK$2 million you can afford a three-bedroom apartment – you can’t get that value anywhere else around the region. It also has strong banks and sensible lending policies,” says Tim Murphy, managing director for international property investment company IP Global Ltd.
The Malaysian economy grew by a healthy 5.1 percent in 2008, but this trails behind the 6.3 percent growth of 2007; the strongest in three years. Acting quickly to nip signs of a slowdown in the bud, the government now plans to pump HK$473 billion into a series of country-wide development projects.
“Over recent months the Malaysian ringgit has devalued against the US dollar, however robust macroeconomic fundamentals and an official tolerance for a stronger currency should result in a measured appreciation of the ringgit in 2009. The ringgit is expected to stabilise against the US dollar, averaging MYR3.68 to US$1 in 2009 and will likely strengthen to MRY3.45 to US$1 in 2010,” Murphy says.
Potential investors will also want to note that in a bid to boost exports and spur positive growth, Malaysia’s central bank (Bank Negara Malaysia) slashed its interest rates by 0.75 percent to 2.5 percent in the first quarter of this year, the largest cut in more than a decade. According to the president of the Real Estate and Housing Developers’ Association in Malaysia, this reduction is aimed at attracting potential buyers and promoting purchasing activity.
It seems, then, that the World Investment Prospects Survey 2007-2009 got it right, when it ranked Malaysia 14th in the world in terms of foreign direct investment attractiveness. It was placed third among the South East Asian countries after Vietnam and Thailand, by the United Nations Conference on Trade and Development.
Malaysia has a long history of encouraging foreign homebuyers. In 1996, the government launched the Malaysia Grey Haired Scheme, whereby it offered a range of incentives to overseas pensioners investing in Malay property. In 2002, the programme was replaced by the Malaysia My Second Home Scheme. To apply, foreigners over 50-years old are required to have at least HK$324,000 in a fixed deposit account, and those under 50 must have at least HK$647,000.
“The initiative offers incentives such as purchasing a house, as well as options to bring your own car without paying import duties, or purchase a local car without paying sales tax. It also includes tax exemptions for pensions remitted to Malaysia and opportunities to work part-time or set up businesses,” explains Murphy.
Of course, foreigners can purchase property in Malaysia even if they are not eligible to do so under the Malaysia My Second Home Scheme. The government has in fact eased foreign ownership laws by making freehold tenure available, removing restrictions on the number of properties a foreigner can buy, and allowing foreign buyers to purchase property in their own name. And there is no restriction on the number of banks that can lend to foreigners.
Pointing out that prices in the region vary hugely depending on the city, Murphy recommends Kuala Lumpur as a strong investment location. Sales prices for newly launched projects in the capital range from about HK$1,077 to HK$2,541 per square foot. “This means you can get a brand-new property for under HK$1 million,” notes Murphy.
At Kiara 3, a luxury condominium slated for completion in the second quarter of 2010, Murphy expects rental yields to be around 6.82 percent. A 1,518-square-foot apartment at Kiara 3 can come in anywhere between HK$2 million and HK$2.6 million; and a 2,635-square-foot unit from HK$2.2 million to HK$2.8 million.
Interestingly, less is more for Malaysia’s young professionals in terms of apartment size. Industry sources reported in the last quarter of 2008, that smaller units under 2,153 square feet generate the highest yields – as much as 9.22 percent for a 1,292-square-foot home. In its smaller-sized units, specifically targeting the above mentioned demographic, Kiara 3 reported sales of 80 percent in its first phase.
“No investment is minimum risk, however, there are several appealing points for potential investors in Malaysian property. Most importantly is a legal system based on British law, the benefit of freehold ownership along with transparency of buyer protection, and clarity of foreign investment rules and regulations. Another major plus is the government measure to suspend capital gains tax for property, and offer a 50 percent discount on stamp duty for properties under HK$538,000. Banks in Malaysia are well capitalised with financing up to 80 percent,” concludes Murphy.
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