In depth: Malaysia, astutely Asia

by Pete Wong

The overall economy may be slowing, but Malaysia’s property developers continue to launch new projects as the government pushes ahead with large scale infrastructure plans and savvy investors look for new opportunities, new areas and a new way of life.

The Chinese believe the Year of the Dragon is unpredictable because it is not easy to see the fiery dragon’s head and tail at the same time. Goldman Sachs’ forecast for 2012 seemed to be along the same lines when it advised clients to prepare for a “roller coaster ride in the first half of the year, followed by a gradual recovery.”

Global ratings agency Fitch has reduced its 2012 growth outlook for Asia to 6.8 per cent from 7.1 per cent last year. Economic giants like China and India have been implementing tightening policies to control inflation and this has worked to slow down their overheated economies. Industry watchers mostly agree that Asia’s slower growth, the ongoing debt crisis and economic stagnation in Europe and US will mean a more cautious outlook for the property market in the region.

Economic influence
Malaysia already saw a sharp drop in economic growth to 4.8 per cent in the fourth quarter of last year, due mainly to slower exports, and this trend is expected to continue into 2012. The government’s 2012 growth forecast is 5 per cent, but banks like UBS Investment Research think the figure should be lower at around 3 per cent. However, Savills Rahim & Co research reports that the Malaysian property market is still one of the most affordable in the region, and growing fast. House prices have seen the strongest increases since 2000 and the house price index in the first quarter of 2011 increased by 6.5 per cent year-on-year. Prices for high-rise properties in prime locations, such as Kuala Lumpur and Penang increased gradually, showing healthy growth with no sign of a bubble.

While there may be lay-offs in certain sectors exposed to the global market, such as manufacturing; employment will generally remain stable in Malaysia, buoyed by monetary and fiscal stimulus implemented by the government under the Economic Transformation Programme. In fact, according to HSBC, “inflation in the country will be moderate and domestic demand will hold up relatively well.”

While Malaysian developers generally keep their strategies quiet, some trends are beginning to emerge for 2012. The number of luxury units launched will drop, especially those specifically targeting foreigners, and activities will shift to more affordable housing outside city centres, much of the developments targeting
local buyers.

The 1Malaysia People’s Housing Scheme (also known as PR1MA), tasked with providing lower-priced homes for Malaysians, recently reported that more private developers are expressing interest in working with them. One of the developers named was Sime Darby. The price of houses in this scheme are between RM100,000 (US$30,000) to RM220,000 (US$70,000) and an increase in supply of affordable housing may cater to pent-up demand, as this segment was largely forgotten during better times.
Reports suggest there are still plenty of luxury buyers in Malaysia and its neighbouring countries with ready cash, eager to snap up a bargain when the price and location is right. Luxury property launches continue to draw the crowds, but experts say sales may be slower and risk appetites reduced
this year.

A question of price
The million-dollar question is whether property prices will continue to go up in 2012 in Malaysia. Most market watchers say there will be a slight correction with a likelihood of prices coming down. Bank Negara statistics indicated that lending growth softened in the last quarter of 2011, and this trend will continue into 2012. Some investors, spooked by the gloomy outlook, have even forsaken the deposits they paid for properties purchased during the last quarter of 2011. Smart investors meanwhile, are keeping an eye on the country’s real economic growth as an indicator, as bargains may soon emerge in some sectors.

Stricter guidelines for home loans announced by Bank Negara, Malaysia’s central bank, limit domestic investors to a loan margin of 70 per cent for their third property purchase. Banks are now also required to assess a borrower’s eligibility based on net income. A real property gains tax, re-introduced two years ago, is also a deterrent for investors who might want to “flip” their properties for a fast gain between two and five years, as these new tax rates are now in force.
There is a widely-held belief in Malaysia that the economy is supported by huge government spending due to upcoming general elections, expected to be held this year. Some investors are waiting to see the outcome of the election before committing to purchases as a new government structure could mean sweeping reforms and new investment rules. What’s clear is that 2012 will be a buyer’s market and developers will need to be more creative with their offerings and more competitive with pricing. Units will be slower to move off the shelves but the buyer interest and potential for capital inflows remains strong.

Price points and take up
At the top end of the market, prices for premium high-rise properties in Malaysia can reach RM 2,000 (US$640) per sq ft. However, overall land and property prices in Kuala Lumpur remain relatively cheap when compared to most capital cities in Asia. Domestically, Tiew says the banks continue to play very important role in boosting demand for property. “Easing of bridging loans for developers and end financing in terms of mortgage loans for buyers have created huge demand and growth,” he said. “Essentially, Bank Negara (Central Bank)’s policy guides and influences the property market to a great extent.”

Thanks to close proximity to Malaysia, Singapore’s investors are currently very active in Malaysia. “The development of Johor Bharu, which has seen several billion ringgit in projects launched in the past two years, coupled with incentives and infrastructures initiatives undertaken by the Malaysia government to attract international investors, means Singaporeans continue to see Malaysia as an attractive investment opportunity.”

Top 7 Malaysian Hot SpotsSeri Tanjung Tokong (a suburb of Georgetown), Penang – luxury condominiums and high-rises are set against the Andaman Sea.Damansara Heights, Kuala Lumpur – set on rolling hills with panoramic views, this luxury suburb caters to Malaysia’s elite and expatriates.

Kenny Hills (aka Bukit Tunku), Kuala Lumpur – known as the “Beverly Hills of Malaysia,” this exclusive, lush neighborhood is rich with villas and condominiums.

Kemenseh Heights, Kemenseh, Ampang – elegant bungalows and semi-detached homes are located in a serene setting.

Batu Ferringhi, Penang – smalls coves and white sandy beaches create the perfect destination for the homeowner who constantly wants to be on holiday.

Nusajaya, Johor Bahru – a sublime blend of urban development and pristine natural mangroves makes for the ideal home.

Mont Kiara, Kuala Lumpur – an affluent township with an array of multi-million dollar houses and condominiums for the ultimate in urban luxury.

Property TypesCondominiums
While the market prices for condominiums are higher than apartments, the trade off is well worth it if you have the capital to invest, as the developments are usually of better quality. The property’s facilities are much more extensive than in an conventional apartment complex and may include a swimming pool, convenience stores, tennis courts, a gym and a clubhouse.Semi-Detached & Terraced Houses
These consist of houses built side by side, often sharing an adjoining wall and usually displaying the same design and layout. Also sometimes called “granny apartments,” these homes provide a solution for two generations of family who desire to be near each other, yet still keep their privacy.

In Malaysia, bungalows refer to detached, single unit family residences sometimes two or three stories high, with their own compound surrounding the structure.

Beach Villas & Marina Homes
Beach villas are usually custom-built to the owner’s requirements. The owner is frequently given an wide scope to customise the property, such as how many metres they want their private pool to be or if they want an island breakfast bar in their gourmet kitchen. Marina homes with mooring facilities are also available in choice locations across Malaysia.

Golf Resort Homes
Malaysia offers an extensive selection of quality golf courses, some complete with surrounding resort homes. These are usually completed bungalow units or land sold for the construction of bungalows to the owner’s individual design requirements. Most of these developments offer the privilege of free or discounted golf club membership to the homeowner.

Gated Communities
A gated community is a residential community set within perimeter walls with controlled access for vehicles and pedestrians. It usually consists of small private streets and includes various communal amenities. Typical additions include swimming pools, tennis courts, gyms, clubhouses and on-site dining. These exclusive enclaves are usually a blend of different properties such as bungalows, semi-detached houses, terraced houses and condominiums.

Tricks of the trade when investing in MalaysiaNon-Malaysians can receive two different types of titles when purchasing property in Malaysia: freehold and leasehold. Freehold guarantees the owner complete and permanent ownership of the property while leasehold limits the time allotted that the individuals can stay in the residence.Fortunately, most leasehold titles begin at 99 years and have the potential to be extended if an additional sum is invested.While a house is deemed a title, an apartment or condominium is called a “strata title.” Sometimes in new buildings, a strata may not be given until the property is completed. As of January 2010, the federal government instated foreign buyers had to pay a minimum price requirement of RM 500,000 (US$158, 227.84). While the majority of States have enforced the new regulation, some such as Sarawak have made the limit RM 350,000 (US$110,759.49).

Many foreigners choose to participate in the Malaysia My Second Home (MM2H) scheme, which is a great option for those looking for a vacation home. It gives a ten-year multiply entry visa for those qualified buyers looking to spend long periods in Malaysia. MM2H members are also eligible to obtain a lower fixed deposit if they do not have an outstanding loan on properties worth over RM 1,000,000 (US$316, 756.19).

Foreigners are not permitted to buy property or land deemed as “Malay Reserve Land.” In order to obtain Malay land ownership, it is necessary for the property to be re-titled. A loophole (without guarantees) is that by purchasing non-Malay land and with government permission, the individual can exchange that land for a title they wish to convert and purchase.

For the majority of property in Malaysia, foreigners must be granted approval from the State authorities (which can take up to 6 months). A multitude of factors will be considered, such as property type and location. For new developments, the State will also look at the number of units already owned by foreigners.

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