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Monday, November 10, 2008

True ‘open door’ policy needed

The RM7bil stimulus package may not be enough to avert a further property market slowdown next year.

The same can be said of the proposal to further liberalise the Foreign Investment Committee (FIC) guidelines on property and commercial sectors.

What we need is not a mere shot in the arm but a total “open door” policy that will truly attract foreign investors to buy our properties on a long-term basis.

Why do I think some of the proposed expenditures might not have its desired result?

RM1.2bil to build 25,000 units of low-and-medium-cost houses: The amount is a drop in the ocean when compared with the overall effect that a severe downturn would have on the economy, particularly the property market.

Developers are not so concerned with getting business to build low-cost units but how they are going to dispose off their billions of ringgit worth of properties, especially the medium to high-end ones.

A better option may be to buy the numerous unsold or vacant low-cost apartments in secondary areas so that the low-income group need not have to wait two to three years to move into their units. Many of these are going for a song. The problem is how to encourage people to move there.

One way is to provide discounted train fares. To spur locals to buy, the Government should waive stamp duties and allow tax deductions on house renovation and the purchase of furniture and appliances to encourage people to buy their first home.

Rather than borrowing RM5bil from the Employees Provident Fund to put into Valuecap Sdn Bhd to buy shares, (some developers describe it as putting money into quicksand), it could be better spent on infrastructure and on building new schools.

RM200mil to revive abandoned housing projects in strategic areas: This again is simply not enough. There are already many abandoned projects, some almost 10 years old. One abandoned project can be worth more than RM100mil. Moreover, reviving abandoned projects is very complicated and time-consuming. Usually it is done in good times when private sector developers find it lucrative enough to undertake them.

We should instead go all out to woo foreigners. Do away with unnecessary restrictions and red tape and treat foreign investors, especially those buying big-ticket items like en bloc purchase of office towers and joint venture partners, like VVIPs.

We must offer them something better than other countries. Provide all the incentives like waiving stamp duties, temporarily abolish the need for FIC approvals, give tax rebates and even permanent residents’ status and citizenship.

Why worry whether foreign buyers occupy the property or not? When developers are able to sell an entire office block to a foreign company, our developer makes money and the Government can earn revenue from taxes. The spin off from foreigners setting up businesses here will be great.

Look at Dubai, in the United Arab Emirates. If this tiny emirate can be transformed into the world’s most futuristic city in less than a decade, why are we still hampered by racial and other petty issues despite having achieved independence for over half a century?

Why are foreign investments pouring into Dubai, which is the world’s biggest construction site? It is luring hoards of tourists as well as property investors worldwide. This desert city of 1.4 million people in 2006 is an oasis of creative and bold ideas that we should emulate.

Yet, here in Malaysia we are unable to resolve issues like bumiputra quota for housing units.

Housing & Local Government Minister Datuk Seri Ong Ka Chuan said over the past few years, Asia Pacific had been steadily attracting a stream of foreign capital into its real estate markets and that of late, renewed bullishness in the region’s economies had revved investors’ interest in many property projects.

“Last year was particularly exciting, with hoards of global real estate investors from the US, the Middle East, China and Japan being drawn here,” he said at the recent signing ceremony between Berjaya Golf Resort Bhd and Hanju-Savanna (M) Sdn Bhd for the en bloc sale of Covilleas Bukit Jalil condominiums in Kuala Lumpur.

Ong said among the reasons for the foreign interest in this region were the exorbitant prices and increasingly compressed yields in the US and Europe; the abundance of liquidity in global markets; the perception by foreign fund managers that the region could provide high returns and the improving transparency of the region’s real estate markets.

Instead of waiting for the Arabs to come, some companies are wooing them in joint venture tie-ups (like the Bukit Kiara Group).

This will be the trend where our companies have to be more aggressive to venture abroad, not only to sell our properties but also to engage in win-win deals with foreign parties where both sides can do business in each other’s countries.

We should explore ways to further encourage more en bloc sales to foreigners as local demand is set to weaken in the coming months. We have to work hard to attract investments from the Middle East which is also hit by the current global financial “tsunami” and the fact that it now finds US real estate more affordable because of the subprime crisis.

By The Star (by S.C.Cheah)

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