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Saturday, September 19, 2009

To boost or not to boost property

We note the concern voiced by P. Gunasegaram over Malaysia’s effort to market its real estate to foreigners, which he opined will pave the way for the country’s “property market to be driven by speculation that can lead to unwelcome volatility as well as steep prices followed by the steep falls.”

Traditionally, the Malaysian real estate market has been locally driven; only 2.5% of total value of properties transacted in 2008 was attributable to foreign investors, a far cry from Singapore’s 30% and Dubai’s 40%.

We expect the situation to remain so in many more years as the bulk of the country’s population is below 35 years, which means the young will continue to feed demand for local real estate market (especially in the residential category).

The Government has been prudent in opening the country’s door to foreign investors through policies to safeguard the interest of locals, especially those who have yet to fulfil their fundamental need of property ownership.

One of the measures includes having a minimum price threshold for properties that foreigners can invest in.

Our real estate market is an “open” one where supply is largely driven by demand.

Beyond the quantum of property units in the market, supply will only be effectively taken up if there is a match between prices the market is willing to pay and that of the vendors.

Like other economies, Malaysia cannot avoid some degree of speculation especially when the market views the situation as a healthy sign of investment worthiness. The so-called “speculators” are still predominantly Malaysians who view property as good and safe investment tools.

Our research shows that foreigners prefer to invest in completed properties. Such penchant will continue to benefit Malaysians who, by far, form the majority of investors in the primary market.

This will open up doors for better wealth creation opportunities for Malaysians. An average foreign resident spends about RM10,000 monthly on retailing, F&B, education, healthcare and others – a direct injection into the local real economy.

An expatriate will also have family and friends visiting, hence the spend attributes to further drive the economy. In marketing terms, they are our ambassadors in their home countries, spreading the experience of Malaysia to family and friends.

Malaysia Property Incorporated CEO, Gerald Lim

P. Gunasegaram replies:

As explained fully in my earlier comment, allowing foreign purchase of residential properties, even if it is at the high end, will still push prices of ALL properties up as Malaysians move down to purchase lower-priced properties as the high-end ones become more expensive.

Many countries stop foreigners from purchasing residential properties because they do not want prices to move up and make it more difficult for locals to buy properties. There is a pressing need to control foreign purchases of all residential properties to protect the quality of life of Malaysians.

When property prices rise, whether it is the secondary or the primary market, everyone has to pay higher prices.

As the reply to my article comes almost two months after it was published, permit me to reprint some extracts of that article:

“One wonders whether foreigners should be allowed to purchase even high-end residential properties. Such moves often price quality properties out of the affordable range of locals.

“Worse, some developers of local properties, especially with foreign links, actually offer the best space to foreigners first, with these not being made available to locals, even if they could pay asking prices!

“Developers, of course, have a vested interest in enlarging the pool of people they can sell to. The greater demand will inevitably raise prices and give them fatter margins. But the cost is that Malaysians will have to pay higher prices for these properties and eventually other properties too.”

By The Star

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