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Thursday, October 8, 2009

Why is Malaysia an attractive market for property?

If you are young and planning to enter the workforce in the next three years, you will have the company of seven billion fellow inhabitants of planet earth.

By the time you are ready to retire – assuming you’ve been able to find a job in the first place – there will be two billion more.

You will have watched the world population grow by 30% and I don’t know what you are going to do about it.

The two billion new people we are talking about are unlikely to come from the West where recreation is no longer remotely synonymous with procreation.

They will come from countries such as China and India where people are pretty clever. For the first time in history they will be a colossal economic force largely united by nationality, coming from financially independent families and looking for a job. Maybe your job.

I don’t want to scare you, but if you are reading this article instead of doing your homework, please get back to your studies immediately.

Malaysia, as an under-populated resource-rich country, will become increasingly attractive. The next wave of migrant workers into Puchong and Ampang may well be coming from the same countries as 100 years ago but this time they won’t be miners or rubber tappers. They will be carrying laptops and living in condos.

My point is that as its knowledge economy gathers pace, Malaysia will continue to grow at a faster rate than a mere organic 2% and the impact on real estate values is going to be substantial.

There is no point grizzling about the terraced house you could have bought in Bangsar when the biggest building there was the Apilektrik; the opportunities are here and now, and property is still cheap.

If you want a new three-bedroom bungalow for RM250,000 or a quarter-acre building lot for RM150,000, they are all available within an hour’s drive from Kuala Lumpur.

You would think that agricultural land would have shot up in value but rural smallholdings can still be bought for RM20,000 to RM25,000 per acre and they will give you a net income of 10% or so if you’re prepared to put in the time to manage them properly.

In the secondary market, bargains abound. There is a tremendous miss-match between buyer and seller and the bottleneck revolves around antiquated loan recovery systems.

Even now, banks are sitting on billions of ringgit worth of non-performing loans, which may eventually be parcelled up into huge packages and sold off to other institutions at so many sen in the dollar. Banks will moan about the existing foreclosure legislation and so forth which gives them little choice, but isn’t this a cop out?

There is a need for fresh, market-driven solutions to the problems of foreclosure and sale, starting with the archaic auction process, which is long overdue for an overhaul. I don’t understand why the banking industry is not pushing harder for reforms, which would enable them to take more innovative and proactive initiatives.

For example, if my bank approached me with a RM1mil package comprising a few acres of agricultural land in Johor, a low-cost flat in Rawang and an apartment in Kajang, wrapped up in an attractive 80% mortgage deal, I’d probably take it. In my personal case, I’d take it in disbelief that any bank might think I could repay before I popped my clogs, but many other customers would see it as a unique long-term and diversified stake in the market.

Malaysia has many other hidden assets, one of which is the ability to complete big development projects in challenging circumstances. The Government has recognised this and organises roadshows to developing countries, encouraging Malaysian professionals and developers to promote their capabilities.

The market out there is massive; it is estimated China will build 430 billion sq ft in about five million buildings by 2025. These numbers are almost too huge to comprehend, like the distance to the moon or the number of times I have to explain to my wife that golf is good for business.

To maintain their slight lead in the region, I feel that professionals might be given some fiscal and financial incentives to export their expertise. An example would be double-tax deductions for travelling expenses. Other countries such as Australia have practiced this with success.

See you in Shanghai, Bruce.

Christopher Boyd is executive chairman of Regroup Associates Sdn Bhd

By The Star (by Christopher Boyd)

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