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Saturday, March 3, 2012

Malaysia a real-estate shopping destination

Welcoming foreign buyers will not necessarily affect property prices

LATE last year and once again about two weeks ago, at least two courses were organised to equip property agents and developers to sell Malaysian properties abroad.

In one of them, real estate professionals paid a few thousands of ringgit to attend a Certified International Property Specialist (CIPS) course to prepare them to sell Malaysian properties overseas. In another, a tax consultant and a lawyer were invited to share their experience and expertise when selling Malaysian properties.

For about a decade now, developers who have projects around the KLCC area, Penang and Johor have been taking their offerings to Singapore, Hong Kong, Japan, London and China. So far, these overtures have been limited to residential and commercial developments. On a broader scale, the Malaysian government has also been encouraging foreigners to buy into Malaysian realty and has started networking with governments and local authorities to make itself known via government agency Malaysia Property Inc.

The question is: will foreigners buying into Malaysian real estate encourage developers to focus on building high-end developments, which are way above the affordability levels of locals?

Invariably, references are made to Singapore and how foreign buying has brought in that element of volatility because at the first sign of trouble, the foreigner leaves the island state.

Kumar: ‘Sales to foreigners only make up 2% of total property sales in Malaysia. Of the 120,000 units entering the market annually, 2% is 2,400 units

Malaysia Property Inc (MPI) chief executive officer Kumar Tharmalingam likes to debunk this: “The number of foreign buyers buying into Malaysian properties is very small. Sales to foreigners only make up 2% of total property sales in Malaysia compared with Singapore's 30% . Singapore's volume of properties entering into the market annually is about 20,000 units and foreigners are only allowed to buy private condominiums; which averages about 6,000 units.

“Malaysia has about 120,000 units entering the market annually and 2% of this is 2,400 units.”

Kumar also says it is not possible to compare Malaysia with Singapore and Hong Kong and the market dynamics are very different.

MPI was set up in 2008. The government-property agency has two core objectives: to create international awareness and to establish connections between foreign interests and Malaysian real estate industry players. Its scope of work is not limited to just residential and commercial properties but includes the whole gamut of property investment, from land acquisition to building of factories if this is needed by the foreign investor. MPI has been branding itself for the last 18 months. This year will see the agency implementing some of their strategies when it matches foreign companies with Malaysian projects.

“MPI and much of what we would like to do is still pretty much work-in-progress,” says Kumar who took over the reigns of the agency in Feb 2010.

“MPI is an extension of three government agencies. These are national trade promotion agency Matrade, International Trade and Industry Ministry and Malaysian Investment Development Authority,” he says.

MPI's work is very much tied up with the foreign direct investment. The foreign direct investment will first seek out one of the above three agencies. After that connection is made, and when a foreign investment is approved by the government, there will be a need for land or office space, or even accommodation for staff.

“There is a time lag between the foreign investor applying for government approval for his investment and his need for real estate. But which ever way one looks at it, land, office building, factories or staff accommodation, real estate comes into the picture. Because these three agencies are not involved in property matters, the requirements of these investors will be eventually be be referred to MPI.

“Or it could be a foreign direct investor who is keen to enter into a joint venture with our local boys. The South Koreans, for example, are keen to contribute a certain amount of equity, but would like to negotiate' a tender as opposed to having an open tender. This was the model they used in Vietnam and China for their real estate investments.” Its role is to facilitate.

With the United States' fragile recovery and Europe going through a recession, Kumar expects interest in Malaysian properties to come mainly from Japan, South Korea, Hong Kong, South China, Singapore, Indonesia, India, Saudi Arabia and Qatar.

Whether it is a coincidence or otherwise, the same year MPI was set up, news of the Government's plans to develop several pieces of land in key strategic areas in the city began to filter out. These mega projects include what is currently known as the Kuala Lumpur International Financial District in Jalan Tun Razak, KL Metropolis in Matrade-Jalan Duta area, the 100-storey building in the Stadium Negara site, now known as Menara Warisan and the Rubber Research Institute land in Sg Buloh. The global financial crisis, which started in 2007 and whose full blown effect was felt around the world, came a year later.

While MPI plays an intermediary role to facilitate the business needs of the real estate, concerns about foreign interest pushing up prices are also pooh-poohed by Reapfield chief executive officer Gerard Kho. On the contrary, he says there are a few locations that need the support of foreign buyers.

“The high-end condominium market need the support of foreign buyers. This year, we expect to see rent and prices adjust a bit in that sector. It will also be a challenging year for the high-end condominium market.”

By contrast, domestic demand is expected to remain resilient.

“I am bullish up to the middle of this year despite the 30% downpayment requirement for the third and subsequent house and other measures by Bank Negara to curb the growth in household debts. The third and fourth quarter are difficult to predict,” he says.

“Last year, 84% of our transactions were from the secondary market, a reflection of strong domestic demand despite the many predictions of 2011 being a difficult year,”

Following up on Kho's concerns about the high-end condominium sector, the National Property Information Centre's Residential Property Stock Table shows the Federal Territory having an existing stock of serviced apartments and condominiums totalling 156,251 units including about 4,000 units completed last year.

While these numbers do not separate the high-end units from the rest, it does indicate the large number of serviced apartments and condominiums in the Federal Territory and the yearly additions that enter the market.

About 5,000 units were added into the market this year and another 4,500 units are expected to stream in next year, says Kho.

On the often quoted Singapore-Malaysia example, Kho says the “Singapore and Hong Kong property markets have a high global exposure. Both these markets are very different from Malaysia in terms of land, and government-control measures.

Tan: ‘Our properties are very affordable to Singaporeans. In the region, our real estate is attractively priced.’

“In Singapore, foreigners are allowed only to buy into private condominium projects. Malaysia is different. Foreigners can buy into any segment of the property market if it is beyond a certain price threshold, which dilutes the focus on any particular sub-segment of the property market,” says Kho.

Lawyer Chris Tan who acts on behalf of foreigners buying into the Malaysian market says his biggest clientele are from Singapore.

“Our properties are very affordable to them because of the exchange rate and because of the high prices in the city state. In the region, our real estate is attractively priced,” he says.

The locations his clients buy into include the KLCC area, Mont'Kiara, Damansara, Bangsar and Ampang. Johor and Penang are other popular destinations.

“Iskandar Malaysia is like Shenzhen and Hong Kong. Shenzhen is thriving today because of the Hong Kong factor,” says Tan.

By The Star

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