2012 May: A matter of perception

By Jan Yong, NST, 18 May 2012


If Malaysia is like heaven in terms of foreign purchase of properties in Malaysia, then why aren’t foreigners snapping up properties here? The scenario is not so simple, as offered by various experts in the field.

Domestically, sales are still chugging along as before. The number of new property launches since the beginning of this year is still a lot. Prices of high-end residential properties in Kuala Lumpur have even recorded a 1 per cent increase in Q1 2012, according to Jones Lang LaSalle’s latest Residential Index. Even more comforting is the fact that foreign direct investment (FDI) has risen by 12 per cent to RM33 billion in 2011 compared with the previous year. Malaysia does seem to be very much insulated by the external economic upheavals, making us look like a safe haven. Yet, it begs the same question again–why aren’t foreigners beating a path to Malaysia?

Gavin Tee, President and Founder of Swhengtee International Real Estate Investors Club offers:
“We believe that Malaysia has the best policy for foreign investments but the perception is otherwise due to the negative impact from frequent policy changes, as well as lack of overseas promotion of our real estate. Malaysia has some of the best policies in terms of purchase of properties by foreigners, for example, there is no restriction on the number of properties purchased, the foreigners can take out property loans, no restriction on purchase of commercial units while FIC (Foreign Investment Committee) consent is exempted for residential properties.

However, foreigners think otherwise and this is not helped by flip flopping policies and policies that take effect immediately upon announcement without giving sufficient grace period. Policy changes such as imposing a 70 per cent cap on LVR (Loan to Value Ratio) for third home mortgages onwards from 90 per cent    while companies get only 60 per cent LVR add to the negative impression that many foreigners have of our property laws applicable to foreigners.

No doubt the government should contain any property bubble and the intention is good but any such policy changes should be followed by a grace period. Otherwise, the foreign purchasers would be caught by surprise as had happened previously.

Most of our property investors had paid 10 per cent deposit with the assumption that they would get 80 per cent loan margin. However, upon announcement of the new policy which took effect immediately, their loan margin was suddenly reduced to 60 per cent. Hence I propose that in future, any such policy changes should be accompanied by a reasonable grace period so that those who have already signed the Sale & Purchase Agreement would not be caught under the new guidelines.”

Gavin’s views are echoed by Tee Lian Eng, a property lawyer from Messrs Tee & Teoh, who added: “It is unfair to compare Malaysia with other popular cities like Singapore and Hong Kong which attract a lot of foreign funds. Malaysia is not under foreign radar of investment funds because it is not an international financial hub but by looking at Malaysia’s investment aspect, it’s truly a heaven for property investors.

For example, Real Property Gains Tax (RPGT) is only 5 per cent and we even allow foreigners to own 100 per cent share in freehold property which is not the case in some countries like Thailand and Indonesia. Even our leasehold properties have a length of 99 years while some countries have only 50 years as in China.
The ease of financing is remarkable too because not until the recent tightening, foreigners can get housing loans of up to 80 per cent margin to purchase property.

There is a lot more interest from Singaporeans and Hong Kongers in Malaysian property of late due to policy changes to cool their markets.

I agree with Gavin that there should be a market buffer time to respond to policy changes. The credit tightening by BNM has caught many by surprise especially those buying properties within the range of RM1.5 – RM2 million.

In terms of Chinese investors coming here, our experience with them is that Malaysia is still very much unknown to them. Malaysia Property Inc. (MPI) is doing a very good job but a lot more can be done. The Chinese people hardly know much about us even though it’s heaven here in terms of property investment by foreigners.
Promotion is still lacking but it’s a good sign that the government is adopting a much more open policy than before. The government has to have a business friendly policy to attract foreign companies. If foreign companies come here, the FDI will follow suit as we would then be in the radar of the whole world.

We can now no longer depend on cheap labour to attract FDIs. We lost the advantage to Vietnam, China and Thailand, so we must rely on other factors. Even in terms of labour, we have a critical brain drain problem. For fields where there is international competition for talents such as IT, finance, architecture, and legal, we do have a critical shortage for good talents.”

And that may be one of Malaysia’s biggest drawbacks, prompting the government to make up the shortage by targeting a 10 million population for Greater Kuala Lumpur by 2020. The easiest way to do that is of course through immigration from talented expatriates which was what Singapore did some 30-40 years ago, according to Veena Loh, General Manager of MPI. “We started doing that only two years ago. Based on statistics from the World Bank, our expatriate population has been declining since the past one decade, due to our lower exchange rates.”

On the plus side, in terms of interest from Singaporeans, recent research by PropertyGuru.com, a leading property portal in Asia, has revealed that 35 per cent of Singaporeans are interested to buy properties in Malaysia. This is not surprising as all indicators point that it isn’t the right time now to buy properties in Singapore due to the very high prices to the point that it has become severely unaffordable for most Singaporeans.

The Singapore story is quite the opposite from Malaysia because about 25 per cent of buyers are overseas buyers in various parts of Singapore as revealed by Steve Melhuish, CEO and founder of Propertyguru Group.  Wealthy foreigners are attracted by the safe haven environment and the high price appreciation of properties in the rich island state. Some analysts are even of the view that despite the various cooling measures, high net worth individual foreigners will still want to park their money in Singapore.

Perception issue: In Malaysia though, the perception problem is a major issue that needs to be ironed out.    Several main concerns of Singaporeans when consi- dering buying Malaysian properties are listed below.
1. Security – Malaysia is “crime-ridden”, but if you compare with the UK, the crime rate there is a bit high too. “There is a perception that Malaysia is dangerous. But in reality, everywhere is dangerous and it’s just because Singapore is so safe,” Melhuish quipped.
2. Capital appreciation. Singaporeans are used to flipping properties like in the stock market. It’s a whole different mentality. They are used to making quick bucks because the market in Singapore swings very fast, for example they are used to 20 – 30 per cent appreciation. Malaysia is much slower but you can get decent rentals as compared to one per cent in Singapore.
3. Risk of project being abandoned. This can be easily overcome by by telling Singaporeans to buy from branded developers, said property consultant, Ho Chin Soon from director of Ho Chin Soon Research.
4. Flip flop policies but we are seeing less of this nowadays.

Having said that the hot spots that foreigners normally focus on when considering purchasing a property in Malaysia are the usual areas such as Klang Valley, Penang, Johor and Melaka. According to Ho, the Japanese like Penang while the Koreans prefer Kota Kinabalu because of the cheap seafood and direct flights from Korea. The middle class Singaporeans love Melaka while most of the rest go for Kuala Lumpur including the Bang- ladeshis who form the second largest foreign property purchasers in Malaysia.

Many foreigners still buy in the KLCC area because the foreigners are rich enough and can wait for the price to appreciate even without any rental income. After say three years, even if there is a mere 10 -15 per cent appreciation, they will sell and buy in another country depending on the property cycle, Ho revealed.

Another aspect is international schools which Ho said is a key requirement for many expatriates who come with their families.

One of the most neglected aspects when discussing on foreign buyers in Malaysia is the role that real estate agents play. According to Gerard Kho, CEO of Reapfield Properties, the quality of real estate agents can help drive up demand for real estate from foreigners. “However, we need to show transparency and no hanky panky that can turn them off. When we practise with integrity, we give confidence to the market and this will have a ripple effect.”

Many Malaysian developers such as SP Setia and Mah Sing Group Berhad have set up overseas representative offices to tap into the potential buyers from these countries. “We have set up a representative office in Shanghai as we strongly want to invite Chinese buyers and investors under the MM2H. We also have a business development team exploring opportunities to eventually expand our development plans in China but this is not immediate because we are still doing well in Malaysia,” Mah Sing’s boss, Tan Sri Datuk Sri Leong Hoy Kum said.