According to latest sources Malaysia’s real estate market is expected to reach a plateau this year. Having enjoyed fantastic growth over the years from 2003-2006 and a holding a steady market last year, experts predict there will be changes for the future caused by the U.S. market melt down.
Especially the growth in rentals and capital value is said to ease out by the end of 2008. There will also be an oversupply of yet to be finished residential developments, which will further stop the growth of recent years.
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With this years Formula 1 Grand Prix hotting up after just two races, we decided to feature special Formula 1 theme posts to bring some of the action to you. With every race we will feature some local information about real estate in the area so that you too can be a racy investor.
Melbourne, Australia offered a great start to the season on 16.March and only 8 of the 22 drivers managed to finish the race. The guys on the podium were:
- Lewis Hamilton (McLaren-Mercedes)
- Nick Heidfeld (BMW)
- Nico Rosberg (Williams-Toyota)
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Where to Look
Kuala Lumpur is in a class apart as the country’s business capital and definitely the focus of most activity in residential, retail and office real estate. The city’s central business district is currently undergoing rapid change. However, KL’s long term prospects are not guaranteed despite all the activity. Singapore (pop. 4.5m) is only as far away as London is from Paris and this proximity means that Kuala Lumpur only has Malaysia (pop. 27m) as its hinterland. Given that KL and the KL ‘metropolitan region’ have populations of 1.8m and 6.9m respectively, it seems unlikely that the city can surprise by growing into a different league, either in terms of wealth or size. However, genuine friendliness and cooperation between the two countries could herald impressive new opportunities. WTW’s (CH Williams, Tahar & Wong) series of annual property reviews provides a good breakdown of developments around the country.
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K H Sim is a property developer. Specifically, he is the Managing Director of The Malaysian arm of Sydney based, Bluestone Group and based in Kuala Lumpur.
Bluestone Malaysia are responsible for a number of recent developments – all extremely successful. One in particular, the Taragon Puteri YKS in Yalan Lap Kwan Sen, was 100% sold out before completion. Another in downtown Kuala Lumpur was released this month.
But K H Sim is developing a reputation in another area of property development. Rescuing distressed building projects that have been abandoned in Kuala Lumpur.
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Datuk Ab Hakim Borhan mayor of KL has a vision: Public information like building floor plans, application for business licenses, the filing of reports of accidents, bus schedules, or data on the city’s history – all at the push of a button or swipe of a barcode.
By using high-tech gadgets, all public housing officers would be able to scan a barcode installed at the building’s entrance and information such as the number of tenants, age and the duration of their tenancy will all be instantly available.
Tourists would no longer need tourist guides, as all buildings in Kuala Lumpur will have barcodes installed at the entrance whereby by just displaying a cell phones, information on the history of the building would be provided.
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Southeast Asia consists of two geographic regions: the Asian mainland, and island arcs and archipelagoes to the east and southeast. The mainland section consists of Cambodia, Laos, Myanmar, Thailand, and Vietnam; the population of which are primarily Tai and Austroasiatic peoples. The dominant religion is Buddhism, followed by Islam. The maritime section consists of Brunei, East Timor, Indonesia, Malaysia, the Philippines, and Singapore. The dominant religion is Islam followed by Christianity.
South East Asia is making great efforts to bring the region in line with other more well developed property markets, but there are still some anomalies to take into consideration when buying a villa in the area.
Under Indonesian law, only Indonesian private citizens, not companies, are allowed to own the freehold rights to land. Indonesian companies and foreign individuals are entitled to leaseholds, rights of use, rights of exploitation and rights to build.
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Compete with whom? The current to that question seems to be Hong Kong and, especially, Singapore. However, as Kuala Lumpur (KL) has less clout as centre of international finance than either of these competitors, we need to ask what attractions it has to compensate beyond lower prices. Part of the answer is the accessibility of the rest of Western Malaysia as a hinterland. Although the west coast had loss favour owing to over-development and pollution, there is now a concerted effort to improve locations such as Port Dickson while the island of Penang has an attractive location and architectural heritage dating from colonial times. Were the Malaysian economy to recover the dynamism that characterised it in the eighties and nineties, KL’s residential sector would be able to motor on the back of the city’s commercial success. Sharia-compliant real estate investment company, Global Investments, says that Malaysia ‘has to come into line’ with China, Hong Kong, Singapore and India in terms of economic success but this claim begs the question as to whether it will achieve this.
Currently, the prime areas for residential development, enjoying the most robust demand are the KL City Centre district and nearby Bukit Bintang, a retail and entertainment magnet. Locating in the city’s centre makes sense because, although KL has a sophisticated metro system (mon-rail, elevated ways and automated trains), the city’s inhabitants tend to favour private cars with the result that rush hour congestion is severe.
This year the state of the residential property market for Malaysia as a whole and KL in particular seems healthy without being overly speculative. Prices have grown steadily in the last couple of years (roughly 7% a year) but rental yields remain attractive also (7 to 9% and higher than in other parts of the country). Furthermore, the government has ended capital gains tax on property (real property gains tax or RPGT). On the down side, income tax on rents is relatively high (28% but related expenses are deductible) and the legal framework tends to favour tenants strongly. It seems that investors would be well advised to concentrate on the luxury end of the market as the Malaysian has made strenuous efforts to keep standard housing affordable and the proportion of property that is owner occupied is very high.
The big attraction of KL is its affordability with city centre prices at about 11% of those in Singapore. From December last year the regulations on foreign property ownership have been substantially removed for those purchasing properties worth RM 250,000 ($72,000 approx.). Given the price differentials with nearby Singapore, investors based there are bound to be a significant element in the market. As a an Islamic country, Malaysia is also attractive to investors from the Persian Gulf and Bank Negara, the central bank has provided regulatory underpinning for Sharia compliant investments. A third component of foreign direct investment in real estate is the popularity of the country among UK expatriates with a surprisingly large number of British people having grown up in Malaysia owing to the presence of the armed forces into the 1960s.
One final but vital consideration is the importance of build quality. During the boom years, planning and building standards sometimes left much to be desired. With new condominiums it is probably wise to stick with architects and developers of known good repute, one further reason for staying at the high end of the market .
Redang Island, Malaysia [Photo credits to Lukman Kusuma on Flickr]
A recent survey by CB Richard Ellis(pdf) highlights that Thailand has increasing competition on its hands as the pre-eminent retirement and second home (RSH) location in Southeast Asia. The report also finds that retired people relocating abroad is a fast growing trend. Already more than 5% of UK state pensions are remitted outside the country. The picture in terms of the relative attractions of different countries and the pros and cons of each of them is fast changing.
Clearly some of the advantages are good climate, lower living costs and superior lifestyle. New build properties and relatively cheap labour costs will have obvious attractions to retired people. According to the 2006 Mercer cost of living survey, Kuala Lumpur, Bangkok and Manila were respectively 114th, 127th and 141st on the list of world cities ordered by cost of living. What may not be so obvious is that a lower cost of medical treatments may make the move to this part of the world less of a risk than it would seem and give countries such as Thailand and Malaysia an edge over, say, Australia, as retirement relocation destination. Furthermore, these countries seem to be entering into a Dutch auction in terms of the amount of local bank account balances they require of foreign residents. Gradually, too, the restrictions on foreign ownership of property are beginning to be relaxed. However, in this connection, the ‘Malaysia, My Second Home’ regime under which foreigners are normally given permission to purchase properties outright is a lot more relaxed than Thailand’s, where 30 year leases for foreign residents are the norm.
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Friday, April 25th, 2008 
Posted by OP-Mall in 
