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 .