Malaysian Property Market Offers Traps for Inexperienced Investors

Malaysian Property Market Offers Traps for Inexperienced Investors

At first glance Malaysia looks like it should be the natural investment choice in South-East Asia.  The archipelago nation is one of the richest countries in Asia the result is a burgeoning middle class combined with a tourist trade that brought in over 22m tourists in 2009.

kuala lumpur city skyline

But Malaysia offers more to its potential investors.  For one thing, Malaysia is a prime target for investors from China, Singapore, Japan and South Korea, according to South-East Asian property website property-report.com.  That’s partially explained by cultural similarities and physical proximity: it’s always going to be tempting to invest in a place that’s easier to reach.

But there are other reasons too, especially for Singaporeans.  Eric Chan, who’s Deputy Manager of property developer Eastern & Oriental Berhad, explains that the MM2H’ ‘ Malaysia My Second Home ‘ program offers foreign visitors a 10-year multiple entry visa referred to as a Social Visit Pass, and this has made Malaysia particularly attractive to investors who can now be physically present at their property far more easily.  Of course, for Singaporeans this holds true doubly: Singapore City is only 196 miles from Kuala Lumpur, but the biggest buyers are from the state of Nusajaya, Johor, just across the border.

Added to this mix,’ Mr Chan continued to explain, ‘is Malaysia’s friendly lending terms’ ‘ these are extended to foreigners to and can offer finance of up to 90% ‘if certain conditions are met.’

The Singaporean Dollar has been rising consistently against the Malaysian Ringgit ‘ 3% since January alone – and now exchanges for about 2.5 Ringgit, leaving Singaporeans in an advantageous position when it comes to buying their neighbours’ houses.  Add to this the price of Malaysian property, which is about a sixth the price of equivalent Singaporean properties, and there is a significant inducement to Singaporeans to chance their arm over the border.

The mixture of generous lending terms, government incentives and physical proximity may have made some Singaporean investors overconfident, however.  The Malaysian real estate market also comes with a lack of transparency that surprises foreigners, including those from neighbouring countries.  According to the Global Transparency Index, a proprietary index compiled by Jones Lang LaSalle, Malaysia ranks 23rd ‘ ten spots below Singapore.

This can mean that developers who default on payments can be difficult to track down, and more than one investor has been left with a second Malaysian home that they can’t pay for or sell.

Additionally, the Malaysian government is considering altering the minimum price of foreign investors’ properties.  It currently stands at RM500, 000, but is set to double to RM1m.  The move will be a bid for popularity by the Malaysian government which will receive approval from young middle-class couples currently fighting richer Singaporeans for a place on the property ladder.  However it may take less wary investors by surprise.

In fact, the same rules apply as anywhere else.  ‘Most of us fail to do any sort of research prior to investing into the properties,’ points out Michael Tan, an investment coach.  Eric Chan agrees: ‘Research is essential in buying a property,’ he says.  ‘A reputable developer and good location is the mantra in property investment and it is no different in Malaysia.’

Mr Chan explains that location with Malaysia is a major factor, with investors in the Kuala Lumpur area expecting to make up to a 30% capital appreciation on completion of their investment projects.

But in other areas of Malaysia the maths works out differently and investors who fail to consider location.  Big towns on the island of Johor, like Penang and Iskandar as well as, of course, Kuala Lumpur, offer great possibilities for investment.  Unfortunately, the very market dynamics that make it relatively easy for Singaporeans to invest in Malaysian property can also make it impossible to get a return on their investment.

David Neubronner, Head of Residential Project Sales, of Jones Lang LaSalle, explains that Malacca, for instance, is a more historic town appealing more to locals ‘ who frequently can’t afford to give a Singaporean investor a good return on his investment.

Like may other analysts, Neubronner goes on to remark that a key feature of unwise investments in Malaysia is a false sense of security and buying interest ‘based on sentiment than investment.’