The Malaysian real estate industry is debating whether or not — “speculators” — should be allowed to buy in the country. They are worried that foreign investors speculative buying will push prices up and damage the health of the real estate industry. Currently driven almost entirely by resident Malaysians, the Malaysian property market is one of the least volatile in the world.
Last year only 2.5% of properties sold were bought by foreign investors, and the rest bought by locals for accommodation purposes. This is expected to be the case for some time to come, because most of Malaysia’s population is below the age of 35.
The government is opening up the country to foreign investors, but doing so cautiously. Currently foreigners can only buy high-end properties that tend to be outside the price range of average Malaysians anyway.
But this is not enough for some in the industry. They say that Malaysians being forced to buy at the lower and lower on the ladder — because of foreigners driving up high end prices — will lead to rapid inflation and therefore sharp corrections of prices throughout all property classes. They fear that this will result in the type of boom bust cycle we see in the likes of the UK.
However, the exuberant health in the Malaysian housing market automatically leads to speculation, because the market is stable and property is a safe and sound investment for Malaysians as well as foreigners. So even if foreigners were to be kept out it would not stop speculation from pushing up property prices.
The government is unlikely to stop foreigners from investing in Malaysian real estate anyway, because of the income generation that foreign investors bring.
An average foreign resident spends about RM10,000 per month on retailing, F&B, education, healthcare and others. This is a direct injection into the local real economy.
Further, an expatriate will also have family and friends visiting and spending; injecting more cash directly into the local economy.
Another benefit of foreigners buying residential property and residing in Malaysia and of their having visitors, is that it boosts Malaysian tourism with one of the most powerful forms of advertising: word-of-mouth. One Malaysian newspaper put it: in marketing terms, they are our ambassadors in their home countries, spreading the experience of Malaysia to family and friends.
All in all, while the critics are correct; foreigners investing in Malaysia property will push up prices in the country. The revenue that they provide the economies in which they buy will increase the wealth of the local Malaysians in return. The government will hope that the economic growth will increase the incomes of Malaysians sufficiently that they are never priced out of buying property and can keep the housing market healthy and investment friendly.
Either way, without the government stopping them, foreigners will certainly continue to invest in Malaysian property. Not only is it a healthy and stable market to invest in as laid out above, but there are a host of other benefits in the tax regime and because of it being an ex-British colony. Benefits include:
- No Capital Gains Tax
- No Inheritance Tax
- Prevalent use of English language
- Mortgages easily obtained by foreigners
- Buying process similar to UK
- All contracts are in English by law
Photo credits: Sham Hardy via Flickr