Malaysia’s economy is predicted to grow much the coming decade, not to forget, its population.
If you haven’t been to Malaysia yet, I need to tell that it’s a great place to live in and it’s easy to buy property as a foreigner.
In fact, Malaysia recently got ranked as the best place to invest in our Asia Property Index (not looking at ROI and yields, but looking at complexity/risks, capital control and taxes).
However: as a foreigner (or even a local), it’s not always easy to know where the best investment opportunities are.
Therefore I’ve invited Tang Chee Meng, Chief Operating Officer (COO) of Henry Butcher Malaysia, to tell us more about some of the best investment opportunities in Malaysia.
Henry Butcher Malaysia is one of the biggest property consultancies in Malaysia with overseas offices and more than 30 years under its belt.
Tang, can you please tell us about yourself and the services that Henry Butcher Malaysia offers?
Henry Butcher group originated in London and has been operating in Malaysia for 30 years.
We have an extensive network of 25 offices throughout Peninsular and East Malaysia and a staff strength of 800. We are a property consultancy offering a full spectrum of services viz.,
- Asset valuation
- Real estate agency
- Investment advisory
- Project marketing
- Market research & development consultancy
- Property management
- Retail consultancy
- Auctions and tenders
- Plant & machinery valuation and disposals
The population will grow much in Malaysia in the coming years, especially in Kuala Lumpur. Personally, I believe that KL will perform well, but also Johor Bahru, thanks to its fast growth and proximity to Singapore. What‘s your prediction on Malaysia’s property market outlook the coming years? Which cities are most interesting and why?
The main centres of economic growth which are also the key property markets in Malaysia are Kuala Lumpur, Penang and Johor Baru.
These markets enjoy the highest rates of capital appreciation due to strong economic and population growth and an active local market and they have attracted naturally interest from foreign investors keen in investing in real estate in Malaysia.
The Malaysian property market is more regulated compared to free markets like Singapore and Hongkong and house buyers are generally well protected by legislation.
As such, the market is more orderly and house prices do not fluctuate too widely within a short period of time.
Whilst house prices in Malaysia may not experience the high rates of escalations that Singaporean and Hongkong real estate can enjoy, they do not drop as wildly as what these markets can experience within a short time frame and an thus be considered a less risky market.
As house prices have been rising at a very fast pace between 2009 and 2010, the Malaysian government has implemented several cooling measures since 2010 to prevent the property market from overheating and this has slowed down price increases.
Currently the property market is sluggish but stable with no significant changes in prices. Thus there are good opportunities for investors with a longer term investment horizon to come in and pick up some prime properties at more realistic prices.
The time and money needed is generally higher when buying a house with land. For example, in Penang, foreigners need to invest at least RM 3 million (ca USD 700,000) when buying a villa on the island. What are the benefits and drawbacks of buying a house compared to one or more condos for example?
The national minimum price threshold for foreigners buying a residential property in Malaysia is RM 1 million (ca USD 233,000). However some states have modified the threshold as follows:
Penang: there is a distinction between Penang island and the mainland as follows: RM 1 million (ca USD 233,000) for high rise strata residential properties and RM 3 million (ca USD 467,000) for landed residences on the island and RM 1 million (ca USD 233,000) for both high rise and landed residences on the mainland.
Selangor: RM 2 million (ca USD 467,000) for all types of residential properties located in zones 1 and 2 and RM 1 million (ca USD 233,000) for zone 3. The minimum price threshold for commercial properties is RM 3 million (ca USD 700,000) for all zones
The minimum price thresholds have also been reduced in some states for foreigners who are accepted under the Malaysia My Second Home (MM2H) programme.
Generally there is a larger supply of condos and apartments in the urban centres of Kuala Lumpur, Penang and Johor Baru compared to landed properties due to the higher land costs which result in property developers maximizing densities on their land.
Traditionally, though not necessarily, landed properties have enjoyed better rates of capital appreciation due to the lower supply of such properties but high rise condominiums / apartments have generally generated better rental yields.
Condo dwellers will usually have access to common recreational facilities as well as security services which are not normally available to residents of landed homes.
However, nowadays due to the development of gated and guarded communities, landed properties which are located within such communities will also be able to enjoy security services and sometimes recreational amenities as well.
Another aspect of condo living is that a good property management team will be able to provide high standards of maintenance which will help to preserve property values.
Those who are investing in condos should therefore check on how well the property has been managed or if it is a new development, the developer’s past track records of managing their completed developments before they are taken over by the residents.
Let’s say that I have USD 200,000 – 300,000 on hand and want to buy an investment property, bringing in rental income. What would your recommendations be, in which city/province and what property type should be of interest?
A foreigner cannot buy a property in Malaysia which is under RM 1 million (ca USD 233,000). With a budget of USD 233,000 to 300,000, an investor will be able to buy a small service apartment of around 600 to 1,000 sq ft in the KL, Penang or JB city centre or a medium sized condominium of above 1,000 sq ft to 1,600 sq ft in a popular suburb just outside the city centres. (eg. Mont’ Kiara in Kuala Lumpur).
It’s generally overlooked to buy land in Malaysia. In fact, Malaysia is one of few Asian countries that allows foreigners to buy and freely own land. What do you have to say about foreigners going for land investments instead of physical structures?
Firstly, it has to be pointed out that foreigners are allowed to buy building land subject to meeting the minimum price thresholds and getting approval from the relevant state authorities. Foreigners are however allowed to buy agricultural land only if it meets certain conditions.
For land investments, the investor must be very familiar and knowledgeable about the area in which the land is located, how popular it is, any future infrastructural improvements that have been planned (as this will enhance the attractiveness and therefore value of the area) and the potential growth of the area as all these factors will influence how much the land can appreciate in future. If he is not, he should get proper advice from a professional.
Further, as land is not immediately income producing especially a housing plot which has not been built upon whilst there will be certain outgoings that have to be incurred eg. land taxes and municipal charges (quit rent and assessments) investors will have bear in mind that their land investments will be cash flow negative until the land is sold.
They therefore should not hold the land for too long as their holding cost will accumulate. As such, it is generally more prudent for foreigners to invest in a property with a building instead of a vacant plot of land.
Looking at taxes, supply of freehold properties, economic stability, minimum investment requirements and other important factors. Which province/cities will be most interesting to foreign buyers the coming years?
The focus of foreign investors have always been KL, Penang and Johor Baru and these markets are expected to continue to be the key areas to focus on in the coming years.
There’s been a lot of talking about Forest City in Johor. The Chinese were to buy a big part of the units in Forest City, but capital controls have put it somewhat on hold. What’s your view on buying a unit or more in Forest City? Good or bad investment?
The current market perception is that there is a glut of residential properties in Johor Bahru and investors are adopting a more cautious approach to investing in properties there.
They have become more selective about the location, product type, pricing and sales packages and the track record and financial standing of the developer.
The increased difficulty experienced by Chinese nationals to transfer funds out of China to invest in properties overseas have greatly impacted sales of Johor Baru projects undertaken by China developers, including Forest City.
The Forest City project is huge and the fast pace in which the developer has been launching in the past requires more time to digest the large numbers of units that have been put on the market.
In the short term investors will find it harder to rent out or resell their units but as the project is a very well planned and comprehensive development, the project will gain more interest after the developer has cleared the unsold stock and the market has consolidated.
Interest in the project could pick up again once the property market recovers and the developer has re- strategized and optimized its development and launching plans.
Are there any other projects or developments that people should look at? (being finished in 2018 or later)
Most foreigners tend to invest in the city centre as they have, from their own experience in their home countries, found that such locations generate good returns.
However, with help from trusted advisors, they can explore other areas which have good growth prospects eg. areas made more accessible with the opening up of new highways or rail lines (LRT, MRT) or areas which will see a massive transformation eg. TRX and Bandar Malaysia in Kuala Lumpur.
These projects will however not be completed so soon.
Thanks Tang. Finally, is there anything you want to tell our readers who have a little knowledge of investing in Malaysia?
Malaysia is a popular real estate investment destination for foreigners because property prices are amongst the lowest in the region especially with the Ringgit having depreciated against most currencies over the past few years.
Rental yields are decent whilst round trip transaction costs at around 5% is very reasonable. House buyers are well protected under the law and foreigners’ legal ownership of the property is registered on the land title under their own names and can be freely transferred.
Lastly Malaysian banks do provide financing to foreigners to buy property in Malaysia subject to the individual’s borrowing capacity and proof of income.