After a few sluggish years, Malaysia’s luxury real-estate market is poised to make a comeback.
Sales began slowing in 2014, and came to a near standstill in 2016 due to the country’s faltering oil and gas industry; stricter lending measures introduced by Bank Negara, Malaysia’s central bank; and a supply glut as luxury developments in the pipeline were completed, experts said.
However, according to Christopher Boyd, executive chairman of real estate services provider Savills Malaysia, for investors prepared to hold for the medium- to long-term, now is a “very good” time to buy.
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“Malaysia has the fundamentals some Western economies would give their right arms for,” he said, noting a general expectation that the Malaysian ringgit (MYR) is due for a 10% -to-15% appreciation.
Some of the notable forthcoming additions to the high-end segment include luxury residences serviced by Four Seasons and Kempinski, both newcomers to the skyscraper-studded capital city of Kuala Lumpur. Last year also saw launches of premium seafront properties in the culturally rich city of Penang. And all eyes are on the mega-ambitious residential projects in the southern state of Johor Bahru, where developers are building out Iskandar Malaysia, a new economic corridor bordering Singapore that is attracting global attention.
In Kuala Lumpur alone, approximately 13,000 new luxury high-rise residential units are expected in 2017, bringing the total to nearly 50,000, as noted in a 2016 Malaysia Report by Oxford Business Group, a global research and consulting firm.
Coupled with the Malaysian ringgit’s fall to its lowest levels against the U.S. dollar since the Asian Financial Crisis in 1998, it’s pointing to a buyer’s market.
“It’s still one of Asia’s best-kept secrets,” Mr. Boyd said. “In terms of value for money, it’s a leader by a long way.”
From a regulatory perspective, Malaysia also comes out on top. Although foreigners are limited to buying property valued at MYR 1 million (US$231,600) or more, Malaysia is the only country in Southeast Asia aside from Singapore that offers freehold property, so buyers receive the titles in perpetuity and may borrow against them locally.
“Malaysia has the friendliest legislation toward foreigners buying property because we have inherited very good laws and legislation from the British,” said Sarkunan Subramaniam, managing director of the Malaysian division of real-estate consultancy Knight Frank.
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Malaysia doesn’t tax foreigners on worldwide income, and a major reason for an increasing number of Chinese seeking permanent residence and high-end property in Malaysia is its generous Malaysia My Second Home (MM2H) visa program. The most onerous requirement for the 10-year, multiple entry visa is a fixed deposit of MYR 300,000 (US$70,000) in a Malaysian bank account, and some developments are even waiving the application fee to incentivize buyers.
In many ways, observed Paulius Kuncinas, Oxford Business Group’s Asia managing editor, Kuala Lumpur is slowly catching up to cities like Bangkok, which is awash in demand for high-end properties, especially branded ones such as six-star hotelier St. Regis, which entered Malaysia last year with a hotel and residences offering in KL Sentral, Kuala Lumpur’s main transit hub. “Once all these new branded properties are delivered, the country will be well positioned to be compete in catering to the same clientele,” he said.
Causes of the slowdown
“Premium high-end residential is quite soft at the moment because a lot of demand was in the buy-and-let segment, where locals would invest and rent out to expats,” Mr. Kuncinas said. But as the oil and gas industry contracted over the last 24 months, the anticipated demand disappeared, along with the exodus of foreign workers.
Another contributing factor to the slowdown is the central bank’s cooling measures on home loans. Introduced in 2013, the regulations capped financing at 70% for a buyer’s third property and each subsequent one, down from 90%. The bank also levied a 30% tax on profits made from properties sold again within the first three years of purchase. The measures appeared to have had an impact. Cagamas, Malaysia’s national mortgage corporation, reported that housing loan applications for high-end properties plummeted to 8% in 2014 from 20% the year before.
Though still more lenient than equivalent cooling measures introduced in Singapore, the impact subdued the market, forcing many investors into a wait-and-see approach, according to Oxford Business Group.
China’s central bank had a hand in the downswing as well. Malaysia is a popular destination for Chinese investors, but last year the Chinese government restricted capital for people buying property overseas, which resulted in a contraction of Chinese buyers, including some reported cases of cancelled deposits for Iskandar’s Forest City, a mega-project stretching across four man-made islands between Singapore and Malaysia. Ironically, it’s partly bankrolled by Chinese developer Country Garden and advertised heavily across mainland China.
Tides are changing
Mr. Kuncinas noted that despite a significant drop in Chinese investment, there are ways around it, like pricing property in yuan, which would allow Chinese investors to continue investing without restrictions, potentially accelerating the upswing in Malaysia’s luxury real estate market.
“I would say the high-end market as it stands today has already bottomed out, and we’re looking at a definite recovery toward the fourth quarter of the year,” said Knight Frank’s Mr. Subramaniam.
“Give it time and it will come up,” agreed Mr. Boyd, pointing to the fact that in addition to the Singapore high-speed rail link in Iskandar, there are a slew of new public transit lines in the works to improve traffic flow, along with airport expansions and more lifestyle retail projects. “Once infrastructure improvements planned for the next five to 10 years are fully delivered, it’s going to catalyze more economic activity,” he said.
Although luxury condominiums and high-rises are some of the most affected by the downturn, there are several properties in development that are commanding record-high prices, pushing past MYR 3,000 MYR (US$692) per square foot.
“Last year was quiet, but this first quarter [of 2017], there’s more activity and more investors coming to Malaysia because the currency is dropping so much,” said Gavin Chong, manager of Concept Property & Valuation, a real estate agency specializing in luxury properties. Mr. Chong’s clients are a mix of locals and foreigners, mainly from China, Hong Kong, Taiwan, and the United States.
He said some of the new luxury developments have managed to sell more than 85% of their units, including The Pavilion Group’s Banyan Tree and the forthcoming Pavilion Suites. The smaller units at the Four Seasons Place Residences have mostly been grabbed up —likely because it’s a more affordable entry point for that lifestyle in comparison to other countries.
Mr. Kuncinas said there is “plenty of liquidity” at the very high end of the market, and he anticipates that there will be growing demand for luxury-serviced residences, which is likely to benefit big international brands such as Tropicana Residences and The Ritz-Carlton Residences, both of which are currently under development in Kuala Lumpur.
There’s also a trend toward gated and guarded high-end communities, rather than houses, Mr. Subramaniam said, because people want tighter security. He also noted that locals are looking outside the expat-favored neighborhoods of Kuala Lumpur’s City Centre , Mont Kiara, and Bangsar, to locations like Damansara Heights, a 25-minute drive from the city centere, where The Pavilion Group has broken ground on a much-hyped mixed-use project of high-end retail and residences.
Even mansions are a steal right now. Mr. Boyd highlighted a 10,000-square-foot Penta-Cinque bungalow in the suburb of Seputeh Heights that is on the market for MYR 16 million (US$3.7 million). It’s within a gated community with 24-hour security and boasts an infinity pool, five bedrooms, a designer kitchen, and plenty more. “You won’t believe what you get for your money,” he said.
It’s “the correct time to buy,” Mr. Subramaniam said. Even the 1% additional stamp duty for properties above MYR 1 million—from 3% to 4%—taking effect January 2018 is unlikely to dissuade bullish buyers, especially since developers are also introducing innovative financing packages to meet sales targets and clear unsold stock, as reported in Knight Frank’s most recent Real Estate Highlights report.
“It’s a buyer’s market,” Mr. Boyd concluded. “A fantastic market.”
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