ASIA FOCUS: Why Australian investors should consider Malaysian real estate

Petronas Twin Towers, Kuala Lumpur

Petronas Twin Towers, Kuala Lumpur

In my previous post, I highlighted some real estate opportunities in the growing economies of Asia. In this article, I zoom into one country within ASEAN where strong economic performance since the Asian financial crisis in 1997 has translated into strong growth in its job markets and real estate values and its emergence from the global financial crisis relatively unscathed.

Malaysia, with all its natural resources, relatively efficient and language-friendly workforce, stable government, healthy foreign investments and good standing within the ASEAN and international community, has somewhat lagged behind neighbouring Singapore in terms of economic growth and prosperity. However, this country has its own unique investment propositions that other developed nations may be lacking.

This article examines some key issues and why Australian property investors may consider investing in Malaysia.

What are the benefits of investing in Malaysia? – The Malaysian story

Over the last fifteen years, Malaysia’s economy grew by an average of approximately 6.4% per annum. It is the third largest economy in ASEAN behind Indonesia and Thailand and the twenty ninth largest in the world. The late 1980s saw significant foreign investments into the country where its industrial sector experienced significant growth into the mid 1990s.

Malaysia has significant natural and agricultural resources and is one of the largest oil palm producers in the world.

Harvesting oil palm (Photo courtesy: RSPO)

Harvesting oil palm (Photo courtesy: RSPO)

It also has a very strong and vibrant oil and gas industry. In recent years, Malaysia has developed significant capabilities in knowledge-based  services and manufacturing of high-value technological goods such as semi-conductors, IT and telecommunications equipment which have contributed to its growth in GDP and productivity.

During this time, Kuala Lumpur was also bestowed with the Petronas Twin Towers which has since become an iconic symbol for the Malaysian capital. History will show that it is powerful to invest in what is now a new term called “dramatic architecture”. Symbolically, it defines a destination, lends credence and puts it on the world map.

Singapore has yet again proven this to be true with the Marina Bay Sands. This S$8 billion integrated casino resort and hotel investment has been so successful, its financial commitments have been recouped in less than a couple of years. But the implications of success goes beyond financial terms.

ASEAN Country GDP $USmil GDP per capita US$
Indonesia 511,765 3,980
Thailand 273,313 8,478
Malaysia 221,606 15,384
Singapore 181,939 51,226
Philippines 166,909 3,515
Vietnam 89,829 2,793
Myanmar 26205 1,156
Brunei 14,553 50,198
Cambodia 11,250 2,082
Laos 5,374 2,127

Source: International Monetary Fund at at October 2009

So what are the pros and cons? Lets take a closer look as each pertinent element.

Investment climate and first home ownership

The dream of owing a home in Australia since the withdrawal of the First Home Owners Grant and the recent property boom is almost non-existent for first home buyers who are  choosing to live within a radius of 10km of Sydney, Melbourne, Brisbane and Perth. The entry costs of a first home in Australia is now beyond many first home buyers because our markets have moved beyond the growth in wages. With the impending carbon tax, mining tax, increase in energy, petrol and food prices, many investors are spooked about where the economy is headed. This is not helped by Australia’s current two-speed economy where BHP Billiton has just reported a $23.5 billion net profit while the retail, manufacturing, export, tourism and education are experiencing one of its toughest years on record.

Gallery at U-Thant: High-end luxury condominiums in the heart of Kuala Lumpur

Gallery at U-Thant: High-end luxury condominiums in the heart of Kuala Lumpur

Malaysia has similarly experienced a real estate boom albeit this boom has been experienced predominantly around parts of its capital city. Generally, wages growth in Malaysia has also not kept pace with its economic growth and inflation. As a result, first home buyers in Malaysia are doing it tough just like our own. An average terrace or town house in and around Kuala Lumpur now cost upwards of around RM1,000,000 (approximately A$320,000).

Luxury condominiums in the heart of Kuala Lumpur

Luxury condominiums in the heart of Kuala Lumpur

Malaysian property prices

Unlike Singapore and Hong Kong where scarcity of land and demand has driven private property prices to levels unaffordable even by a majority of their locals, Malaysian property prices are still relatively affordable.

The average Singaporean wage earner will generally be limited to purchasing Housing Development Board (HDB) flats which are essentially government housing because private property is well beyond their means. On the other hand, their Malaysian counterparts are able to afford private landed properties because prices are at affordable levels to middle class Malaysians.

Malaysians and expatriates are also enjoying the “best of both worlds” of inexpensive cost of living, idyllic lifestyle of cheap domestic help and chauffeur services whilst being able to take advantage of the close proximity of Singapore’s local attractions and amenities such as dining, shopping and quality healthcare. Singapore is approximately a 5-hour drive from Kuala Lumpur.

Real estate growth history

Selected areas in and around the capital cities of Kuala Lumpur, Penang, Johor Bahru, Kuching and Ipoh have experienced good growth in recent years. This has been due to the growth in population in recent years. Malaysia and Australia used to share similar population numbers of about 18 million. While fertility rates in Australia has been declining until recent years with the incentive of the baby bonus, Malaysia’s population has grown to approximately 28 million compared to 22 million for Australia.

Many locals in Kuala Lumpur favour inner city living although large housing estates have opened up in Kepong, Puchong, Serdang, Salak South, Taman Tun Dr Ismail, Kota Damansara and Cheras. These developments have spread the population over wider areas of the Klang Valley where Kuala Lumpur is located and has resulted in numerous highways and new ring roads being constructed to cater for this growth in transportation demand.

As a result, real estate in prime locations have significantly appreciated in value which is not dissimilar to the growth in  and around Australian capital cities.

Lifestyle, cost of living and retirement

Royal Selangor Golf Club, Kuala Lumpur

Royal Selangor Golf Club, Kuala Lumpur

The capital city of Kuala Lumpur is a melting pot of the Chinese, Malay and Indian cultures. It is highly developed in terms of infrastructure, public amenities and telecommunication facilities. Internet wi-fi is more readily available in public places such as the Kuala Lumpur International Airport, hotels, cafes and restaurants than in Sydney or Melbourne.

Bukit Bintang shopping precinct, Kuala Lumpur

Bukit Bintang shopping precinct, Kuala Lumpur

The cost of a meal consisting local Malaysian fare in Kuala Lumpur is anywhere between A$1 in hawker stalls up to approximately A$5 in cafes and restaurants. Mid-tier and fine dining restaurants are also widely available in large shopping malls and international hotels.

Middle class Malaysians and expatriates enjoy an idyllic lifestyle of strong public amenities and a range of social and entertainment options.

Many locals and expatriates have full-time domestic help to assist with all the household chores. A domestic maid or nanny for childcare costs approximately RM500 per month (approximately A$160 per month). A full-time chauffeur from 8.00am  – 6.00pm Mondays to Fridays (who is also responsible for keeping the vehicle clean and tidy) costs approximately RM1,000 per month (A$320 per month).

As a consequence of these factors, the cost of retirement in Malaysia is relatively inexpensive due to cheaper housing and cost of living. In contrast, a recent article by CNN found Sydney and Melbourne to be among the top 20 most expensive cities to live in the world.

Unspoilt and calm waters, Penang beach

Unspoilt and calm waters, Penang beach

Owing a brand new 3-bedroom apartment outright and free of mortgage with all the modern facilities for less than A$300,000 in idyllic beachside locations with public amenities and relatively low cost of living becomes a very real option for those who are unable to do so in their home country.

Political stability

Just like any government today, the Malaysian government is not free from its criticisms. Most notably, its handling, dismissal and subsequent jailing of its former Deputy Prime Minister and now Opposition proponent Anwar Ibrahim was widely critisized as being unjust and a violation of human rights by the international community.

Malaysia practices positive discrimination for its bumiputra and indigenous Malays and hence, its government machinery is widely seen by the minority locals and the international community as flawed because of the absence of a system of meritocracy.

Under its former prime minister Tun Mahathir Mohamad who held the post for 22 years from 1981 to 2003, Malaysia experienced considerable economic progress although is it widely argued that a lot more could have also been achieved should Malaysia had adopted a pure democratic society. Under Mahathir’s “guided democracy”, wealth was widely redistributed from the majority of business capitalisation held by the minority Chinese to the majority Malay population through various government-sactioned laws and regulations. It was the government and its ruling party, Barisan Nasional’s so-called “stabilizing” factor to avoid “unhealthy” undercurrents where a minority sector was holding onto the majority of the nation’s wealth. Nevertheless, Malaysia has progressed economically over the last fifteen years albeit less impressive compared to its former state of Singapore. Like Australia, it has also emerged from the global financial crisis relatively unscathed.

It is widely accepted that it will be difficult for Malaysia’s economic progress to rival that of  its neighbouring Singapore but on the other hand, Malaysia’s standard of living is also considerably higher than most of its ASEAN counterparts.

Malaysia My Second Home (MM2H) program

John Jones, a retired firefighter, and his wife Samantha who have moved to Malaysia under the Malaysia My Second Home programme. MM2H has so far attracted about 12,000 participants (Photo courtesy: The Star newspapers)

John Jones, a retired firefighter, and his wife Samantha who have moved to Malaysia under the Malaysia My Second Home programme. MM2H has so far attracted about 12,000 participants (Photo courtesy: The Star newspapers)

One of the key incentives that foreign investors can take full advantage of is the Malaysia My Second Home (MM2H) program. It is a government incentive administered through the Ministry of Tourism where the Malaysian government is actively encouraging eligible foreigners, expatriates and foreign investors to work, live and retire in Malaysia.

Some incentives include ease of opening bank accounts, repatriation of funds to and from Malaysia, tax free car repatriation, discounts for golf memberships and the eligibility to live indefinitely in Malaysia subject to certain criteria.

As the cost of living and retirement soars in Australia, I believe good Malaysian real estate presents very real opportunities for Australians who cannot afford to retire in Australia. Indeed, the paradox of Singapore having the highest number of millionaires per capita in the world is that many of its citizens are unable to retire simply because of the escalating cost of housing and the high cost of owing a private motor vehicle.

Finance, legal and tax

The ease of obtaining finance for buying real estate in Malaysia vary depending on ownership status. Foreigners with a work permit are generally allowed to borrow up to 85% while foreigners who are eligible under the Malaysia My Second Home (MM2H) program can borrow up to 80% to buy propertues with a minimum value of RM500,000 (approximately A$160,000).

There is generally no legal or government restrictions for foreign ownership of private property.

Real property gains tax of 5% is payable on disposal of private property held for less than five years as per the Malaysian budget 2010 announcement. Private property held and disposed after five years are exempt from RPGT. This imposition is favourable compared to Australia’s RPGT regime.

Stamp duties rates are as follows:

First RM100,000                                1%
RM100,001 –  RM500,000               2%
RM500,001 – RM2,000,000            3%
Above RM2,000,000                          4%

Stamp duty for home loan agreements is 0.5% for any amount of loan taken.

Conclusion – should Australian investors consider Malaysian real estate?

The question of whether to invest is obviously more easily answered if we are purchasing a first home to live in where the risks are significantly reduced. It is near impossible to spot the lowest point of entry into a property market because of so many factors. Personally, the best time is when opportunities present themselves when we are in the market to invest. Such opportunities are usually brought about by a combination of economic cycles, market inefficiencies, market knowledge and experience.

As a property investor myself, I would naturally be very cautious investing in a market which I have little knowledge about.

There are numerous factors which weigh against a foreign investor and this includes a lack of understanding and local knowledge of the Malaysian real estate market. This can significantly increase the risks which include purchasing a property in the wrong location and from poor quality developers. However, these risks can be mitigated through collaboration with parties who have knowledge of the local market and a strong network of financiers, brokers and reputable developers with quality and track record.

My own property investment experience in Malaysia

Having spent my formative years in Kuala Lumpur and having been a senior executive with one of Malaysia’s largest most successful conglomerates for many years, I have the benefit of local knowledge and networking. I believe this is the single most important factor in minimising risk and making mistakes in real estate investments. The English language is widely spoken throughout the country which makes it easy for foreigners and tourists alike to do business in Malaysia.

Most importantly, having lived and invested in real estate in both countries, I am able to draw parallels and decipher the pros and cons about real estate investment in Australia and Malaysia.

Favourable factors that give Australian investors a distinct advantage:

  • Current favourable exchange rate of A$1 to 3.2 Malaysian ringgit is at its highest in almost twenty years. The Australian dollar was buying as low as 1.75 Malaysian ringgit in May 1993.
  • Australian real estate values are at all time highs. Refinancing equity to invest in a growing market coupled with the added advantage of the strong Australian dollar makes overseas real estate extremely affordable.
  • Relatively lower entry and transaction costs into the Malaysian real estate market. Deposit rates for off-the-plan properties are usually 10% of the total sale price. For a typical Malaysian investment property worth the equivalent of A$300,000, the deposit to be paid based on current exchange rate is merely A$30,000.
  • Relatively easy process to obtain financing for foreign investors who are eligible to purchase private property. We can arrange finance through local Malaysian banks at competitive interest rates of between 5 – 6% per annum.
  • After sales and property management services. Our team of real estate agents and property managers will ensure efficient procurement of quality tenants and maintenance of your investment properties.
  • No exit restrictions and capital gains tax is minimal at 5%. Private properties held for more than five years are not subject to capital gains tax.
  • Relatively inexpensive retirement option under the MM2H whilst taking advantage of Malaysia’s idyllic lifestyle around beach locations such as Penang, Port Dickson and Kuala Lumpur.
  • Close proximity to Australia and the financial centres of Singapore and Hong Kong. Malaysia is also central to the growing economies and tourist hotspots of Thailand and Vietnam.

Who should consider investing in Malaysian real estate?

  • Investors and high net worth individuals who are looking to diversify their investment portfolios.
  • Investors who are within retirement age and are not able to retire on existing funds and are looking for a lower cost alternative without compromising living standards.
  • Investors with high levels of  savings and disposable income.
  • Investors who are planning retirement within the next five years.
  • Expatriates who are working in Malaysia.

wealthruproperty’s customised, one-stop solution and services:

  • We assist you in navigating the process of sourcing and shortlisting quality real estate by reputable developers who have a proven track record of many decades in Malaysia.
  • We assist you by arranging competitive financing and co-ordinate conveyancing and legal services to execute contracts and loan agreements.
  • We assist you by finding a tenant and establish on-going property management services for your property.

Investors and interested parties are invited contact Albert Wong on +61 413 660909 for more information and details.

Albert has an extensive network of real estate professionals, property developers, bankers, insurers, legal advisors, accountants and tax experts in Malaysia. He and his team of real estate professionals both in Australian and Malaysia provide an integrated approach to assisting property investors seek out choice investment properties with strong capital growth as an over-riding objective.

Read some of our clients’ testimonials here.

Albert Wong CPA is Head of Commercial & Research for wealthruproperty in Sydney, Australia.  All his views and opinions expressed above are personal in nature and do not constitute investment, financial or legal advice.

ASIA FOCUS – Real estate opportunities in the growing economies of Asia

Marina Bay Sands, Singapore

Marina Bay Sands, Singapore

As the economies of Europe and the US remain in the doldrums, Asia is providing the impetus for global growth where some of its economies are powering ahead.

From a recent trip to Singapore and Malaysia, and notwithstanding reports from financial institutions, analysts  and experts, my own personal observation is that consumer sentiment is confident albeit cautious, government spending is strong where the focus is on providing better infrastructure to lay foundations for sustained growth whilst retail and commercial activities are vibrant.

Construction of new public parks and amenities on reclaimed land, Singapore

Construction of new public parks and amenities on reclaimed land, Singapore

Some key Asian growth indicators:

1. Performance of Asian Real Estate Investment Trusts (REITs)

Asian REITs have outperformed global REITs by up to three times in the past five years. Mr Ng Cheze How, AmInvestment Bank’s director of retail funds says that Malaysian REITs provided an average return of 7 – 8% compared to the average of 6.3% returns from Asia-pacific property trusts. Malaysian indices give out 3.5% in dividends,” Ng said, adding that each business cycle averaged between seven and eight years and that Malaysia is in the third year of recovery.

More investors are gradually using real estate as a hedge against inflation. Rising costs of living across developing nations in Asia and Australia means that inflation is Deposit rates are generally low and and interest earned are subject to tax. Coupled with inflation rates of between 3 – 4% each year, keeping money in the bank may be prudent but inflation may eventually erode savings.

2.  Singapore’s costs of living overtake Hong Kong for first time

Singapore has overtaken Hong Kong as a more expensive city for expatriates for the first time, driven by a stronger currency and higher rents, according to Mercer’s Worldwide Cost of Living Survey.

Singapore’s GDP growth for 2010 was 14.5%, the highest in the world and now, the island nation is ranked the eighth most expensive city in the world, rising from eleventh spot last year due to a susbtantial increase in housing costs. The record GDP growth last year also helped Singapore become the world’s highest proportion of millionaire households at 15.5% of the population, according to a Boston Consulting Group report in May 2011.

Axis REIT Managers Bhd chief executive office Mr Stewart Labrooy said that real estate prices in Malaysia are relatively inexpensive compared to its regional neighbours such as Singapore. Although both countries have seen solid growth in real estate values over the last few years, Malaysia is still relatively attractive given its stable economy, abundance of natural resources and its strategic location within Asia’s financial powerhouses of Hong Kong and Singapore.

Watching Singapore's skyline from a 150-metre infinity pool on top of Marina Bay Sands

Watching Singapore's skyline from a 150-metre infinity pool on top of Marina Bay Sands

Inflation was 4.5% in May 2011 as food and transportation costs increased. The island nation uses the exchange rate as its main tool to manage inflation and has allowed its currency to appreciate to a record in an attempt to contain price increases.  The Singapore dollar has risen by 13% in the past year against the US dollar, matching the South Korean won as the two best performing currencies among the 10 most actively traded currencies in Asia excluding Japan. Singapore’s economic expansion has pushed the unemployment rate to a 3-year low and economists including Irvin Seah from DBS Group Holdings Ltd said rising labour costs were contributing to the risk of higher inflation. Singapore’s real estate prices climbed for eight straight quarters to a record high, prompting the government to introduce new measures to curb speculative buying.

Local and guests enjoying the pool at Marina Bay Sands, Singapore

Local and guests enjoying the pool at Marina Bay Sands, Singapore

3. China’s economic growth engine

China’s economy grew by 9.5% in the second quarter, slightly lower than the first quarter but still showing no signs of any slow down despite housing curbs and five successive interest rate hikes since October 2010. The efforts of the Chinese government in putting on the brakes on its economy may have a dampening effect on Hong Kong, although its dollar being pegged to the weak US dollar had little effect on the city’s ranking against Singapore above.

4. India’s emerging economy

India’s real estate prices have also been growing steadily over the last few years although there is a word about a property bubble brewing for real estate prices in Mumbai where prices could fall by up to 35%. The reason for this is a large number of developers who have bought land at higher prices  need to correct prices and the recent residential sales of 65% and 35% apartments in Mumbai and Delhi respectively being sold to speculators according to Jones Lang La Salle.

However, its economy is still powering ahead at 7.8% for the first quarter of 2011 and is expected to grow strongly into the future. Foreign direct investments stood at US$32 bilion and India is experiencing a growing middle class, strong urbanisation and government spending where US$46 billion has been allocated for infrastructure upgrades. It has a solid banking and financial system and its demographics shows a very young country where 51% of the population is below 25 years old.

So what does this all mean for the Australian investor?

It is clear that recent gains on the Australian dollar has made it extremely difficult for businesses in the tourism, education, manufacturing and retail industries where the relatively expensive dollar has been curbing international visits, foreign investments and real estate growth. As I write this article, major retailers David Jones and Myers have reported sharp decline in profits.

Real estate agents have reported a marked slow-down in foreign investors. The official 2-speed Australian economy is well and truly underway and as long as China continues to demand raw materials, our resources sector and associated industries such as transport and logistics will continue to be strong.

No doubt our real estate prices have seen very solid growth in the last 24 months and are now taking a breather. It is generally a buyer’s market in Australia and a good time to review portfolios. Manufacturing your own equity through upgrades, improvement and construction are a strategic moves in the current flat markets.

Australia needs to improve its competitiveness

To remain competitive and attractive for foreign investments due to the strong dollar, Australia needs to focus on its key drivers of growth. No longer can we rely on real estate predicated on the natural beauty of harbour and river settings because prices are now beyond the reach of international investors and growth will slow. Local investors have squirrel away A$80 billion in the last financial year due to uncertainty around the world.

From a tourism point of view, there are so many attractions around South East Asia that can rival the Sydney Opera House and its band of attractions around Australia that are far more cost competitive due to the location of these attractions in cities with a high density population and spending-power. The international airports in Shanghai, Beijing, Hong Kong, Kuala Lumpur and Singapore are miles ahead of Sydney and Melbourne airports in terms of efficiency, customer-focused conveniences such as high-technology wifi, telecommunications, banking and forex, shopping and hospitality.

Space and abundance: Kuala Lumpur International Airport (KLIA)

Space and abundance: Kuala Lumpur International Airport (KLIA)

Overseas opportunities

In addition to strong infrastructure growth,  real estate investment opportunities are looking ever so attractive in these new Asian markets due to the strong Australian dollar. These investment opportunities include:

  • Investment in strategic locations in Malaysia for the dual purpose of investment and retirement where the standard of living is relatively high whilst the cost of living is low. Modern and highly developed infrastructure such as international schools and hotels, hospitals, transportation systems and English being widely used throughout the country make it easy for English-speaking foreigners to relocate to Malaysia.  An idyllic lifestyle such as beaches set around tropical real estate with access to high-quality broadband, health care, relatively cheap international and local cuisine, domestic assistance such as maids and chauffeurs make this a very real and attractive proposition.
Gallery at U-Thant: High-end luxury condominiums in the heart of Kuala Lumpur

Gallery at U-Thant: High-end luxury condominiums in the heart of Kuala Lumpur

  • Malaysia My Second Home program where strong incentives are given by the Malaysian government to foreigners who choose to make Malaysia their home. This program is now attracting a significant number of foreigners from the UK, China, Japan and South Korea who are relocating their families to Malaysia (Stay tuned for more about the incentives, tax concessions, real estate opportunities on this program in my next post).
Kuala Lumpur International Airport (KLIA)

Kuala Lumpur International Airport (KLIA)

  • Indian real estate in top cities such as New Delhi, Mumbai, Chenai, Kolkata, Hyderabad, Pune, Gurgaon and others.
  • Private apartments in Singapore where scarcity of land is pushing up property prices.

Look out for my next few posts to give you more information about these overseas investment opportunities which are set to rival Australian investment and retirement options due to the changes around the Asia Pacific region.

Panoramic view of beaches along Batu Ferringhi, Penang

Panoramic view of beaches along Batu Ferringhi, Penang

Australia needs to be very serious to remain competitive and relevant to rival the business and investment opportunities that is being presented to the world by cities such as Shanghai, Beijing,  Hong Kong and Singapore.

Readers, property investors and interested parties are invited to call Albert Wong on +61 413 660909 to discuss real estate investment opportunities to take advantage of our strong Australian dollar.

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Disclaimer: Views, opinions and comments expressed in this article are general in nature and do not constitute investment, legal or financial advice. Readers are advised to seek their own professional advice as and when required.

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