By Vincent Tan
Sean Thong, a 13-year veteran of Malaysia's property industry, had just gotten off the phone with a long-time client.
She had contacted Thong regarding her daughter and American son-in-law, who had expressed interest in buying office space in Malaysia.
"One of her son-in-law's clients, a unicorn company, plans to leave China and relocate to Malaysia," Thong recounted.
As Malaysia reopens its economy following the COVID-19 pandemic, foreign funds have been slowly returning in search of profitable investments, with one sector being property.
However, even as things start back up and client's like Thong's look for opportunities for themselves and their families, Malaysia's successive governments have moved to tighten the market and restrict what sort of properties are open to foreign purchase.
This, despite the fact the country still faces a property overhang, with affordable housing, particularly in the cities, looking increasingly out of reach of regular Malaysians.
Malaysia's property market before the COVID-19 pandemic
Chaly Koh, founder and CEO of Urbanmetry, a property and urban planning data analytics outfit, explains that the Malaysian real estate sector took a serious blow when the pandemic hit in 2020.
"But thanks to various programmes such as the Home Ownership Campaign (HOC), the market rebounded in 2021 and saw an uptick in property sold in most active areas," Koh said.
What can't be denied, however, is that the market was already not too great before COVID-19.
"In terms of foreign investments, property purchases by foreign nationals began to slow in 2017 when China imposed strict capital controls on foreign purchases, which affected a significant portion of purchases in Johor and Kuala Lumpur," Koh said.
And more importantly, she added, Urbanmetry, which deals with property data, has not witnessed a significant return of purchases from Chinese or other foreign investors post-pandemic.
According to statistics provided by the National Property Information Centre (NAPIC), a sub-organisation of Malaysia's Finance Ministry, a gradual revival of Malaysia's property sector appears to be on the cards.
This is evidenced by the 389,107 transactions worth RM179.07 billion recorded for 2022; a volume increase of 29.5 per cent and a value increase of 23.6 per cent compared with the previous year.
Of these transactions, the majority (62.5 per cent) were for residential properties, which contributed RM94.28 billion; marking increases of 22.3 per cent and 22.6 per cent in volume and value, respectively, from 2021.
Yet bearing in mind the relatively lower economic growth projected for 2023, the likelihood is that performance will be more moderate this year.
Even so, government initiatives under the country's five-year 12th Malaysia Plan and the revised 2023 Budget are expected to bolster the industry.
In mid-2022, international real estate firm Juwai IQI surveyed nearly 350 real estate agents across Malaysia on expectations for the coming 12 months.
The view of two-thirds of these was that offshore purchases of Malaysian real estate would return to pre-COVID-19 levels by the end of 2023.
However, while the reopening of borders and resumption of travel might mean a return to Malaysia for foreign buyers, it's important to note that different foreign nationals have always displayed different tastes. And that may have changed somewhat in the years that they have been away.
Real estate agent Thong noted, for example, that Singaporeans — who make up a significant portion of foreign purchasers — have generally preferred to own property in areas such as the Kuala Lumpur city centre.
"Consider what a Singaporean could purchase with S$700,000 to S$800,000 (RM2.3 million to RM2.6 million) in an exclusive area such as Orchard Road and the surrounding roads, versus what that money can buy around the Pavilion area in Kuala Lumpur," he said.
Urbanmetry's Koh agrees somewhat, pointing to how the focus of Singaporean property buyers has changed from the period between 2013 and 2018, when purchasers looked to Johor, specifically the Iskandar region.
"Coupled with the proximity of the Second Link Bridge, conveniences and merits of a 'suburb in Malaysia lifestyle' as well as the then-planned High-Speed Rail, Singaporeans saw Johor as an option, especially in the landed property segment," she says, adding that there was also interest in tourism hotspots, such as Melaka and Penang.
"(But) post-pandemic and post-political turmoil in Malaysia, Singaporeans took a hit in some of these investments and interest has since dried and is yet to rebound in Johor and the tourism cities," she says.
Can Malaysians afford it?
Singaporean property buyers aside, however, the question that remains to be determined as we wait on the inflow of foreign funds is how current market trends will impact Malaysians.
In short, will property prices go up? And if that happens, and foreign investments return to pre-pandemic levels, would that entail citizens being priced out of the market?
Thong's view is that this is unlikely.
Indeed, he noted, as did Koh, that most urban markets in Malaysia have ample supply to cater to both locals and foreigners. More to the point, foreigners are restricted in the choice of property they can buy.
They explained that current regulations in most Malaysian states limit available properties to those priced at over RM1 million. In Selangor, the minimum price is RM2 million.
"It is important to note that the foreign and local markets have different needs," Thong said. "Some foreign buyers prefer to live in the city, have easy access to amenities like offices, banks, shopping and eating, and international schools for their families."
By contrast, he added, most local buyers prefer to commute by car or rail and live outside urban areas due to negatives such as city noise and traffic.
Despite the differentiated markets, however, Koh does have concerns about the sustainability of foreign investor-targeted properties.
"There are serious sustainability concerns around allowing houses or apartments to be specifically targeted to foreigners as the houses are then treated as commodities, and often left vacant for speculation or appreciation purposes," she said.
She added, too, that it must be remembered that much of the infrastructure in Malaysia's cities and towns, such as roads, utilities and telecommunication networks, is heavily subsidised by the government (whether state or federal). Thus, constructing houses purely for speculation by foreigners has a greater impact beyond price competition with locals.
Be that as it may, it is early days yet. As such, how or whether returning foreign property investments impact Malaysia and Malaysians will have to be determined in the months and years to come.
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