Malaysian Property: Still some momentum ahead

SINCE the relaxation of residential ownership rules for foreigners and the real property gains tax (RPGT) waiver, high-end residential properties in Malaysia have attracted a fair amount of interest from abroad.

The changes initiated by the Government, which were targeted at stimulating property activities in the medium- to high-end segment, have thus far mainly benefited the high-end segment of the market.

In the last six months, we have seen greater interest from foreign buyers (as well as local buyers) looking to get into the Malaysian residential property market, which is relatively cheaper vis-à-vis global prices. The RPGT waiver was therefore timely in speeding up acquisitions in Kuala Lumpur.

With the recent spike in property prices, land prices around the KLCC vicinity are also seeing a spike
With the anticipated 4.3% appreciation of the ringgit against the US dollar to RM3.30 (from RM3.45 currently) by year end and eventually RM3.10 by end-2008, the investment proposition in Malaysian assets has an added sweetener.

Developers with ongoing developments were seen raising selling prices by 5% to 100% year-on-year from their launch prices. Just last year, eyebrows were raised when high-end properties around the Kuala Lumpur City Centre (KLCC) were going for RM1,000 per sq ft (psf). Today, the upcoming Four Seasons is said to fetch RM2,000 psf.

We expect the pricing gap between mass market and high-end residences in Malaysia to continue to widen in line with the regional phenomenon, as petrodollars and stock market wealth continue to have spill-over effects on property demand in Malaysia as prices remain cheap vis-à-vis regional peers.

With the recent spike in property prices, we are also experiencing a spike in land prices around the KLCC vicinity. We understand that a piece of land along Jalan Kia Peng, where the present Hakka Restaurant is located, was sold via tender for over RM1,300 psf in 2Q07 – a record price.

This was more than 30% above Glomac’s recent purchase of 1.3 acres of freehold commercial land at RM1,000psf (at the junction of Jalan P. Ramlee and Jalan Pinang) in 4Q06.

We believe the current high-end residential prices are sustainable and may continue to set new records as long as the political and economic climates of Malaysia and the world remain favourable, and Malaysia remains business friendly.

Unlike typical residential investments which require investment returns (in the form of rental), the high-end residential game plan differs with the surplus liquidity in the world. Buyers of these properties have varying reasons for such purchases – speculation, prestige, address, excess cash, and status, to name a few. We understand that high-end residences in Dubai are a classic example, whereby rental returns are almost non-existent, despite soaring prices of over US$1,000 psf.

More incentives to come

Following the initiatives benefiting high-end residences, we believe the Government is also looking at options to encourage more property ownership for the mass market. Among the speculated measures that the Government is considering are:

# Restructuring of EPF depositors’ acco-unts to allow for more withdrawals. We understand that there may be plans to restructure the monthly contribution to Accounts I and II from 70%:30% presently to about 50%:50%; and/or to allow simultaneous withdrawals from Account II for purchases of second houses without the need to sell the first house funded by EPF savings.

# A potential temporary waiver or reduction of stamp duty tax, as was the case in 2003, where for a period of one year starting from June 1, 2003, purchases of houses priced at RM180,000 and below from the developers were eligible for stamp duty exemptions, and the secondary market was exempted from RPGT.

# Further relaxation of property ownership. There are talks that the Government may consider extending the relaxation of rules to commercial propert