Property Report - Issue 97, October 2012

By Mak Kum Shi

The Malaysian Luxury Property Market is becoming ever more sophisticated, with a friendly regulatory framework for investment, attractive incentives for second-home buyers, evolving architectural and design trends, and an accessible market that will soon spoil international buyers with choices.

Thanks to its stable economy and political landscape, coupled with a growing global reputation as a tourist destination, Malaysia has also developed an attractive luxury property market that is particularly suited to foreign ownership and investment over the last few years.

Based on world tourism rankings compiled by the United Nations World Tourism Organisation (UNWTO) as part of their World Tourism Barometer publication, Malaysia was the 9th most visited international tourism destination in the world in 2011, after France, United States, China, Spain, Italy, Turkey, United Kingdom and Germany. In fact, its international tourist arrivals reached 24.7 million and 24.6 million in 2011 and 2010 respectively.

Malaysia's Tourism Minister, Dato' Sri Dr. Ng Yen Yen announced recently that Malaysia had already welcomed 11,632,483 tourist arrivals during the first six months of 2012, which accounted for an increase of 2.4 percent when compared to the 11,362,862 arrivals for the same period last year. Correspondingly, total tourist receipts from January to June 2012 rose by 4.0 percent, adding RM26.8 billion (US$8.6 billion) to the country's revenue, compared to RM25.7 billion (US$8.2 billion) in 2011. Such impressive numbers also help boost the property sector as overseas visitors become aware of the investment opportunities available.

Incentives for second home buyers

For foreigners attracted to the way of life in Malaysia, the Malaysia My Second Home (MM2H) programme helps them purchase property in the country, as well as offering certain privileges. Successful applicants are given greater flexibility than tourists to enter and leave the country as they wish, with no minimum period of stay; they are also entitled to buy or import a car free from duties and taxes. The programme permits foreigners to purchase and own unlimited residential properties (with a minimum investment), while members' children are allowed to study in Malaysia (including at government schools) under the visa and successful applicants are also allowed to set up, run and own their own companies in Malaysia, subject to certain government policies.

The main requirements for applicants to the MM2H programme depend on their age group. Applicants over 50 years old must be able to show savings of not less than RM350,000 (US$112,000) and to have a monthly offshore income of not less than RM10,000 (US$3,200). Upon approval they must open a fixed deposit account at a Malaysian bank containing RM150,000(US$50,000). After one year, the applicant can withdraw RM50,000 of this for approved expenses.

Applicants below 50 years old must be able to show savings of not less than RM500,000 (US$160,000) and to have a monthly offshore income of not less than RM10,000 (US$3,200). Upon approval, they must also open a Fixed Deposit account of RM300,000 (US$100,000) in Malaysia. After one year, the applicant can withdraw half of this amount for approved expenses.

Current foreign interest levels

At a media briefing organised by the Real Estate and Housing Developers' Association Malaysia (REHDA) in September, Veena Loh, General Manager, Malaysia Property incorporated (MPI) said that foreigners accounted for 2 percent of the total properties transacted last year in Malaysia. In some states, however, she said this percentage can be very much higher, with the highest foreign ownership in Johor, at 25 percent, followed by Kuala Lumpur at 11.5 percent. Loh also said the majority of foreign buyers purchase property through the Malaysia My Second Home (MM2H) scheme, and are generally either western expatriates or diaspora Malaysian investors. In fact, figures suggest there have been 1517 MM2H investors in the past 5 years.

However, according to a World Bank Report, the number of expatriates working in Malaysia as a whole has been falling at a compound annual rate (CAGR) of -9 percent per annum over the past decade and the income of expatriates in Malaysia is considered among the lowest in the region, according to a recent HSBC survey, which is probably why a large percentage of the foreign owners in Johor are Malaysian diaspora residing in Singapore. Despite this fact, in Kuala Lumpur at least, property prices have appreciated at an average of 5.5 percent over the last 10 years.

"Personally, I believe that the MM2H programme has a lot of potential and can be improved further," said Albert Chan, Consultant, GreenDales Worldwide Malaysia (MM2H) Sdn Bhd. "The current numbers of participants do not reflect the true potential of the MMzH programme. With proper planning and implementation, this programme can contribute greatly to the Malaysian market."

Datuk Seri Michael Yam Kong Choy, President, REHDA agrees with this analysis. "We encourage foreign participation and ownership of high-end properties in Malaysia, because they add to the diversity and the vibrancy of of the country," he said. "To be global, you need a wealth of talent and this wealth of talent will go to places where the economy is vibrant, and they feel welcome."

Making investment easy

Malaysia's legal framework makes ownership of property relatively easy, especially when compared to other countries in the region. Straightforward taxation on capital gains, and high affordability also make Malaysia an attractive option for investors from neighbouring countries in Asia. Foreign institutional and individual investors are permitted to buy and own of properties in Malaysia outright, as long as the properties are not part of the bumiputera (indigenous people) quota, and are above the minimum floor price for foreigners, are not on Malay reserved land, and are not considered agricultural land. At the time of going to press, the minimum investment price for properties being bought by foreigners was RM500,000 (US$160,000) in most states, although reports say this will soon rise to double that figure. In Penang, the minimum property investment is already RM1,000,000 (US$320,000) except when it comes to landed properties, for which it is RM2,000,000, while in Sarawak the figure is RM300,000 and Pahang RM750,000 (Cameron Highlands, Bentong and Kuantan).

To curb speculation, real property gains tax (RPGT) is incurred on properties in Malaysia sold within a certain period. At present, properties sold within two years of acquisition incur 10 percent RPGT, while those held for more than 2 years but less than five years, are taxed at 5 percent. In addition to its growing capital values, based on the Global Property Guide's country ranking by investment rating, Kuala Lumpur also ranks very highly in terms of rental yields, with a gross rental yield of 6.21 percent. Positive points are low transaction costs, high yields for luxury condominiums and administrative reforms that have improved the overall rental market for investors. Negative points are KL' s high rental income tax, a whopping 26 percent, and an overall legislative framework that many feel is excessively pro-tenant.

Green architecture and design

Many of the best luxury developments in Malaysia have already been recognised by international property, construction and design awards, not least for their innovative green technologies. Malaysia's Green Building Index (GB1), Singapore's Green Mark, Australia's Green Star, UK's BRE Environmental Assessment Method (BREEAM), and USA's Leadership in Energy and Environmental Design (LEED) are all now used as a benchmark by Malaysian developers and this means anumber of newly launched properties are significantly more environmentally sensitive than older builds. Penang-born Australian architect Vaughn Carnaffan, founding principal and design director of Lychee Design Sdn Bhd, believes Malaysia has an immense design pool emerging. Although he says the historical tendency was to leave residential to larger companies, resulting in a conservative or poorly 'reproduced' product; today, developers are 'breaking this mould', leaving other more conservative developers behind, as they focus on offering much more marketable projects that appeal to sophisticated tastes.

"There's a lot of local Malaysian design talent and capability out there that can and will add value to the country's intelligent development," says Carnaffan, "The small but design-oriented companies utilise this Malaysian talent pool to compete with the world's largest professional design consultancies. We beat out the competition and took on a large portion of consultancy work f or a GCC international award-winning project in the UAE, completed right here in Malaysia. UAE seems to have gone quiet for a while, but I am sure there are going to be many more design success from Malaysia, both locally and internationally."

The Luxury of Diversity

For those seeking properties that offer a luxurious lifestyle, there is certainly no lack of choice in Malaysia's growing marketplace. Whether looking for a beachfront residence, a home near a tree filled national park, a house or condo within a sophisticated suburb, or a villa attached to a quality resort, international investors can enjoy a leisurely pace of life coupled with quality builds, stimulating interiors and a range of hotel styled services to complement the residential facilities. The prices of luxurious developments in Malaysia also tend to start lower than in other parts of the region, often at around RM800 (US$260) per sq ft, and the properties often boast prominent locations, quality materials, stylish architecture, design and master-planning, and a wide range of additional features, such as landscaped parks, club houses, and enhanced security and privacy.

Examples of areas and developments drawing interest in Malaysia include The Maple at Sentul West, a tranquil oasis within the bustling capital that lies in the heart of an international award-winning development by YTL Land. This haven of greenery is peppered with exclusive residences, offices and shops all set against a backdrop of pristine lakes bordering the 35-acre private green space. Such expansive offerings tempt investors with the ultimate in tropical living, but combining the grace of inner city suburbia and easy access to the city's culture and nightlife, including The Kuala Lumpur Performing Arts Centre (KLPac).

Another favourite for those who favour living within a cosmopolitan neighbourhood is Icon Residence by Mah Sing Group, a dazzling, dynamic architectural wonder amidst an international community of over 40 nationalities in the upscale Mont'Kiara and Sri Hartamas district. Its location is also expected to benefit from the proposed mega development, KL Metropolis by NAZA TTDI, which is located directly opposite Icon and will also bring new MRT and LET stations to the area.

For investors drawn more by the cool breeze of the sea than an expanse of green in the city, Seri Tanjung Pinang is E&O's showcase oceanside enclave and Penang island's largest seafront development. The 240-acre residential development brings together 3-storey courtyard terraces in Penang's unique straits-eclectic architecture, as well as luxury suites, seafront condominiums and grand ocean fronting villas reminiscent of Caribbean plantation manors. Seri Tanjung Pinang's Straits Quay the island's first retail marina enclave, offers an upscale experience that includes fine dining, bespoke boutiques, cafes, bars and boat rides. There's also a convention centre, a promenade, a learning centre and the Performing Arts Centre of Penang, coupled with spectacular views of the Andaman Sea right on the development's doorstep and a clear view of the historical George Town skyline. The picturesque 4o-berth Marina is a vital component that makes Straits Quay one of Penang's must-visit destinations.