Economic growth and incentives to win over investors

The Star

Monday July 9, 2007

THE increasing demand for luxury properties such as condominiums in Malaysia is due largely to the nation's socio-political stability, accommodative policies and positive image globally, analysts said.

Prime properties located within the vicinity of the Kuala Lumpur City Centre (KLCC) cost an average of RM900 per sq ft (psf), lower than the RM6,000 psf in Singapore and RM10,000 psf in Hong Kong.

OSK Investment Bank research analyst Mervin Chow said the recent exemption from the real property gains tax (RPGT), the sustainable economic growth and a slew of other incentives to attract more foreign investors would continue to stimulate the local property market and the number of transactions was expected to increase.

He is optimistic about the high-end property segment, but is still concerned about the overhang that continues to plague the overall sector.

According to the Malaysian Property Market Report, in the fourth quarter of 2006, the total unsold residential units in Malaysia fell by 11% quarter-on-quarter.

Chow said although there was a slight relief, the total unsold residential and unsold newly launched units in 4Q'06 amounted to 170,583, of which the bulk was represented by Selangor and Johor (28.7% and 25.4% respectively).

“The bulk of the overhang units were represented by those units priced less than RM250,000 in Selangor (24.4%) and Johor (21.1%).

“On a macro scale, total overhang of residential units priced less than RM250,000 (the lower-end properties) in the country represented about 84.4% of the total country’s residential overhang,” he said.

Chow added that the oversupply situation of the lower-end residential properties in the country might potentially hamper the sales and future launches by developers with prime focus on this segment.

“Nonetheless, the success story still ultimately depends on many other factors, including the “perfect” location, right product mix, niche market catchments and the right strategy deployed,” he said.

Meanwhile, analysts expect the liberalisation of the property market to put the sector on a level playing field with regional countries.

The Government's move earlier this year to waive the RPGT and relax foreign ownership restrictions on residential properties worth over RM250,000 has benefited the high-end segment of residential properties and has set new benchmark prices.

Analysts believe the low-to-medium property segment may be the next in line to receive a government boost.

“We believe that the level of foreign property buyers' interest in Malaysia has increased recently, but not significantly.

“With our relatively affordable property prices, cost of living factor and security, we are an attractive country for foreigners. In the past, Kuala Lumpur, Penang and Malacca were the top choices among foreigners when it came to owning homes. However, of late Johor has become a focus and is attracting investors,” an analyst said.

High-end property prices in Kuala Lumpur, Penang and Johor rose faster at 8% annually, surpassing the national housing price index's average gain of 3.7%.

Moreover, the gradual strengthening of the ringgit against the US dollar is also good news for foreign buyers due to the potential foreign exchange gains and capital upside.

An industry player pointed out that price aside, international buyers were also attracted to prime areas like the KLCC, which was “world class” in terms of accommodation and facilities.

“The residential market is getting very competitive, with developers starting to sell homes as 'lifestyle' products,” he said.

He said foreign buying interest, particularly in Kuala Lumpur's prime and established locales, had seen steady growth.