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FEER: Malaysia Eases Up, But No Takers
By Lorien Holland
18/5/2001 4:09 am Fri
The Far Eastern Economic Review
Malaysia Eases Up, But No Takers
By Lorien Holland
EDDY CHEN HAS AN UNENVIABLE mission--to drum up international buyers
for Malaysia's oversupplied real-estate market. As president of the
Real Estate and Housing Developers' Association Malaysia, he is
organizing a regional roadshow to highlight his government's recent
abolition of many restrictions on property purchases by foreigners,
and to encourage new buyers.
The roadshow is planned for Singapore, Brunei, Indonesia and probably
Hong Kong. However, don't expect a stampede into the market. Malaysia
relaxed its purchasing policies at the end of April to chip away at
the glut of unsold apartments, offices and retail space collectively
valued at 10% of GDP at the end of 2000. But even with the
accompanying list of sweeteners, which includes local mortgages for
foreigners and an end to enforced Malay equity in valuable projects,
significant risks remain for foreign investors.
First and foremost, fears that Malaysia might be forced to devalue its
currency are still bright on the radar screen. Second, Kuala Lumpur's
past policy flip-flops on property purchases by foreigners, including
a retroactive 100,000 ringgit ($26,315) sales tax introduced
temporarily in 1995, make many nervous that the same could happen
again. And then there is the fact that property in Malaysia is still a
lot more expensive than in neighbouring Thailand and Indonesia, and
the chance of fire-sale prices is remote.
"The government is now very keen to be receptive to foreign
purchasers," says Chen. "In the past, with all their policy changes
and so on, they gave the impression of not being very keen, but that
has changed." The reason for the change is that Malaysia, with its
export-driven economy, is feeling the pinch from the economic downturn
in the United States. It needs foreign capital. Property sales are one
way to achieve this--especially when the value of the country's
property overhang was close to 30 billion ringgit at the end of last
Under the new relaxation, the government's Foreign Investment
Committee no longer has to give approval for deals worth less than 20
million ringgit. Previously, approval was required, and the lengthy
6-8 week process put off many potential buyers.
ONCE BITTEN, TWICE SHY
Standard conditions attached to such FIC approvals nearly always
included a requirement that the purchaser set up a locally
incorporated company with 30% Malay equity ownership. Now, any
property purchases above a minimum of 250,000 ringgit and below 20
million ringgit are unfettered, and this includes residential, office
and manufacturing space. The changes also loosen restrictions on sales
involving Malaysian nationals who are not ethnic Malays.
Along with a separate initiative to waive stamp duty for property
bought directly from developers, the measures should bring new
property sales this year to around 4 billion ringgit, according to
Deputy Finance Minister Chan Kong Choy.
However, the Kuala Lumpur stockmarket was less than impressed with the
incentives. Its property index fell by nearly 2% when the measures
were announced. Analysts say that foreigners make up less than 2% of
the property market and that attracting more investors will be an
uphill battle, given uncertainty about the ringgit's peg. Many
Singaporeans--once the most enthusiastic investors in Malaysia--had
their fingers burned during the policy changes of the mid-1990s, and
are not likely to be lured back easily.
In addition, Malaysia's bad loans agency, Danaharta, has not followed
the "short, sharp shock" approach to debt recovery and is trying to
maintain the value of the property market while slowly addressing the
debts incurred during the Asian financial crisis. That creates a
"There really are no bargains here. Prices have stayed up high because
no one is being forced to sell, and that means there has just been a
dearth of transactions," says an analyst with a foreign bank.
But for Eddy Chen, the main issue is one of long-term credibility.
"From what I gather from my discussions with government officials,
we've learnt our lesson. It's best to keep policies constant and
transparent. Then we can project to foreign purchasers that these
policies are here to stay," he says.