Mixed Messages About Investment Property in Malaysia

Malaysia is a hard one to call – on the one hand you have undeniable evidence that the mid-high end in the residential sector is doing very well, and on the other hand you have inflationary pressures impacting local affordability and demand. On top of this, analysts and experts on the real estate market in this Asian nation are all delivering mixed messages about investment property in Malaysia.

I thought I'll try and bring you a bit of clarity – although I am quite confused too! I am certain of Malaysia’s immediate appeal, I am certain of Malaysia’s strong tourism sector and I am also certain that the nation’s government is committed to keeping the foreign investment environment as healthy as possible. But is this enough to ensure a healthy landscape for property investors in Malaysia over the medium to longer term?

It is simply not true that the whole of the rest of the world is being negatively impacted by the dire state of the US economy – by the way, is it just me or has anyone else noticed just how quiet George W has been of late? The fact of the matter is, not every nation in the world is as dependent on the US economy as we are in the United Kingdom and Europe. Sure, Malaysia has a certain degree of exposure to the United States and indeed to other international markets which are also feeling the fiscal pinch, but it also has a strong economy that the government has worked hard to make relatively shock proof to external factors.

Having said that, the Malaysian economy is starting to stress from the impact of internal inflationary factors that are squeezing profit margins in the property sector for example. The fact that construction costs are rising as material and labour costs climb mean developers are reluctant to cut prices and do deals with buyers, and they are also reluctant to start new projects. On the one hand this is bad for those who want to buy in and drive a bargain…on the other hand it’s positive as a market with fewer starts can be a market where demand outstrips supply quite quickly, putting upside pressure on prices – excellent for those with investment property in Malaysia already then!

If you look at the tourism market in Malaysia – arrivals are up, spending is increasing. This is fantastic news for the nation’s economy, it has a strong impact on the property sector as well, and it suggests confidence in the country and gives investors further confidence that Malaysia is a market you can bank on for the longer term. Russian arrivals are up 50% year on year, British arrivals are up 24.5% and there are strong levels of interest in the ‘Malaysia: My Second Home Program.’ But at the same time, Aseambankers and other research houses and brokerages in the region have a neutral call on the real estate market in Malaysia – at least until after Umno’s party elections in December which are thought to be a reason for developers putting off new starts and also deterring some new investors entering the marketplace.

So, whilst there are inflation concerns and a short-term hold on expansion and development until after elections in Malaysia, it could be said that the outlook is shaky. But what about the fact that mortgage approvals hit a high in March and the higher end of the residential sector saw a 50% year on year increase in sales in the first quarter? See, it’s a confusing picture in Malaysia! My own opinion is that the market has fantastic fundamentals driving the long-term success of the mid to high end residential sector, that there are certain opportunities in the tourism sector and that Malaysia is one to watch. But that’s just my opinion – I could be wrong!