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Malaysia: Malaysia

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

Malaysia is spread across the South China Sea, occupying a peninsula bordering Thailand and a third of the Island of Borneo. The area is one of the most beautiful corners of the world, famous for palm fringed white beaches, gentle seas and rainforest. To this cultural and geographical vibrancy Malaysia adds flourishing financial and high-tech industries based in Kuala Lumpur. Popularly known as KL, Malaysia’s capital has a modern cityscape which compares with any financial centre in the region. With annual population growth of 1.8% Kuala Lumpur is growing fast. Seven out of every one hundred people in the capital are ex-pats, a testament to the economic strength of the city.The investment opportunities in KL mean that most property buyers look here first, often beginning in the prestigious ‘KLCC,’ the popular acronym for Kuala Lumpur City Centre. Otherwise, investment opportunities also exist in Malacca, Penang and Langkawi. Prices are highest in Kuala Lumpur, but rental yields generally sit at around 8% in most locations.

Is this a good place to buy?

Overseas investment in the property market concentrates on Kuala Lumpur with a secondary market in the resorts and islands. These areas are popular with people retiring to Malaysia under the “Malaysia, My Second Home” programme. Local consultants CH Williams Talbot and Wong say that the market is ‘highly energised’. Forecasts for 2005 and 2006 are optimistic, as the past year has seen completion of a number of sophisticated projects, but demand continues to significantly outstrip supply. The international research department at Knight Frank also believe that ‘the market benefits from good infrastructure and an improved regulatory environment, which should help Kuala Lumpur avoid an availability surplus.’ Demand has also been promoted by a flourishing tourist industry. 2005 saw the highest ever number of arrivals, with demand more than 10% higher than in 2004.

Two trends are discernable: firstly, there is a concentration on affordable luxury properties with the numbers of gated housing projects and non-landed luxury units increasing. Secondly, there is growing demand for serviced apartments, particularly in central locations. Sales of serviced apartments climbed by nearly 40% in 2003 and 2004.

The demand is attributable to the large numbers of professionals who relocate to the city every year. Relocation can be permanent, but more commonly people will be relocated for between 3 and 6 months, making serviced apartments the ideal solution for their companies.

Price History

During the 1990’s Malaysia was one of the leading Asian Economic Tigers, with a booming economy and a real estate market to match. Prices in KL rose rapidly, and new commercial and residential real estate projects sprang up across the city.

In 1997, the Malaysian economy, along with the rest of South East Asia crashed due to the Asian Economic Crisis which ignited as speculators caused regional currencies to fall though the floor. Every aspect of the Malay economy was affected, including the real estate market. The buoyancy of the market in previous years had led to many developers undertaking vast, ambitious projects. As the economy cooled, many developers went bankrupt leaving half completed buildings. Large amounts of completed stock also helped maintain a glut through oversupply.

In the years since 1997 Malaysia has recovered, faring better than many of its neighbours. By the early noughties demand for real estate in KL had begun to catch up with supply and prices have been rising steadily ever since. Even with these rises, prices in central KL remain as much as 30% below their 1997 highs. Sales in 2004 were healthy, with prices in KL up 13.1% year-on-year. The average price increase across Malaysia was 5.7%. Double figure increases were also registered in Terengani, Sabah, Perlin, Pelang and Kadah.

Despite the increases, Malaysian property has a proven track record at higher prices. Today the economy is more stable and more open, meaning that higher prices are likely to be far more sustainable than in the 1990’s. All this suggests that property in Malaysia represents a good bet.

More pages

Page 1: Guide to the Risk and Opportunity Ratings
Page 2: Which type of property should you go for?
Page 3: Purchase Process

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