M’sia set to attract foreign property investment in a big way

Source : Business Times – 27 Jul 2009

TO help offset a drastic drop in private investment, Malaysia plans to aggressively internationalise its real estate and has set a target of attracting RM20 billion (S$8.2 billion) in foreign investment over the next decade.

It has tasked a new public-private entity called Malaysia Property Incorporated (MPI) with improving the level of foreign investment in the sector, which is currently a mere 2.5 per cent of the value of total properties transacted. In some other countries, foreign transactions as a total are in excess of 30 per cent.

Malaysia has turned to property investment following a plunge in private investment from a third of gross domestic product (GDP) in 1997 to 9 per cent at present. The drastic change in the global landscape and competition for global capital has forced Malaysia to liberalise a number of sectors – including property – where it was previously very protective.

Foreigners are allowed to own freehold residential property, and Malaysia’s is some of the cheapest in the region with prime space going for RM1,000-plus per square foot.

The government also recently liberalised the sector by removing a key approval for foreign transactions except where the transaction exceeds RM40 million and involves a dilution of bumiputra interests.

But the current impediment, property players say, is widespread crime. Unless the government redoubles its efforts to contain crime, foreign investors will remain chary.

‘To encourage foreign direct investment in commercial and shopping areas and in residences, we cannot but emphasise the increasing concern regarding personal safety and property security in our country,’ MPI board of directors chairman Thong Yaw Hong said at the launch of the entity late last week.

‘The business climate in Malaysia has, to some extent, been negatively impacted by the increasing number of companies indicating that crimes and thefts are a severe obstacle to investment.’

The perception of crime is also a reason hindering Malaysia’s efforts to encourage multinational companies to establish their operational headquarters in the country.

Minister in the prime minister’s department in charge of economic planning Nor Mohamed Yakcop acknowledged it was a problem – as is poor public transport – which leads investors to prefer markets such as Hong Kong or Singapore. ‘We have taken note of it,’ he said at MPI’s launch.

The government will provide RM25 million in grants over the next five years to MPI ‘to promote and brand Malaysia as a preferred real estate destination to international investors’, with a matching amount from the private sector. MPI’s target markets include the United Kingdom, West Asia, Japan, Korea, Hong Kong, Singapore and Indonesia.