Asian Property Review talks to Chung Shan Tat, CEO of Macrolink Malaysia and Khalil Adis, founder of Khalil Adis Consultancy on why Chinese developers are venturing overseas and why Iskandar Region in Malaysia holds such a strong attraction for them.
So far, five major Chinese developers have entered Malaysia – Zhouyuan, Greenland, Country Garden, R&F and Macrolink. These are some of the biggest developers in China; for example, Macrolink Group is a publicly listed conglomerate with its core business in real estate development. Since 1992, it has developed almost 100 projects in China and Mongolia. 1. Why have Chinese developers come to Malaysia in a big way since the last few years? Chung: There is significant competition among Chinese developers in China which has seen recordhigh growth in property development. In order to achieve continuous growth, the more capable developers have to adopt an international perspective when looking for business opportunities. Malaysia is popular with them due to several factors, among them a shared culture as 20% of the population in Malaysia are Chinese. Other factors include the lower property price in Malaysia compared to first-tier metropolises of China, the pleasant climate which is ideal for vacation and retirement, the multicultural social environment, and internationalized education. Khalil: Chinese developers have come to Malaysia in a big way since the last few years as they are flushed with cash and are looking to offer their products in emerging markets. Malaysia, specifically Iskandar Malaysia, has been attracting Chinese investors as it is strategically located close to Singapore, has a significant Chinese population and land costs that are not as expensive as Singapore. 2. Who are they targeting as buyers? How is the response so far in terms of sales?[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3,4,5″ ihc_mb_template=”1″ ] Chung: All property developments have to start with the local market, otherwise it lacks the basic elements as a liveable area. Iskandar serves as an international gateway attracting investors from around the world. For example, our project in Medini has buyers from Malaysia, Singapore, Indonesia, Hong Kong and Mainland China. To date, we have sold 50% of Tower A since we opened for early bird sales in May 2016. Khalil: They are mainly targeting Singaporeans, Malaysian Permanent Residents in Singapore and Chinese nationals working in Singapore. We don’t have any official figures on take-up rates so far but it is a very challenging market now. 3. Where are their projects located and why these locations? Chung: Most of the Chinese developments are located in Iskandar due to its significance as Malaysia’s unique economic zone just a bridge across to Singapore. The area has attracted over USD40 billion investment. Medini, as the CBD of Iskandar, has already attracted many world class companies, for example, Microsoft, Hua Wei, Legoland, Gleneagles Hospital, Pinewood Studios, and renowned international schools and universities. There are various tax and incentives available for companies operating in Medini, for example, corporate tax exemption for qualifying sectors, full exemption from compliance with withholding tax payments, etc. 4. What challenges do they face when they develop in Malaysia? Chung: Concerns revolve around political instability and the totally different legal system and industry norms. Khalil: Concerns of oversupply – whether the projects can sustain themselves with the desired population, possibility of a ghost town where many of the buyers are not owner occupiers and lastly, the lack of understanding of the market dynamics of Johor. A good developer will take into account local buyers and from the price points that we have seen, the target market is geared towards foreign buyers which will result in an anomaly in the property market. 5. What are the typical price range and sizes of the properties built by the Chinese? Chung: The price and property size vary from developer to developer. Generally speaking, Chinese developers tend to build relatively big sized-units of condos, e.g., 1,200 sq ft to 5,000 sq ft. The absolute price of a unit is usually higher than RM1.2 mil. However, the first phase of our Macrolink project has units with sizes ranging between 570 sf and 1,000 sf, mostly smaller units. This is because we take into full consideration that smaller units are more affordable and likely to generate higher profit margin in terms of investment. This is also because there is no minimum price of RM1 mil for foreign purchasers in Medini. Khalil: The price per sq ft ranges between RM800 and RM1,200 per sq ft – definitely not something locals can afford. The sizes range from studio units of around 600 sq ft to dual key units of around 1,500 sq ft. 6. The construction period is usually very fast. How do they manage it? Where are the workers and materials from? Chung: The trick is that they use more sophisticated project systems to orchestrate the entire project. The ‘China speed’ should be attributed more to the comprehensive incentive schemes provided to the working team who as a result, willingly contribute their time and energy to finish within schedule or even earlier. The workers are mostly from Southeast Asia. For building materials, we mostly procure locally as we prioritise contributing to the local economy. Khalil: While we applaud the speed and pace of construction, there are concerns on whether this will have an impact on the quality of construction, particularly when building over reclaimed land. The speed of construction is made possible with a 24-hour construction system. Most of the workers and materials are sourced from China. 7. Outlook – do you see more Chinese developers coming to Malaysia up to 2020? Chung: With the increasing development of Iskandar and Malaysia as a whole, as well as the constant encouragement by the Chinese government for its corporations to undertake international investment, I believe that not only the Chinese developers will come to Malaysia, but conglomerates of other industries and even those of other nations will come as well. Khalil: Possibly yes as Iskandar Malaysia is attractive due to its close proximity to Singapore.[/ihc-hide-content]