The falling ringgit is making Malaysian properties a big bargain now
if you have an appetite for emerging market properties.
Text by Jan Yong
At the time of writing, crude oil price has climbed to a 3-week high, up 7% to USD34 a barrel on speculation that OPEC and Russia may finally decide to cut output. Around the same time, the revised Malaysian Budget 2016 was announced and although it didn’t cause much excitement, when combined with the rest of the news, had lifted sentiment causing the Malaysian Ringgit to appreciate after eight weeks of downtrend. At last look, the ringgit was trading at RM4.21 against the USD. Why are all these information important to the real estate investor?
It’s crucial because it affects the timing of when you want to enter a particular country’s market or whether you want to invest in the country at all. With so many countries now competing for investment dollars, you as the investor with funds, are spoilt for choice. There are so many rich pickings out there that it really seems like the Christmas/Boxing Day sale is still on (or in Asia’s case, the Chinese New Year sale).
Countries in Asia like India, Vietnam, the Philippines and even South Korea are improving their laws and tweaking them to attract more investors into their property market. Within Asia, Japan, Hong Kong and Singapore’s markets are the most matured with great infrastructure and proper laws in place making it very easy for the investor. The only problem is the price level of properties there are beyond many.
Coming up closely behind in terms of transparent property laws and great infrastructure is Malaysia, a country that had started off on similar footing with Singapore back in 1965 but has since these last 50 years diverged greatly on practically all fronts. As a result, the Malaysian economic and human resource development have lagged behind that of Singapore. The Singapore dollar (S$) and the Malaysian ringgit (RM) started out at 1:1 (equal footing) but have diverged to the point that the S$ is now worth three times more than the Ringgit.
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At the same time, while Singapore has evolved into Southeast Asia’s financial centre attracting high net worth individuals from all over the world who perceive it as a safe haven, Malaysia has not had that kind of destiny despite being rich with resources. However, not all is gloom and doom for this northern neighbour of Singapore. The increasingly globalised world means countries especially neighbouring ones are becoming more interconnected, not just in terms of transportation but in terms of its economic interdependence.
Enter Iskandar
Singapore, with its expanding economy, is hampered by its lack of land; and in recent years by its high human resource cost. Luckily for it, right next door, in the state of Johor, is a special economic zone called Iskandar Malaysia region which has sometimes been referred to as “Singapore’s hinterland”. It has all that Singapore lacks – ample and cheap land, water resources, cheap and delicious food, and in Medini township, tax breaks for property investment. Iskandar is almost a godsend to Singapore and the two have many times been likened to the Shenzhen-Hong Kong relationship – except as noted by property expert, Dato Sri Gavin Tee, Shenzhen has now evolved into its own and is a financial centre in its own right. That could possibly happen to Iskandar one day.
As it is, the region, which is two-and-a-half times bigger than Singapore, has some areas that are so well planned that it mirrors Singapore. Even its planned transportation infrastructure is geared towards complementing Singapore – the Rail Transit System (RTS) which will link Johor Bahru’s CIQ to Singapore’s Woodlands station is built to accommodate more workers going to and fro the two countries.
KL –Global City of the future
But perhaps the most game-changing upcoming infrastructure is the Singapore- Kuala Lumpur High Speed Rail (HSR) which is anticipated to drive more businesses and workers from Singapore to relocate to Malaysia, particularly along its route where there are stations. Increasing numbers of Singaporean small and medium sized industries (SMEs) are already or have already relocated to Iskandar, and more are expected as business costs balloon in Singapore.
The HSR reduces the journey to 90 minutes from Singapore to KL, and if a faster high speed train is commissioned, the trip might even take less time, maybe only one hour, “before you even have time to warm your seat,” quips renowned map maker and property expert Ho Chin Soon. It is anticipated that when the HSR is completed sometime beyond 2020, even more companies from the island republic will relocate to Kuala Lumpur with its much lower costs (everything is one third of the cost in Singapore, applying today’s exchange rate). That’s one of the factors that policy makers in Putrajaya are hoping will drive the growth of Greater Kuala Lumpur (GKL).
With GKL’s advanced infrastructure such as the Mass Rapid Transit (MRT), extended LRT and its proximity to Kuala Lumpur International Airport 2 (KLIA2), the hub of low-cost airlines in Asia, the city is poised to enjoy more worker migration as more companies are anticipated to set up or relocate there. Likewise, a number of upcoming mega projects such as Tun Razak Exchange (TRX), Bandar Malaysia, KL118, Bukit Bintang City Centre (BBCC) and KL Metropolis are expected to put Malaysia on the world map.
KL has also been put on a watch list to join the ranks of Global City of the future as forecasted by Knight Frank Research which cited its infrastructure especially the MRT as a key to its future growth. “There will be renewed interest in the city – to live and work, and also as a destination for entertainment and tourism. The impending entry of upscale hotel brands such as Four Seasons, Fairmont, Kaminski and Jumeirah in the city will further catapult Malaysia into the global tourism market.”
Oriental gems
Meanwhile, Penang, the popular island on the northwest of Peninsular Malaysia, also known as the Pearl of the Orient, is still drawing in lots of visitors and Malaysia My Second Home (MM2H) applicants. It has been voted the most liveable city in Malaysia, and the 8th most liveable in Asia – and the state government intends to continue topping that list by coming up with initiatives to make it even more liveable. An ambitious transport masterplan which even proposes an underwater tunnel in addition to a light rail transit (LRT) track between Penang island and its mainland, and several mega projects in the pipeline are anticipated to drive growth raising further its status.
Further south of Greater KL is the historic city of Melaka which is set to attract billions of ringgit in foreign investments particularly from China which is well aware of its great potential as one of the ports along its “21st Century Maritime Silk Road” policy. Investors from Guangdong, China, have already proposed to set up a RM20 billion industrial park as well as a marine park there, a proposal that the state government welcomes with open arms.
Melaka’s strategic location has always attracted hordes of foreigners since the 1400’s, from the Portuguese and Dutch to the English, and now the Chinese. Its UNESCO World Heritage Site status adds to its inherent charms and the state government is quick to seize the opportunity to facilitate a number of mega projects such as Malacca Gateway and the state-backed RM12.5 billion Sungai Linggi reclamation and port development project.
An often overlooked location is Kuantan and its surroundings. Gebeng Industrial Park has long established its reputation as one of the key petrochemical hubs in Malaysia, with many top-tier multinational companies setting up shop there. Malaysia-China Kuantan Industrial Park (MCKIP), an iconic project signifying the close relationship between Malaysia and China, has attracted RM9.7 billion investment since its launch in 2013 and is expected to generate RM84 billion total investments and create12,000 jobs by 2020.
Value for money
Based on our study of all the possible countries in Asia, Malaysia is one country that really stands out as being incredible value for money. Even before the currency slide, property prices in Malaysia have lagged behind those of its ASEAN neighbours. Prices in Jakarta, Bangkok, and even Phnom Penh and Ho Chi Minh City are even higher than KL prices in certain locations. Even during the property boom years of 2010 – 2013, prices of Malaysian properties were still relatively cheap compared to its neighbours.
The persistent economic slowdown in the last two years made worse this year by higher inflation due to a new consumption tax and increases in highway tolls and public transportation fares have not helped sentiments. Some Malaysians are already thinking of leaving the country or transferring their assets out to other countries. They have lost confidence that the government is able to resolve the political troubles and economic malaise. Even the PM’s Revised Budget 2016 in late January has failed to stimulate much excitement in the market.
But as many investment experts will tell you, it’s when people are leaving, demand is falling, and the environment is filled with negativity that you go in. “When there is bloodletting in the market, millionaires (and billionaires) are born”. Those who get in now will reap great profits when the market rebounds later, investment expert Gavin Tee reiterates.
For those with an even longer investment timespan, look no further than Malaysia. It has been ranked the Top 5 Best Country in the World to Retire in 2016 by the highly regarded International Living’s Annual Global Retirement Index. And for good reason; apart from the good climate, food, medical services, infrastructure, spacious living accommodation and general affordability, it also has a residency visa that’s very easy to fulfil.
Given all those factors, Malaysia right now is ripe for the picking especially for those with an appetite for emerging markets and a longer investment horizon. Or, to put it less elegantly, Malaysia is on sale.
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