Lower price for foreigners won’t impact property overhang

by FARA AISYAH/ pic by TMR

THE lowering of property’s ceiling price for foreign ownership from RM1 million to RM600,000 effective next year is not expected to bring down the country’s property overhang substantially.

VPC Realtors (JB) Sdn Bhd Asia Pacific property consultant Bruce Lee said the lower threshold is currently only “an encouragement” by the federal government, and is not a new regulation.

“The initiative by the federal government might not be too impactful as the regulation needs to come from the state governments as land would be state matters.

“The federal government needs to look at other policies to tackle the overhang problem,” he told The Malaysian Reserve.

While agreeing that the move is a good initiative, Lee said it is now up to the state governments — particularly Kuala Lumpur, Penang and Johor — to also consider lowering the threshold in support of the federal government’s decision.

However, he said, it might take time for the state governments to enact the new ruling and any impact on the overhang would not be as immediate.

Sunway University Business School economist Prof Dr Yeah Kim Leng said there is a slight risk of crowding out by foreign purchasers due to the lower threshold.

“Ideally, the threshold should be adjusted according to the supply and demand situation in each locality but this could be a nightmare to implement as well as confusing to both developers and buyers.

“Presently, states are free to set their threshold. That will help ease state governments’ concerns on the appropriate threshold given the differing overhang situation in each state,” he said.

The lowering of the threshold will help ease the oversupply situation, as well as attract more foreign investments into the country, Yeah added.

In the recent Budget 2020 announcement, Finance Minister Lim Guan Eng said the government will lower the threshold on highrise property prices in urban areas for foreign ownership from RM1 million to RM600,000 in 2020.

The move is expected to reduce supply overhang of condominiums and apartments amounting to RM8.3 billion in the second quarter of 2019 (2Q19).

In a written reply in Parliament last week, the Housing and Local Government Minister Zuraida Kamaruddin said that out of the 43,943 participants of Malaysia My Second Home (MM2H), only 15% or 5,108 of them purchased properties in the country.

She also said the majority of the buyers are from China.

In another reply, Zuraida stated that foreign ownership in the Malaysian property market is still under control.

Zuraida said between January and June 2019, 398 transactions from foreign buyers were recorded which is 0.4% of the total sales.

She said 99,524 Malaysian buyers still made the bulk of the transactions (99.6%).

Rahim & Co International Sdn Bhd real estate agency CEO Siva Shanker said the lower threshold might ease the overhang situation, but not resolve it.

“The uncertainties and change of policies — for instance, the lower threshold which will be effective only in 2020 — keep foreigners from coming.

“To give an example, if foreigners come and buy a property and lower threshold next year, and they want to dispose of the property in years to come, they won’t be able to sell it to foreigners because the threshold by the time would be different,” he said.

Siva said that clearing the property inventories as a whole will take a long time and much effort from stakeholders.

Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that while the measures would clear the excess property overhang in a certain segment, one must be reminded that property launches were done on commercial basis.

“This would mean proper due diligence has been made by taking into various aspects of the market. As such, the supply glut could also mean that there seems to be some miscalculation on the part of the private sector.

“Therefore, such measures, if it continues to happen in the future, could result in moral hazard which can be detrimental to the allocation of limited resources,” he said.