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City & Country: Bullish on Malaysia

The Chinese real estate investors are in town and they are buying, buying big.

Besides high-net-worth Chinese individuals, there is a group of coal miners from Shanxi, 600km away from Beijing, with a combined net worth of more than US$1 billion (RM3.2 billion).

The low-profile group first put Malaysia on their investment radar about nine months ago, and is said to have acquired over RM100 million worth of real estate in prime areas in the Klang Valley. The portfolio includes vacant tracts in Kuala Lumpur’s prized Kenny Hills and the exclusive U-Thant areas.

The group is now in talks with various property owners for more prospective buys, all located in the Klang Valley and worth another RM100 million or so, principal of Thevan Realty, Thevandran Ragavan, tells City & Country.

“They are only interested in the best there is in Kuala Lumpur,” Thevandran says of the group’s key shopping criterion.

Real estate investors from China are eyeing Klang Valley's prime addressesThey are currently negotiating with a public-listed company to buy its building in the heart of Kuala Lumpur. Besides vacant land, the investors are also keen on buildings, hotels and even abandoned buildings with redevelopment prospects which cost RM50 million to RM250 million. “They are very bullish on Malaysia but they are also very cautious. They do not buy just anything,” says Thevandran.

These seasoned investors have locked in their money on real estate interests in many parts of the world, including Indonesia and Thailand, but decided last year to shift some of the funds to Malaysia, he says.

“They see the Malaysian market picking up in the next three to five years before peaking eight years or so from now. They see good capital appreciation and yields. They are also attracted by the cheap prices, political stability, feasible policies and low capital gains tax here,” adds Thevandran.

While the Klang Valley is the group’s prime choice, next on their list is Johor Baru and then Penang. “They go for the central business district. They see great potential in KL as there is a shortage of Grade A buildings in the city centre. That is why they are looking at building a block of apartments or commercial units for lease,” he says.

This is not Thevandran’s first encounter with investors from China. In the past, he has acted for individual investors who made single investments below RM20 million.

As the Chinese government works overtime to cool a hot real estate market, especially in the mainland’s prime addresses, and Hong Kong has started displaying signs of pricing resistance, a growing number of discerning high-net-worth Chinese individuals are looking abroad to park and grow their money.

Some of these investors, who have put their money in Europe and the US, are now considering shifting the funds to Malaysia.

Thevandran calls this group the “seasonal investors”.

“They have been in the Europe and US market for the past 15 years. Following the global economic crisis, they see Asia as the next key growth area. I was told they are not investing in traditional markets because prices in Singapore are high while Hong Kong is a bubble waiting to burst,” he says.

Interest should pick up
Zerin properties CEO Previndran Singhe has also seen interest from Chinese investors over the past two years, though “not in big numbers”. They have invested in condominiums in the city centre, but not made bulk purchases, he says.

This, he reasons, is because China itself is a very big market with plenty of supply to choose from. And if they do look at other countries to invest in, it would usually be Hong Kong, Taiwan and Singapore.

Previndran also feels there is a lack of marketing of Malaysian real estate in China. “Nonetheless, I think there is potential for them to become big players here as we are quite an attractive market in terms of political stability and policies. I think interest from China should pick up in a year or two,” he tells City & Country.

Coming in through HK
Victor Lim, managing director of iProp Realty Sdn Bhd, says Chinese investors have been putting money on certain prime properties in the city centre, usually condominiums and commercial property, and that these funds usually come via Hong Kong.

While some investors have war chests of RM10 million to RM20 million, there are also the smaller and individual players with funds of RM1million to RM2 million, he says.

Lim says he has been approached by some Chinese investors to acquire an old building on Jalan Ampang. Their plan is to build a new high-end condo on the site.

He has also heard on the grapevine that a group of Chinese investors has bought 1,000 acres of oil palm land in Malaysia. “I suppose these investors are really looking for places overseas to park their money, and Malaysia is increasingly becoming a favourite destination given the cultural similarities and ease of communication. In addition to that, they recognise the potential of property development here,” he says.

“The property market in general has globalised. It’s a different ball game compared to 10 years ago. Today, you find buyers coming in from the Middle East, US and UK. Before this, it was all local players,” Lim says.

He says that while 2009 would have been the best year to invest in property, it is still not too late.
“Prices here are still relatively low compared with other countries. The interest from China might peak depending on government policies, and I believe  our government has certainly done something to attract more investors from China.

“Regionally, Malaysia offers cheaper properties and is more politically stable than Thailand and the Philippines. After Singapore, Malaysia would be the best place [for investment],” Lim adds.

Lack of exposure in the market
DTZ Debenham Tie Leung (M) Sdn Bhd executive director Brian Koh is also seeing Chinese investment in Malaysia, but on a relatively small scale due to what he calls a lack of exposure of the Malaysian market.

These investors would only come here if they have business links. Another reason for their investment would be the Malaysia My Second Home programme (MM2H), as the number of applications from China is increasing, he says.  Since its launch in 2002, MM2H has attracted some 13,317 participants, mostly from China.

Koh recalls how a road show last year to promote KL’s Pavilion Residences in Shanghai was met with a lukewarm response. “During the road show there were only about 12 enquiries about our products. Of these, only two or three materialised,” he says.

The yield and capital appreciation here is still low compared with Singapore and Hong Kong. “There are Chinese investors here, but not as many as in these two cities. The only attraction here is that our prices are lower and the units are larger in size,” Koh adds.

Drawing in Chinese investors
Instead of waiting for Chinese investors to come here, some Malaysian developers are taking their wares to the Chinese market.

Recently, SP Setia Bhd Group exhibited in Hainan its Setia Eco Park Rainforest Villas and Setia Sky Residences’ Alia Tower to positive response.

Prices for the Rainforest Villas, with a land area of 6,782 sq ft, start from RM3,775,400 while in Alia tower, 1,055 sq ft units are priced at RM750,000 onwards.

“SP Setia has been to China a few times to exhibit these two projects. One of the reasons we are trying out China is because the market is huge and it shows great potential, says managing director and CEO Tan Sri Liew Kee Sin.

Liew says higher-end projects appeal to the Chinese who want to invest overseas. “There is definitely a growing Chinese market in Malaysia, but it has to be the right kind of properties to attract them,” he says, adding that the Setia Sky Residences achieved RM10 million in sales when it was launched in Shanghai in October.

Liew notes that prices in Malaysia are still the lowest compared with Singapore and Hong Kong. “Our prices are only around 30% of what they pay to own a property in China,” he says. He named other drawing points as the favourable climate, MM2H programme and multiple Chinese dialects spoken.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 803, April 26-May 2, 2010
 

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