City&Country: Chinese investors see value in Malaysian real estate

Chinese investors are making their presence felt abroad as they seek stable assets offering better returns outside their country. While Vancouver in Canada, Australia and the UK seem to be their favourite investment destinations, a China Daily report in June quotes global real estate services firm Colliers International as saying the Chinese acquired some RMB1.3 billion (RM606.3 million) of property abroad in the past six months. In May, DTZ Research reported that Chinese buyers were the largest foreign investors in Singapore, ahead of Malaysians who usually come in first.

The Chinese are coming to Malaysia as well. Earlier this month, about 80 real estate investors from China were in town as part of a real estate shopping tour jointly organised by major property portal Soufun Holdings Ltd, local real estate agency CBD Properties Sdn Bhd and its Singaporean counterpart OrangeTee Pte Ltd.

Members of this tour group hailed from Guangzhou, Shenzhen, Beijing, Shanghai, Chengdu and Tianjin, says Adrian Wang, managing director of CBD Properties.

“They were businessmen, developers and investors. This tour was specially organised as an investment and study tour,” he says.

This was the second time CBD Properties organised such a tour although this group was significantly larger than the previous one, which visited earlier this year, adds Wang.

The real estate agency is targeting Chinese buyers as it recognises the country’s economic might and the relative affordability of Malaysia’s real estate in comparison with that of their home market. “They [are interested] due to the cheaper space,” says Wang.

The recent tour included a visit to The Pearl, a 41-storey freehold condominium in Jalan Stonor, Kuala Lumpur, comprising 178 units. The size of the regular units is from 3,109 sq ft, the duplexes from 5,640 to 7,210 sq ft and the penthouses from 7,955 to 11,087 sq ft. Prices are from RM900 psf.

The condominium was developed by Flora Bliss Property Development Sdn Bhd, a musyarakah partnership between Kuwait Finance House (Malaysia) Bhd and Bank Rakyat.

Prime location is high on Chinese investors’ list of priorities, says Wang. The Pearl boasts a convenient location with amenities such as Prince Court Hospital, KLCC Park and the Suria KLCC mall just a stone’s throw from the condominium.

“They prefer freehold units with sizes from 1,500 to 2,000 sq ft and prices from RM1 million to RM2 million as there is lower risk in holding on to these properties,” says Wang.

These investors are mostly looking for condominiums or serviced apartments, although there are a small number who look for landed properties, he observes.

Members of the tour surveyed by CBD Properties are mainly looking for investment, with many believing there is potential for capital gain.

While The Pearl is not the Chinese investors’ preferred built-up size, Wang is quick to point out that these larger units are mostly for own use — either for the investors’ children studying here or for retirement purposes.

“As developers rush to build smaller units to meet current market demands, larger units will become rare and, therefore, there is greater appreciation potential,” he adds.

According to Wang, the Chinese buyers on this trip had budgets ranging from RMB2 million to RMB3 million, although some were prepared to spend as much as RMB4 million or as little as RMB1 million.

He believes the Chinese have shifted their focus to Malaysia due to the lower property prices here, in comparison with those in Singapore and Hong Kong.

This is coupled with China’s recent implementation of cooling measures in its property market, adds Wang.

CBD Properties’ survey also found that some of the Chinese investors had previously looked for property in the US and Australia but turned to Malaysia due to its geographic and cultural proximity to China.

“The few I spoke to were mostly first time [visitors to] Malaysia. Their main concern was return on investment. How much was the initial payment and what were the outgoings they would have to pay? After deducting the outgoings, how much could they get? Who would manage [the property] for them? What about the nitty-gritty like maintenance of the unit?” says Wang.

In this respect, CBD Properties offers services to applicants of the Malaysia My Second Home (MM2H) programme which allows a 10-year social pass and purchase of homes with higher loan margins, among other things.

“We also offer a full range of value-added services. For instance, we look for suitable tenants for their properties which they do not occupy for, say, nine months out of a year. We also help maintain their homes to ensure the properties remain in good condition and are able to generate profits.

“I believe if we want foreigners to invest in our country. Firstly, we have to provide the right information and education to the investors. The Australian developers did a good job in our country, [and so] people are very confident to invest in Australian property now. We shall use the same method to approach the Chinese to make them feel comfortable and confident. Once we attract them, [it will contribute] a huge amount of foreign direct investment to Malaysia,” says Wang.

In the pipeline is another such tour, which may also target Japanese buyers who want to migrate due to the spate of natural disasters in the country, such as the March earthquake, tsunami and the resulting nuclear crisis, as well as the attractive conditions of the MM2H, he adds.

According to the official MM2H website, the Chinese were second to the Iranians in the programme take-ups last year, ahead of the Japanese and Bangladeshis.

However, Chinese nationals were ranked first on a cumulative basis from 2002 — the year of MM2H’s inception — to February 2011 with 2,522 people retiring in Malaysia to date.

The privately led Malaysia Property Inc (MPI) established under the Economic Planning Unit concurs with CBD Properties’ observations of Chinese buyers.

“High-rise sales make up the majority [of the investments] as the [focus] is on city centre condos in KLCC or beachfront condos such as those in Penang. Freehold is preferred. [They look] mainly for holiday homes and investment, and increasingly for their children,” says an MPI official.
The agency will showcase Malaysian properties in Shanghai, China, this month.

“We’re bringing properties that Chinese buyers have expressed interest in, [for instance] beachfront condos such as [Hunza Properties Sdn Bhd’s] Gurney Paragon [mixed-use development], golf-themed residences such as [Sime Darby Property Bhd’s] Turnberry Villas and [Dijaya Corp Bhd’s] Tropicana Grande [condominium] as well as some commercial properties in the form of industrial warehouses,” says the official. The agency notes that the investors’ budgets range from RM500,000 to RM2.5 million.

However, Thevandran Ragavan, principal of Thevan Realty, opines that these organised tours may not rake in the money compared with investments made by seasoned investors who spend RM100 million to RM250 million on large investment deals such as golf resorts and office buildings.

He is currently handling a land transaction with some Chinese investors involving a one-acre parcel in Jalan P Ramlee, near Menara Glomac, which is going for RM2,500 psf. “They plan to build a 35-storey Grade A office building,” says Thevandran.

They are also mainly looking for landed freehold properties as these offer greater yields at a fraction of the price.

“[For example,] a nice bungalow in Damansara Heights will cost RM4 million and can be rented out for RM20,000. The same thing in Shanghai will cost RM40 million [and collect] a rent of RM50,000. If you do the math, you’ll see that the bungalows here give higher returns,” explains Thevandran.

He also notes that there is a small but growing number of investors from Hong Kong whose budgets typically range from RM5 million to RM15 million. He observes that Hong Kong investors are more concerned with political developments here, such as the recent Bersih2.0 demonstrations, in comparison with their mainland brethren.

Meanwhile, he notes that the Chinese are happy with the government and rules here, with their only concern being the stamp duty on property purchases which they feel is too high, as well as the possibility of an increase in the current real property gains tax (RPGT).

For disposals made from January last year, the RPGT is 5% for a period of five years from acquisition of the property.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 875, Sep 12-18, 2011