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We know nothing about Malaysia” is something Kumar Tharmalingam, CEO of Malaysia Property Inc (MPI), hears often on his trips overseas to promote Malaysian properties. MPI, an initiative of the government’s Economic Planning Unit, was created in February 2008 to attract real estate investment to Malaysia.
Kumar, who took over as CEO in February 2010, found that there was no perception at all about Malaysia as a destination for property investment. “Foreign investors simply do not consider Malaysia a potential for property investment. We are known as a tourist spot and some thought we are an agricultural economy because of our palm oil trade,” he says.
One of the first things Kumar did when he took the helm was to revamp its strategy, which was to lure investors from Western countries. But since the financial crisis, MPI has seen real money and investment opportunities coming from India, China, South Korea, Japan, Indonesia and the Middle East.
MPI then set out to create a profile for Malaysia to be presented at international speaking engagements and presentations. The profile would include the number of households with electricity and fresh water supply, as well as mobile Internet penetration.
“We went to about 18 ministries to gather the necessary data. It was an eye-opener for many. The fact is, even foreigners in Singapore would fly to Phuket or Bali, but have never set foot in Kuala Lumpur. When we showed them the opportunities here, they were surprised,” says Kumar.
He notes that one of the downsides of property investment in Malaysia is that there is no corporate content to sell at anytime for the international market, unlike Singapore where there is an active trade in completed buildings.
“The content in Malaysia is very shallow as most of our buildings are owned by private equity firms, banks, financial institutions and old money. These are net buyers, not net sellers,” says Kumar.
The situation proved to be difficult for MPI as selling off the plan is harder than selling completed property because it is deemed speculative. “We had great difficulties initially. It is so easy to sell a building with a yield to fund managers because it comes across as a low-risk asset. The first thing potential investors ask when we try to sell them property off the plan is, who are the tenants?” says Kumar.
Other issues awaited MPI when it got down to the softscape. Investors that were already in Malaysia warned of issues such as delays in approving permits and the liberalisation of the stock market, among others. These may seem like small matters, but it does affect profitability, stresses Kumar.
“If an investor puts in RM100 million to buy a building in Kuala Lumpur only to find that it will take about six months for the transfer to go through, while in Singapore you can do this in four weeks, it creates the perception that Malaysia is a difficult place to do business,” he reasons.
Thus, it came with some relief that government agencies such as the Performance Management & Delivery Unit (Pemandu) were working to ensure faster delivery and approval time. However, Kumar feels more should be done. “While our developers have risen to the challenge, the public sector has not been upgraded in the same way. Until that happens, we do not have a seamless relationship. In fact, it is the government that should be seen as the more proactive party instead of the private sector,” says Kumar.
Understanding the opportunities
MPI has taken pains to study and come up with a snapshot of what each of the targeted countries look for in real estate investments. Markets such as Japan and South Korea are easy to penetrate as Malaysia is viewed positively there, with the two key attractions being the Malaysia My Second Home (MM2H) programme and education in Malaysia.
Most long-stay Japanese and Koreans are inclined to invest in real estate for their own use, and there have been instances of en bloc acquisitions of condominiums which were then sold to buyers of their nationalities.
“We also found that the Japanese don’t want large apartments because they don’t spend a lot of time at home. The average size they look for is 600 to 800 sq ft. In terms of selling homes, the 35 to 50 age group is a very good market for us, particularly the Korean market,” says Kumar.
As for Middle Eastern investors, their real estate investment in Malaysia tends to be more substantial, but they are very particular about what they want. “They don’t trust stocks, but they love real estate. They have a very short investment time frame of not more than five years. They will come in with small investments first, then wait and see what is being done with the money. If they are satisfied, they will pump in more funds. Soon, the members of the family will also start investing. That’s how they operate in cities like Singapore and Bangkok. So, we need to approach them in small bites first,” says Kumar.
When it comes to India, Kumar says it will be hard to compete with the real estate opportunities there as the turnover of real estate is very high. This is due to the sheer pressure of the population in urban areas, which Kumar estimates increases 10% to 15% every year.
“The migration of people to the urban centres is more than one million a year, similar to China. What we can offer India, and to a certain extent China, is to invest in Malaysia for education, medical treatment, MM2H and permanent residencies (PR),” says Kumar, noting that Singapore has tapped into the PR market very well.
Due to the lack of manpower and funds, MPI sought out partnerships in countries such as India, Indonesia and China.
“We give them the materials and they promote for us. If anything comes out of it, we will pay them a fee. The only exception is in the Middle East as our connections there are strong,” explains Kumar, adding that the parachuting days of flying from city to city daily for promotions are over as what was needed was a more consistent presence and role in the city.
In addition to working closely with the Malaysian Industrial Development Authority and Malaysia External Trade Development Corp offices overseas, MPI has found a resource in the Malaysian ambassadors overseas.
“The ambassadors have been extremely supportive of MPI’s efforts, and they see this as an opportunity to drive investment in Malaysia. Sometimes, we even hold our functions in the ambassadors’ offices. A lot of the government offices overseas were surprised that MPI existed, but once they learnt about what we do, they became very focused on helping us,” enthuses Kumar.
He admits that it has been a difficult journey, having had to first break stereotypes and then educate foreign investors on the opportunities in Malaysia and how it could be a conduit for business in the region. Malaysia, says Kumar, also has one very important thing to offer — the logistic base to serve China and India.
“For centuries, Malaysia has been the logistic centre to look after business and trade in China and India. Companies are now starting to take the opportunity to use Malaysia as a regional centre for business in Asia. If you include Indonesia, these businesses can actually look after about 50% of the world population out of Malaysia,” says Kumar.
Singapore is a contender in this area, but Malaysia offers a more affordable opportunity to start a new business compared to Singapore, he adds.
When it comes to costly overseas events, MPI has put together a cost-savings strategy that charges participating developers a premium. With the exception of Singapore, MPI does on average one event a month.
“The premium will cover the operational cost of the event. If there is any shortfall, it’s only about 5% to 10%. Developers are happy to participate because our events are very focused with a clear objective. We also have local partners, the embassies and government ministries on our side,” says Kumar.
Becoming the first port of call
MPI’s aim is to be the first port of call for investors coming to Malaysia. “We are telling people to come talk to us whether you want to rent an office, buy a home or build a tower. We do not charge a fee for our services and we will help you achieve your objectives in Malaysia,” says Kumar.
MPI is modelled after the Singapore Economic Development Board (SEDB), which offers similar services. Kumar considers the SEDB a very powerful body in Singapore as almost every business that wants to relocate there will go to them first.
MPI has seen some success in the past year, most notably the MPI property gallery in Singapore. The gallery was set up to achieve three objectives — disseminate information on Malaysian property, showcase the best Malaysian developers and present opportunities for investment to high net worth individuals through seminars and talks.
“We had a slow start in November and December last year, but it took off after Chinese New Year. Now, we are 100% occupied by Malaysian developers almost every month. Every quarter, we publish a report on the Malaysian property market, which we present to the press and public, and we even had officials from Pemandu going over to talk about the Economic Transformation Programme. So we are exposing Malaysia to Singaporeans on a larger platform,” says Kumar.
Another crucial initiative taken by MPI is to neutralise any negative comments about Malaysian properties and developers in the Singapore press by arranging for a discussion between the affected individual and the developer. “Once the problem has been resolved, we will write to the paper to inform them. The service has been very successful,” says Kumar.
This, however, has led many Singaporeans to believe that developers which showcase their products at the MPI gallery are Malaysian government-approved developers. It puts responsibility on MPI to make sure only reputable developers are allowed to exhibit at the gallery.
Even though the move has ruffled a few feathers, Kumar believes it is necessary and has achieved its objective of only taking trusted developers that can deliver the product even if the market is not performing.
MPI is also starting to get enquiries from companies abroad looking to invest in Malaysia. Among them are enquiries for vacant land for industrial facilities, investments in Malaysian property companies and the acquisition of shopping centres and commercial buildings.
“There was even a request for 500 acres of land to develop a housing project. We also have people calling to see if we can introduce them to companies that can build a facility for them in Malaysia. We have tabulated these inquires and are putting them up on our website as well as sending them to our database to find a match. It is a pleasant by-product of all our efforts,” says Kumar.
On the corporate investment side, MPI has introduced potential investors to developers in Malaysia, including 1Malaysia Development Bhd, the master developer of the Kuala Lumpur International Financial District (KLIFD).
At present, Singapore is its largest market, having sold RM150 million worth of properties to them in the last 10 months. MPI is targeting sales of RM200 million next year.
Kumar sees Indonesia as the second largest market, noting that Indonesians are moving away from Singapore due to the rising costs there and the education opportunities in Malaysia.
“We are targeting the Middle East next, particularly Dubai, Abu Dhabi and Qatar, because they are ready to come to Malaysia in a big way. We think the current crisis will blow over by year-end, except for Syria, Yemen and Libya. They have money to spend and we need to pull them in, especially now since their usual investment destinations, Europe and the US, are performing badly,” says Kumar.
He feels that having a strong Islamic financial market gives Malaysia an advantage over Singapore and Hong Kong, and it is an opportunity the government needs to explore as soon as possible.
On the Western side, Kumar says fund managers have the money but most of their initial investments have gone to Australia, China and India. The latter two, despite transparency concerns, are still big draws because of their massive populations.
“But the inflation rates in China and India have reached such a stage that very soon, fund managers will find that they have negative returns. Officially, the inflation rate in India is about 8.5%, while China is 5.5% to 6%. But on the ground, inflation is higher than that. Even Hong Kong and Singapore are facing the same problem,” says Kumar.
After a year of pushing the envelope, Kumar is optimistic that MPI’s efforts will soon be rewarded.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 878, Oct 3-9, 2011
