International Business Review


Bubble Trouble?
The implications of a weak ringgit on real estate

by IBR Malaysia
28 October 2015

In light of the recent and rapid decline of the ringgit, concern is rife that the Malaysian property market is ripe for the picking by astute international investors. Against this backdrop, it is thought that intensified foreign interest could exacerbate the brisk rise in property values which has only cooled slightly in the past few months, following sustained periods of scintillating growth during recent years.

Commanding Growth

Despite the falling value of the ringgit, the Malaysian real estate sector continues to perform strongly, remaining one of the most attractive among those in the Southeast Asian region, especially considering capital yield gains. This is in spite of the intensive property development activity that has taken place in the main market of the Klang Valley in recent years, which could potentially lead to a risk of oversupply in the long term.

Meanwhile, the Chairman of the Penang Real Estate and Housing Developers' Association (REHDA) Datuk Jerry Chan, has shared the view that the recent fall in the value of the ringgit is unlikely to result in an increase in foreign investment interest to the extent that would further escalate property prices. In consideration of current market conditions, he advised domestic buyers to focus more on local properties as opposed to overseas markets, considering that the value of the ringgit can be stretched significantly further at home, compared with investment abroad.

Open Opportunities

In terms of property investment and ownership by foreigners in the Malaysian real estate market, the country has maintained liberal rules since June 2009, when it abolished the requirement for acquisitions to be approved by the government’s Foreign Investment Committee. Following this, the only requirement for foreigners to purchase property was that the property must be priced over RM500,000 – a figure that has since been revised to RM1m for a number of cities and states in the country.

More recently, during the last quarter of 2014, a new set of requirements pertaining to foreign property acquisitions was introduced in the state of Selangor. Under these revised guidelines, the vast majority of areas require a minimum investment of RM2m for residential properties, while commercial and industrial complexes command an overall price beginning at RM3m.

Obvious Appeal

Despite these factors, property brokers, such as online multinational real estate listing website iProperty, maintain optimistic views relating to increases in interest among foreign investors. With the advantageous high exchange rates enjoyed in other countries, Malaysian properties are positioned even more affordably, signalling a potential surge in international property investors in the country.

Aside from that, iProperty Group Managing Director and Chief Executive Officer Georg Chmiel notes that the 6% Goods and Services Tax (GST) which was implemented on the 1st of April may put a dent in demand, although sales are expected to proceed without drastic price corrections. “Properties are always a good hedge against inflation and investing in this segment may be a way of preserving the value of one’s savings,” he noted.

As a result of the diverse macroeconomic factors affecting marketplaces across the globe, the Malaysian economy has been put in a challenging position in recent times, indicated – not least – by the depreciating value of the nation’s currency. In light of this, the attractiveness of the domestic property market has undoubtedly seen improvements, primarily among potential investors from abroad. Against this backdrop, the expected slump in sales resulting from the GST implementation may be enough to ensure price fluctuations remain moderate in the near-term.

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