Thu Jun 01 2023 03:52:38 GMT+0000 (Coordinated Universal Time)
Over the last decade, Malaysia has witnessed a strong growth in Direct Foreign Investments in Malaysia. Foreign direct investments (FDI) in Malaysia for 2019 rose by 3.1% to RM31.7bil from RM30.70bil in 2018, the Statistics Department reported. It said that direct investment abroad (DIA) rose by a strong 26.5% to RM26.1bil in 2019.
Since opening the country to foreign investors, Singapore, United Kingdom (UK), Korea, United States (U.S.), India, Japan and China have been the biggest property buyers in Malaysia’s property market. It is estimated that Chinese buyers account for RM8.4 billion (US$2 billion) of property sales, which is 12.1 per cent of total transaction value and 0.4 per cent of the total transaction share. More recently, Malaysia’s property market has attracted a large number of investors from Middle East countries mainly due to uncertainty in the Middle East region as well as the availability of Islamic finance in Malaysia.
To paint a clearer picture, first, we define the meaning of foreigners and how they can qualify as an investor.
Property investment in Malaysia, primarily in Kuala Lumpur and Selangor, offers potentially attractive returns in both rental yields and capital gains. This is due to Malaysia’s steady economic development, a relatively young working population, and increasing infrastructure connectivity throughout Malaysia, including high speed rail connection with Singapore in the near future.
There are several potential benefits that a country can reap on when foreign investors buy properties or the host location: (1) bringing new life to the rural communities suffering depopulation; (2) making local services viable (such as food shops, transport, restaurants, and sporting facilities); (3) income for local entrepreneurs from the spending by the foreign owners; (4) property taxes paid to the local government; (5) profits from land owned by local people; (6) jobs and income for local builders and craftsmen. Moreover, foreign investments can contribute significantly to the rapid globalization of metropolises and facilitates change the scene of urban development qualitatively.
The pandemic has exposed how globally interconnected the flow of goods and services has become, and countries are now rethinking their international trade strategies to reduce their vulnerability to global economic shocks. The property sector has suffered immeasurably due to the global lockdown triggered by the coronavirus. Malaysia, already grappling with large volume of property overhangs and a soft property market saw real estate investments by foreign entities significantly drop to historically low numbers. In late March, the International Monetary Fund announced that investors had removed 83 billion US$ from developing countries since the beginning of the COVID-19 crisis, the largest capital outflow ever recorded.
To overcome this economic shock, the Malaysian Government has devised a stimulus package, coined as PENJANA, to aid struggling Malaysians as well as boost foreign investments in the months to come.
To attract foreign companies to relocate their operations to Malaysia, the country will grant:
With the support of the abovementioned incentives, foreign investors who are looking to open businesses, namely within the manufacturing sector, will inadvertently require property space to set up their business which will in turn revitalise the property sector.
Additionally, the Government has also looked to boost foreign investment on residential properties to combat the overhang issues that has been plaguing Malaysia in the last five years. Since the announcement of Budget 2020 last year, the Government has decided to reduce the thresholds for high-rise buildings in urban areas for foreigners in Malaysia. However, this announcement is currently being followed only by the Federal Territory of Kuala Lumpur and not the other State Governments. For example, foreigners may only buy properties in Kuala Lumpur above RM 1,000,000. However, just for the year 2020, the minimum threshold for high-rise buildings sold on the secondary market in Kuala Lumpur is lowered to only RM 600,000.
To date, there is no limit to the number of properties that can be owned by a foreigner for the purpose of living in, or for investment. However, it is important for foreign buyers of Malaysian property to be aware of and seek specific advice on the latest requirements and restrictions that may be applicable to them.