In late April, the government announced it was removing the requirement that companies in 27 sub-sectors of the services industry have a minimum of 30% Bumiputra or ethic Malaysia ownership; was raising the levels of foreign equity participation for insurers and investment banks; and would allow more overseas banks to operate in the domestic market, including providing finance to the construction and real estate sectors.
According to Datuk Ng Seing Liong, the president of the Real Estate and Housing Developers' Association Malaysia, opening up to greater foreign investment could help stimulate the economy and thus boost demand for property.
"The liberalisation will not only promote Malaysia as a hub for investors to carry out business, but also encourage a healthy and competitive environment among local entrepreneurs, especially during this softening global economy," he said in a statement issued on April 23.
While optimistic over the potential of reforms to bolster the property market, there have been calls for the government to lift some of the restrictions on the real estate sector itself and to standardise regulations in order to attract more investment.
Currently, Malaysia applies a quota system to residential property developments by which 30% of houses built must be offered to Bumiputra buyers, with federal law also requiring that Bumiputra customers be offered a discount of between 5 and 15%.
While this policy, designed to assist ethnic Malaysians to acquire their own home, has had a measure of success, it has also been a source of frustration to developers at times, especially when demand for new properties among Bumiputra buyers has been low. The situation is further complicated by a number of state governments setting their own quota rates, some as high as 70%, thus restricting sales to both foreigners and non-Bumiputra Malaysian citizens.
Chua Tee Yong, a parliamentary deputy for the Malaysia Chinese Association, believes that while the government's reforms will help improve Malaysia's international business competitiveness, these reforms need to be extended to the real estate sector.
"In view of the gloomy economic climate, the government should also consider liberalising or relaxing the property sector," he said in an opinion piece carried by local media on May 4. "Given its link to the other 160 industry sub-sectors, the property industry plays a pivotal role of breathing more life and activities into the local economy with its multiplier effect."
Some steps have already been taken to encourage greater foreign ownership in the local real estate market. One example includes the lifting of the requirement that the Foreign Investment Committee must approve all purchases by foreigners valued above $70,000 and the removal of restrictions on the use or number of properties an overseas buyer could acquire. Coupled with marketing campaigns promoting Malaysia as a retirement destination for foreigners, these measures could boost property sales.
And according to most predictions, the real estate market needs fresh stimulus. In mid-March, Yee Mei Hui, an analyst with financial advisory firm HwangDBS Vickers Research, predicted property sales would fall by 25-30% in 2009 from last year's $24.7bn worth of transactions.
With GDP slowing sharply, property sales are expected to remain lacklustre for 12 to 18 months, Yee said in an advisory note.
"Given the weak sector outlook over the next 12 months, we maintain our cautious stance on the Malaysian property sector. We prefer property asset owners over developers for their more defensive earnings," Yee said.
The deputy finance minister, Datuk Wira Chor Chee Heung, is more optimistic, saying that once the effects of the government's $16.2bn economic stimulus package begin to be felt, domestic demand and through it the housing market would become more active.
"We don't foresee any bubble in the property sector, as the government has also come in to help stabilise the prices of houses," he said while releasing a report on the Malaysian property market for 2008 on April 28, which showed a 9.9% increase in overall transactions and a 14.5% increase in sales values.
The government has signaled that it is preparing further economic reforms, including changes to the regulations governing the real estate sector, as Malaysia moves towards meeting the World Trade Organisation's criteria for trade liberalisation. By doing so, the country's property market could be given added momentum.