On April 1, Malaysia removed the real property gains tax. Combined with the new processes and incentives to make the country's property sector more efficient and competitive, the government hopes to encourage an increase in foreign investment in the country.
While Malaysia boasts competitive real estate prices compared to Hong Kong, Singapore and Indonesia, and political and economic stability in comparison to Thailand and the Philippines, many argue the market has been held back by lengthy and cumbersome foreign ownership legislation.
Previously, foreign owners of residential, commercial or land property were taxed at 30% for any assets they sold. By getting rid of this tax, industry insiders anticipate it will result in market liquidity and a healthier investment environment.
Malaysia's overseas real estate market is already starting to gain momentum through the "Malaysia My Second Home" programme introduced at the end of 2006. Under this, foreigners are given long-term visas and other incentives designed to encourage them to buy second homes in Malaysia. So far, over 8000 people have been approved for this special visa.
Under the programme, foreigners who purchase property costing over RM250,000 ($73,000) no longer require government approval. They are no longer limited to the purchase of only one property, nor are any conditions placed on the usage of the properties being purchased. In December, the government relaxed property ownership rules to allow foreign nationals to buy high-end residential properties without government approval.
In addition to these, a programme to speed up the approval process for developers is expected to benefit the real estate sector. In the past, approvals for mass-scale developments took anywhere from two to three years, involving lengthy applications to multiple government departments and agencies. Newly established one-stop processing centres are expected to speed up the application process to four to six months.
Another initiative called Build Then Sell (BTS) requires developers to fully complete a property before it can be sold. Developers are being offered incentives including exemptions from paying a RM200,000 ($60,000) license deposit fee and a requirement to allocate 35% of the development to low-cost housing. In addition, application approvals will be fast-tracked by the government and completed within four months.
Other developments that will be given priority for fast track approval are ones that are deemed high impact, government projects and those involving significant levels of foreign investment.
Liew Kee Sin, group managing director of Malaysian property development company SP Setia, told OBG, "We believe the government's move to reinvent the delivery system is very timely. We are confident the measures introduced will bring a wind of change to the Malaysian property industry to further increase its competitiveness and vibrancy for the collective benefit of developers and buyers."
Through the BTS approach, developers should gain greater speed to market, thus decreasing holding costs, which should lead to long-term savings. It is anticipated that developers will be able to better plan their projects, translating to enhanced efficiency and productivity, as well as fewer abandoned projects. This should mean less risk that buyers will find themselves investing in a project that runs out of money before it is completed. Because of the lower risk, developers who participate in the BTS scheme can also charge a market premium, an additional financial reward for better planning.
The increase in transparency and clearer legislation should also boost foreign investment, as confidence in the sector improves and investors are no longer scared off by high levels of red tape and bureaucracy. A two-to-four month approval process would put Malaysia on par with Singapore and Hong Kong, two markets that boast high levels of foreign investment in their property markets.
Terence Wong, head of research at CIMB Investment Bank, told OBG, "Its about perception and sentiment. There is a lot of money to be made in Malaysia's property market, and as long as foreign investors are made to feel welcome by facing the same legislation as locals, they will come. The new initiatives, in particular the waiving of the real property gains tax, are extremely positive measures in addressing the demand side of the equation."