In recent years, foreign and local developers have rushed to build homes in Malaysia targeted at wealthy investors from China, a phenomenon which has also been seen overseas, though, in recent times, this has been dampened by Beijing’s capital controls.
Some countries have put restrictions on the foreign ownership of property, with New Zealand putting in place a ban beginning next year, citing the impact of foreign ownership on skyrocketing property prices.
For the National House Buyers Association (HBA), which has always been vocal about the need for more affordable homes, New Zealand’s policy is one that’s a bit too drastic.
“It’s better to set a minimum price or various categories for foreign purchases rather than a total ban to protect locals,” HBA honorary secretary-general Chang Kim Loong told FMT.
Presently, foreigners looking to buy properties in Malaysia can only buy homes costing over RM1 million, In some states like Penang and Selangor, it can be as high as RM2 million, depending on the type of property or location.
Lower minimum purchase
Veteran economist Hoo Ke Ping feels the sluggish property market means it isn’t the right time to set a higher minimum purchase price for foreigners, let alone bar them from buying properties here.
“The properties built by developers for the foreigner market are way outside the affordability of locals. So, a ban won’t protect local buyers in that sense.”
In fact, Hoo said, the RM1 million minimum purchase price policy for foreigners has actually driven developers to build higher-end homes.
“On paper, the policy looks good as we’re limiting foreigners to the type of property they can buy.
“But for developers looking at a project, they won’t build few high-end homes and build the rest as mid-level or affordable homes.
“No one builds homes like that. They will go for a single type of property and that would be the high-end category because, with high-end homes, you need to sell fewer units to break even.”
Hoo said the reality now was that there were a lot of unoccupied properties in the market which cost over RM1 million.
These properties need to be sold or developers would have a tough time paying off the bank loans they took to fund their projects.
Putrajaya, he said, may even want to reduce the RM1 million limit in a bid to get foreigners help clear existing unsold properties.
He added that the government could also build more affordable homes under RM500,000. A sufficient number of such homes would put pressure on developers to lower the selling prices of their unsold homes, which cost less than RM1 million.
Repercussions of foreign ownership ban
Henry Butcher Malaysia, a leading real estate agency, said property prices in Australia and New Zealand were driven up by foreigners, but this wasn’t really the case in Malaysia.
Its chief operating officer, Tang Chee Meng, said even when the property market here was at its peak, the percentage of properties bought by foreigners only accounted for 8-16% of overall sales. Even then, this was limited to KL, Penang and Johor.
Since then, he said, there has been a sharp decline in foreign ownership, due in part to internal factors like “cooling” measures by the government as well as external measures like China’s capital controls.
“Here, we need the foreigners. The active market now is for homes under RM500,000; the market for homes above RM1 million is sluggish.
“If we bar foreigners from buying homes, the developers will suffer.”
Tang said it must be noted that developers help with social housing projects. For them to build affordable homes, they have to subsidise the cost from the revenue earned from high-end projects.
“If these high-end projects don’t sell, it’ll be hard for them to subsidise affordable housing. This is why I believe it’s not the right time to follow New Zealand.”
He added such a move should only be considered once the property market shows signs of overheating and prices of homes shoot up by 40-50% within a year.
Early this year, a news report said data from the National Property Information Centre showed an increase in unsold residential homes in Kuala Lumpur valued at above RM1 million in the first quarter of 2015 compared with the period a year before. These surplus units were worth about RM158 million.
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