Malaysia the Second China?

Diane Foo Eu LynnMarch 7, 2017

 

Whenever China enters the property market of a country, the local market is driven out – from Vancouver to Sydney and now Malaysia.

Contrary to popular belief, China and Hong Kong developers are not only penetrating the Johor market, but also the Klang Valley market. Among the lesser known foreign-developed developments in the Klang Valley are:

 

 

But is it true that China and Hong Kong developers are unnaturally inflating the Malaysian property market, or are the rumours merely hyperboles? And are the China citizens who bought properties in Malaysia interested in the properties for their own stay or are they in it purely for the investment opportunity?

 

“Just Forest City alone is estimated to be able to house some 700,000 people. Who will take up these houses? Johoreans? That is unlikely. There are fewer than two million locals in Johor Bahru, and that’s a generous estimate. Many of them already own houses.” – Chartered surveyor Ernest Cheong in an interview with Free Malaysia Today

 

According to talk on the street, the oversupply of property created by China developers is going to cause property prices to drop. While this is the first that Malaysia is experiencing of this phenomenon, looking due West at the affected-before countries will be a good indication of what is to come.

In Vancouver and Sydney, the China citizens were merely buying existing properties. In Malaysia, China is now buying our land to build cities and sell them back to us.

So how might this affect us Malaysians?

 

A Snapshot of What is Now Happening in Malaysia

 

The biggest fanfare in the country now are of China developers purchasing land in Malaysia and then building developments of thousands of units.

The biggest critiques say that:

 

  • China is running out of land to develop, hence they have to come to Malaysia to continue their business
  • They are utilising Malaysian resources to build the developments – to eventually sell it back to Malaysians
  • When China developers are finished with making Malaysia a second China, they will leave Malaysia with the oversupply and continue their hunt for fresh meat ground.

 

Of the biggest worries that Malaysians now face are:

 

  • Decreased property value due to property oversupply
  • Inability of locals to absorb new supply of homes
  • An already slow property market coming to a complete halt

 

Of the issues that are contributing to Malaysian concerns are:

 

  • Rumours of China-developed developments in Malaysia being given as a “free gift” when China citizens purchase a property in their home country (buy 1 (in China) free 1 (in Malaysia))
  • Planeloads of China citizens flying in to Malaysia to purchase an investment property
  • Suddenly upheaval of new China-developed developments
  • When China starts building, they build by the thousands of units

 

And perhaps the biggest dissatisfaction that Malaysian developers have is that China developers appear to have more advantage over local developers such as:

 

  • Duty free area status
  • Tax free for 5 years
  • Pioneer status
  • Tax rebates

 

In this scenario, the local developers are not even being given fair playing ground.

 

Looking at the Affected Before Countries

 

Considering how strict the China government is, cash-rich China citizens have always been on the lookout on where to safely siphon their money off to overseas. Reading between the lines, they want to get their money out of China into more stable countries.

One of the easiest way to do that is by purchasing properties overseas.

For an idea of what the Malaysian property market may look like in the coming years, let us take a look at where the most unaffordable properties in the world are.

According to The Diplomat, Hong Kong has the most expensive properties in the world, where the median price of a property is 19 times the median income. This is followed by Sydney which the properties are 12.2 times the median income, and Vancouver at 10.8 times the median income.

The 3 common factors that these 3 countries have is an increasing lack of land, inflated property prices; and of course, much property speculation from China.

So looking at the above, it becomes clear that once the China citizens finished buying everything they could in Hong Kong, they moved on to Sydney and then Vancouver. Looking at it theoretically, it would appear that Malaysia is going to be the 4th on the list.

Also clear in the other countries is that the average joe and the lower income brackets are being pushed out of the home affordability bracket.

 

Speaking to People in the Business

 

One of the biggest assumptions of why China citizens are buying properties overseas like there is no tomorrow is that firstly they are looking to siphon money out to a safe country, and secondly because they are looking to grow their money.

But speaking to a person in the business of helping foreigners purchase properties in Malaysia and apply for Malaysian visas has shedded more light on their seeming obsession to buy properties overseas.

According to the consultant, contrary to popular beliefs, China citizens are looking to get out of their country due to the “better living conditions” outside of China.

When speaking to his clients during transactions, it was also discovered that China citizens are leaving the country for better education outside of China – and many of them were also purchasing a house for their parents’ retirement. A handful of them were just looking for a vacation home.

As for processing visa applications, the consultant processes approximately 150 visas per month for approximately 50 families. Monthly. Below is just one of the reasons why China citizens are trying to leave their country.

 

“I have lung disease and need to breathe fresh air in Canada. If I don’t go to a country with a better environment, I will have to use this money to buy a tomb in Beijing.” – From an anonymous China citizen, sourced from The Globe And Mail

 

What China has been doing to stop it

 

China is however not happy to see almost USD20 billion flowing out of the country on a monthly basis. As of the moment, China citizens are only allowed to convert USD50,000 per year, which means that families have to pool their money together to purchase a property overseas. Prior to this, transferring the money out was as easy as tapping a button on their smartphone.

However as of 2017, China has tightened the rulings. Each individual can still convert USD50,000 per year, but they need to fill up much paperwork. For business owners who own international businesses, this move will not hamper them much as they have more creative means of siphoning their money out of the country; and in big amounts. But the average joe will not be able to manage buying a property overseas so easily anymore.

Whether this will curb the China citizens’ property purchasing overseas or not remains to be seen. But for the sake of the Malaysian property market which appears to be next on the “hit list”, many are hoping that the China curbing measures will work – and that no more Malaysian land will be sold to China developers.

 

 

Diane Foo Eu Lynn, Senior Content Specialist at PropertyGuru, wrote this story. To contact her about this or other stories email diane@propertyguru.com.my

 

For more information on new homes, check out PropertyGuru’s New Property Launches and Project Reviews.

Gursharan Singh
Mar 25, 2017
The writer has explained in great detail the risk of China getting involved in large scale local property development and has provided with sufficient evidence of the risks for Malaysia and Malaysians. Sadly it appears that only the leadership and its [yes men] advisors may be blind to these risks. The reason could be that they may be beneficiaries as they contribute to their greed fo regardless of the fact that it may not be good for the country. The provided perks including # Duty free area statu #Tax free for 5 years #Pioneer status #Tax rebates may further disadvantage the local industry players. China does not need any of the above perks as they may already be very efficient and innovative in their construction methodologies as is evidenced by their many world class infrastructure and property development projects such as construction the 57 story hotel constructed within 19 days. Is the Chinese investment Country friendly or those with vested interests?
Interpr8 Art
Mar 08, 2017
the writer clearly expresses serious local concerns over the massive China Chinese "invasion" into the local property market, especially in Iskandar Malaysia" (IM). IM has now lost its tune with this new unprecedented adverse development. With the massive oversupply of residential properties on both sides of the Causeway and in the Second Link Iskandar Puteri /Forest City areas, we locals are now faced with a depreciation in the value of our properties in what were touted as high-end developments by GLCs. To make maters worse, China Chinese workers from the Forest City project have now turned high-end properties in East Ledang (where I live) into workers quarters. There is one diagonally across my house and another nearby, housing near 20 workers per house. Around four SUVs ferry these workers in n out of this so-called secure property at all times without any impediment or scrutiny from the developer, UEMS. Today, in East Ledang some parts are like the Larkin bus terminal !!
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