What’s up with Penang properties?

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Much has been going on lately that has affected both the supply and demand sides of the property market in Penang. pem takes a quick look at the key factors involved.

what are the key factors that are bringing investors into the property market in Penang?

There have been some recent significant changes, as can be seen in how discussions on the issue have multiplied and voices have been raised.

The recent government regulations and relaxation of FIC (Foreign Investment Committee) Guidelines on June 30, 2009 can be seen to have contributed to this. Foreign investors do not require the approval of the FIC for the purchase of commercial properties valued at RM500,000 and above and RM250,000 (increased to RM500,000 from January 1, 2010) for residential properties.

Other key local demand drivers are the growing affluent segment and discerning buyers; stronger affinity for property investment in expectation of a global economic recovery and the desire for high-end condominium living reflecting status and wealth.

Proximity to services and amenities is always an important factor, and Penang, with its geographical features and good infrastructure network of convenient links from its suburbs to George Town, is attractive where that is concerned. George Town’s Unesco World Heritage status has also fascinated many investors. Being within easy distance of hills, seas, eating places, tourism spots and social and cultural amenities is highly valued. Most places are reachable by car, and this is despite traffic jams.

Demands of the affluent

Changes in lifestyle for the affluent have resulted in a quantum leap in the quality of properties off ered. On off er now are imported marble, solid hardwood floors, high quality and modern fi nishes and fi tt ings, designer kitchens and bathrooms, hi-tech security, fl oating gyms, and pavilions by the pool deck. Henry Butcher Malaysia’s data shows that high-end condominiums have commanded a good uptake in recent years.

Developers must now bear in mind the varied and specialised profi les of potential buyers in this group. Among “support schemes for housing developments” that are being attempted are open-concept, ecofriendly or gated communities, as well as service apartments that are favoured by expatriate buyers.

Purchaser demands mean that a higher degree of development planning and coordination is needed to ensure that the quality of the surrounding environment (views, noise factors and population density) is maintained in the longer term as promised in the pre-purchase publicity campaigns.

Regional and local conditions

Malaysia as a whole remains a very competitive location as it is second cheapest after Indonesia for US$ per square metre of floor space. This makes it an affordable choice, especially when coupled with decent standards of living and modern day amenities. Another plus factor is the higher gross rental yields of up to 8.76% which makes it only third after Indonesia and the Philippines.

One key factor influencing potential buyers of Penang properties is that the growth of house prices on the island are, on average, above the national average, though below that of Kuala Lumpur.

In terms of overall value per transaction, Penang ranks third in the country aft er the Federal Territory and Selangor. This is an indication that property values hold greater potential for future increases.

Indeed, residential properties have already seen major capital appreciation over the years and this is one of the key considerations for any property buyer or investor in Penang. For example, a two-storey terrace house in the Green Lane ( Jalan Mesjid Negeri) area costing RM95,000 in 1978 had appreciated by 1992 by 111% to RM200,000. By 2006, this had reached RM450,000, which is an appreciation of 374% compared to the original price.

Penang’s landed property continues to command premium prices over the years and this trend has yet to slack. At present, a typical new terrace house in a popular location can range between RM700,000 to over RM1mil.

Demand for property in Penang is influenced by numerous factors such as population in a specific locality, household information, yuppie lifestyles and the number of newly married couples setting up homes. Penang being a cosmopolitan city and a major hub for the northern Peninsular Malaysia and the IMT-GT (Indonesia-Malaysia-Thailand Growth Triangle) also attracts inter-state migrants.

Property developers will have to think hard to design homes for the different categories of buyers. Perhaps it is time to rethink the approval procedures of highend condos which only cater to the wealthy and instead develop more affordable housing for the middle-income groups of young people in Penang. Penang will also do well if integrated housing comprising a mix of property types is introduced so as to retain a healthy social mix of residents in certain areas.

Among foreign owners who have bought property in Penang are working expatriates, Malaysia My Second Home (MM2H) participants, parents of overseas students and others. However, total home ownership by foreigners is estimated at only three per cent of approved MM2H applicants by the Ministry of Tourism Malaysia. According to FIC data, the number of properties purchased by foreigners in Malaysia formed only 2.5% of the total number of properties transacted (RM2.3 billion) nationwide in 2006, making up only 12.3% of total value of transactions.

Most foreign buyers are Singaporeans, South Koreans and Britons, and their favourite properties are condominiums; two-thirds of properties were bought by them. According to Henry Butcher Malaysia, investors are more likely to invest in countries that they are familiar with. Most buyers are, therefore, residents, tourists or business travellers to Malaysia. These groups continue to be a potential source of investors.

Tourism Malaysia data has shown that Singaporeans are the largest group of visitors to Malaysia, followed by Indonesians, Thais and Bruneians. Outside of Asean, China, India and Japan are amongst the top tourist markets whilst UK is the only European country to make the top 10 list.

Internationally, competition is classifi ed as traditional markets, new European, Middle-East and North Africa markets as well as new emerging markets worldwide such as Central and South America and Asia. Malaysia falls into the last category and can be considered a “new kid on the block”. In this respect, Malaysia Property Incorporated (MPI), a joint public-private sector initiative, has been charged with promoting the country’s real estate internationally.

A recent property marketing trip to the UK revealed that many Britons are still unaware of Malaysia as a potential location despite its past colonial links with Britain.

Penang’s selling points

On the home front, real estate as an investment is also confronted with competition among Malaysian states. But what makes Penang such an attractive place in which to buy property? Henry Butcher Malaysia’s research offers some considerations from a foreigner’s viewpoint:

  • Great place to invest, live, learn, work and play
  •  Political/economic stability
  •  Disaster-free
  •  Security
  •  Value of property
  •  Habitat of choice for culture, arts, food, sports and tourism
  •  Cost and standard of living
  •  Amenities off ered with property • Language • Quality of construction

But the picture is not totally rosy. According to the Global Property Guide website, Malaysia’s house price index change over five years is only 14.14 as compared to China, Hong Kong and Singapore. This means that capital gains for property investors are one of the lowest in the region.

The average annual tax on rental in Malaysia is the second highest (22.42%) aft er the Philippines. This means that investing in property in Malaysia is subject to higher tax rates especially for investors who rent out their property. This applies to citizens living overseas as well as foreigners.

In spite of this, Malaysia and in particular Penang remains an attractive place for foreigners, especially those from countries with high costs of living.

Realising its potential, Malaysia stands out as one of the few countries in the world that have extensively liberalised their property markets to attract foreign buyers and is targeting RM200bil in foreign direct investment (FDI) into real estate sector over the next 10 years (Th e Star 12/09/2009).

The MM2H is being repackaged to attract bigger investors and experts in various fields. New policies that have been approved by the Cabinet allow MM2H participants to take on contract jobs and venture into business. Changes include:

  • Qualified MM2H participants aged 50 and above with specialised skills and expertise that are required in the critical sectors of the economy are allowed to work up to 20 hours a week.
  • MM2H participants are allowed to invest and actively participate in business, subject to existing government policies, regulations and guidelines.
  • Any MM2Her who sets up his or her own company in Malaysia, in accordance with the relevant government rules on foreign ownership in that industry, will be able to work in that company without having to apply for a separate work permit.
  • Foreign spouses of Malaysian nationals are eligible to apply for MM2H, subject to the terms and conditions of the MM2H programme. Alternatively, they have the option to apply for the Spouse Programme.

The outlook on property for Malaysia, according to the Real Estate and Housing Developers’ Association (REHDA) of Malaysia is “cautiously optimistic”. Fifty per cent of its members expected property prices to rise by up to 20% during the first half of 2010. Price stability is expected by 30% of respondents, while less than five per cent anticipate price falls. (Lee, Wei Lian, Malaysian Insider).

However, the Valuation and Property Service Department (JPPH) reported that transactions in the first half of 2009 were down 30% compared to the same period in 2008. This outlook is however due to the expectation of a stronger economy in 2010. Low interest rates, better access to loans and favourable taxes are also expected to stimulate the housing market.

Quality remains an issue and purchasers need to be reassured that they are getting value for their money. This has been improving over the years and standards have been high, with new designs and materials being introduced.

Compared to most major cities around the world and favourable destinations like Bali and Phuket, prices in Malaysia are low. Generally, the low prices, combined with the fact that prices are on an upward trend, make property an attractive investment, especially in Penang. In the third quarter of 2009, the sector saw a lot of activity, with unprecedented sales in both secondary and primary markets. Buyers are waiting for a worldwide economic recovery. Increasing foreign interest has also been reported.

These positive factors coupled with innovative financing packages together with low interest rates make Penang a sustainable real estate market. To sum it all, as Ms Maria Hann of Retirement Today (www.retirement-today.co.uk), which provides properties for pensioners says, “Penang is perfect for property investment.”

Teoh Poh Huat is a director of Henry Butcher Malaysia. He is a Registered Valuer, Fellow of The Royal Institution of Chartered Surveyors (uk), Fellow of the Institution of Surveyors, Malaysia, and an expert panel member of the National Real Estate Research Coordinator (naprec).
Khor Hung Teik is the manager of Strategy and Policy Studies at the Socio-Economic and Environmental Research Institute (seri) and coordinator of the Penang Blueprint 2011–2015. He has been tracking the property and construction sector since 2000.



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