Investment Strategies for Malaysia

Short Term Investment Strategy - Key Opportunity
Having analysed the history of the country and the economy as well as the financial projections both for the country’s economy and the real estate market, investors are sure to remain confident about investing in Malaysia’s real estate market. Prices are still very low however showing significant growth potential and therefore will not remain low for long. As particular developments go through the developments processes of clearing the land, laying the foundations, etc and as more units on that development sell, prices increase quite rapidly, in relation to the demand. A basic rules is to buy early to achieve maximum returns. The large quantity of favourable mortgage products available make the market even more enticing for the overseas property investor.

Timescale
Construction time varies in Malaysia, however most developers plan a 12 to 24 month timeframe, from pre-launch to completion. Payment structure vary from developer to developer, however generally there is an initial downpayment to be made, of around 15% on reservation, followed by 5 or 6 stage payments of up to 80% to be made during construction, with a 5% final payment on transfer of title deeds and delivery of the property.

Key Risks
It is important to factor in any associated the risks involved with overseas investments. Potentially the most important one to consider is your exit strategy. Who will buy your property when you are ready to sell and when is the right time to sell to maximise returns?

To answer these questions, it is imperative that the local market is assessed and a plan is formulated and revisioned during the construction process. The three basic markets available when it comes to selling are the permanent and the temporary residents. During the period leading up to the sale, it is necessary to be aware of the transitory market, which will influence your ability to rent the property until such time as your strategy calls for a sale. Renting the property until the right time to sell will offset running costs of the property and even (with a strong transitory market) provide generous returns.

Influencing factors in the permanent residency market are the national and local economy. The stronger the economy, the better the conditions to attain mortgages, the more national or foreign residents will be looking to purchase property. Additionally, it is important to know if there are considerable investments being made into the local infrastructure and with regards to commercial property in the area. If there is a heavy investment into commercial property in the surroundings (shops, restaurants, commercial centres, office buildings, etc) there is a strong likelihood that there will be a demand from the workers in those new commercial structures for residences. If unemployment is low, like in Malaysia, this is also a good factor of a market which indicates a good resale probability for primary residences. If you decide your exit strategy in Malaysia will be based around the permanent residency market, you should analyse the infrastructure around your property for the amenities required by primary residents, such as supermarkets, schools, hospitals, theatres and cinemas, etc. Governement investment into the area is also a good indicator, as with the improvement of local roads, accessibility, healthcare, and other infrastructure, the area will not only become more appealing but will influence the value of property.

While all of the above are important factors and can commonly be associated with city centre property due to the commercial infrastructure, etc it is important to remember that many times tourist resorts are accompanied by a healthy investment in the local commercial property sector, to provide holidaymakers with the infrastructure they expect in a tropical resort. Immigration numbers are also important as more and more western corporate workers are relocating to tropical destinations where they can work from home as efficiently as from an office in their companies headquarters but with much lower living costs.

When considering the temporary market, it is important to ascertain if there is a good mortgage sector in the country as this will be a major influence in the market. Temporary residences are the commonly called “holiday homes” and can be purchased either by the local middle class or foreign nationals looking to buy a “home in the sun”. Similar factors will apply with regards to economy, unemployment and as mentioned, financing however the infrastructure requirement will be substantially different, with emphasis on natural attractions like proximity to the beach, rainforest views, restaurants and entertainment amenities (nearby spa, equestrian centre, sports centre, etc).

The transitory residency market we mentioned earlier affects your ability to rent the property until such time as your previously elaborated exit strategy dictates. The influencing factors to determine if the transitory market is healthy are a combination of all of the aforementioned factors which influence the permanent and temporary residency markets. Long term rentals are more easily compared to the permanent residency market whereas short term rentals (more appealing to owners who also wish to use their property during high season) are comparable to the temporary markets.

Medium to Long Term Investment Strategy - Key Opportunity
With the growing economy, increase in private investment and competitive economic performance by national businesses, Malaysian property market is sure to continue its healthy growth for years to come. As the economy is being fuelled from within, the demand for residential property, both temporary and permanent is sure to rise to unprecendented levels over the coming years. With the steady increase in tourism which has been noticeable over recent years, the transitory market will remain strong and the demand for temporary residences from foreign investors also looks very positive. Several areas are showing increasing demand and interest from foreign and national investors, including the resort development in Port Dickson, Legend International Water Homes.

Located in the western region of Negeri Sembilan and only a short drive from Kuala Lumpur International Airport (ca 30 km), Port Dickson is renowned for the breathtaking beaches and natural beauty. Located just over an hours drive from the capital, Kuala Lumpur, Port Dickson is a favourite holiday retreat for locals and international tourists alike.

With the option of Legends International Water Chalets, the investor not only purchases a luxury property with features including private swimming pool, indoor garden and outdoor shower, but also a property which is estimated to show a capital appreciation of around 15% per year for coming years.

Additionally, the development will be run as a tourist resort by the renowned Legend International group, who not only offer a guaranteed 8% rental agreement to investors for the first three years but also a profit share agreement for the subsequent 4-15 years estimated to produce 12.5% per annum.

Financially, the development could not appear more beneficial. By these calculations, once the investor has completed 15 years with the company, the rental returns and profit share will have not only paid for 100% of the investment but also produced a profit of almost 75% of the property value. When taken into consideration that the capital appreciation for the area is close to 15% per year, within 15 years the property could then be sold for a very healthy profit indeed, especially considering that there is no capital gains tax in Malaysia anymore!

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