LAST week, two property-related news hit the headlines, and for property investors and those in the market, the headlines got them all worked up as to what is Malaysia’s priority in attracting foreign direct investment (FDI) and making Malaysia a destination of choice.
The first was Malaysia’s announcement that it is reviving the stalled Malaysia MySecond Home (MM2H) programme, and the second was our neighbour across the causeway reporting US$24bil or RM101bil worth of real estate sales in the first half of 2021.
Before commenting on the Malaysian headlines, let’s dissect the news item from the little red dot. The frenzied Singapore property market was mainly attributed to the spike in sales in the city-state due to a combination of factors. First is of course due to massive fund inflows due to the global liquidity created post-pandemic.
Second is the new wealth from start-up millionaires, both from the East and West, who are finding a home. We also see newly set-up family offices that are increasingly attracted to Singapore, and last is the result of political uncertainty in other real estate markets like Hong Kong, which is driving investors to flee to a more stable market like Singapore.
Hence, despite the various efforts introduced by the Singapore government to cool down the red-hot property market back in 2018, which among others include a 20% buyer stamp duty (BSD) for foreigners and 25% BSD for corporations for the purchase of any residential properties, the market has remained relatively firm and attractive to foreign investors.
Neighbour across the causeway, Singapore, reported US$24bil or RM101bil worth of real estate sales in the first half of 2021
The Singapore government also imposed the BSD on locals ranging from 12% to 15% for second and third and subsequent residential properties, respectively, while for foreigners, the BSD is at 5% for the first residential property and 15% for the first and subsequent residential properties.
Singapore has also tightened the loan-to-value (LTV) limit in its efforts to cool down the market. However, despite very restrictive measures, the Singapore property market has remained on an upward trajectory, even so during the pandemic.
For example, since July 2018, when the last cooling measures were introduced, and up to July 2021, the All Sale Singapore Property Index for all Non-Landed, has risen from 203 points to 216.5 points, or up 6.7%. Hence, despite a more expensive upfront cost, the Singapore property market continues to break new records and this is not just due to the scarcity of land factors in the city-state, but other factors as well.
According to the National Property Information Centre (Napic), the latest Malaysian House Price Index (MHPI) stood at 200.3 points for the first quarter (Q1) of 2021. In Q1 of 2018, the MHPI was at 191.2 points, and hence over the same three-year period (ie, to compare the performance of the Malaysian property market with that of Singapore), the local market saw an improvement of 4.8%.
However, the MHPI may not be reflective of the poor state of affairs in cities like Kuala Lumpur (KL), especially if the comparison is made with another city like Singapore. If one were to take the KL House Price Index (KLHPI) of 198.7 points as at Q1 of 2018 and compare it with the Q1 of 2021 level of 192.2 points, the KLHPI has declined by 3.3%.
Hence, the KL market, as far as general property prices are concerned, has underperformed Singapore by about 10%.
After taking it off the shelf in August 2020 to carry out a comprehensive review and re-evaluation, the MM2H programme has now been re-activated with significant changes to the rules and conditions that were previously imposed.
As we are aware, presently, there are some 57,478 holders of the MM2H passes and it is widely reported that some 1,000 are in the queue waiting for their application to be submitted since the programme was frozen in August 2020. We have also been told that between 2002 and 2019, the MM2H programme generated a cumulative income of RM11.89bil through fee and visa charges, purchase of properties and vehicles, fixed deposits, and monthly household expenditures.
Since the announcement last week, various groups have expressed their displeasure, including the current holders of the passes as they will now be subjected to the new rules. It would come as a surprise if up to 90% of current pass holders may not be able to meet the new criteria, especially in relation to the monthly offshore income threshold, fixed deposit placements and proof of liquid assets.
For the monthly offshore income threshold of RM40,000, for those who are here on retirement and have passed the age of 50, it is illogical to expect them to have that level of monthly income. Most of them are here to enjoy the weather, the good food, affordable cost of living and some of them have already made Malaysia their home and some have even purchased properties.
Another rule that is obviously not thought out well is the 90-day annual stay rule, which doesn’t seem to make sense either. It is perfectly acceptable for those who are residing here, but for those applicants who are under the MM2H and Malaysia is indeed their second home, there is a slim chance for them to observe this 90-day rule, year in year out, to keep their passes valid, especially if they are under full employment in their home country.
Another point of contention is the reduction in the validity period of the MM2H pass, which has been halved to just five years, and the higher threshold for liquid assets.
This would be a dampener for most of the current pass holders as they would need to consider a shorter time horizon, and at the same time, meeting the new liquid asset threshold of RM1.5mil, which is at least three times more than before, depending on the age group of the pass holder.
The government now has also placed a ceiling of 1% of the total number of approved passes as a percentage of Malaysian citizens and this in effect translates to about 300,000 passes. Hence, the current holders, plus even those who are on the waiting list, are just about one-fifth of the total numbers that Malaysia has now placed as the maximum number of passes.
The previous MM2H programme was put on ice based on reasons that the government believed were being misused by certain quarters. This includes promoting Malaysian properties with the programme as well as targeting individuals from certain countries, especially those from China.
As for promoting the MM2H programme as a carrot for overseas buyers to purchase Malaysian properties, the argument is rather vague. Firstly, the approval for any application for MM2H is subject to the ministry’s approval, and hence, the idea that it has been misused or abused by developers or agencies while marketing Malaysian properties does not seem to hold water.
Second, even if this were the case, the authorities should have come down hard on the developers or agencies that are abusing the MM2H programme to promote their properties and not punish innocent overseas buyers who may not be well informed.
Worse are cases of these developers or agencies that are promoting the MM2H as a 100% “guaranteed approval” for overseas property buyers. This practice should not have occurred and the authorities ought to have taken action right away.
Another point of contention is the perception that many Chinese buyers have bought Malaysian properties due to the MM2H programme and hence there is a need to address the overwhelming response from these buyers. Of course, this is mere perception. Statistics have shown that the current number of total applicants to the MM2H programme is barely 60,000 or just 0.2% of the entire national population and applicants from China make up just about a third of the total or less than 20,000 pass holders.
Even let’s say these numbers rise rapidly, the government can always impose an individual country limit to ensure that the number is still acceptable. After all, MM2H applicants are not citizens and do not enjoy the perks of being a Malaysian, especially in terms of the democratic process of choosing our elected leaders or entitlement to healthcare and other facilities.
With most of the revisions are seen as negative, the government ought to revisit the re-branded MM2H criteria as the changes are seen as detrimental to not only aspiring applicants but even for the current pass holders. In actual fact, the government should not alter a ruling that is retrospective to the extent the current holders are subjected to the new rules as this will drive away close to 80%-90% of them out of Malaysia. Flip-flopping on these conditions only makes Malaysia less attractive to aspiring applicants.
This will have an economic impact on not only the property market as some will be forced to leave the country and add further downward pressure on property prices. As it is, in the RM1mil and above category, we are already struggling with 9,440 units of completed but unsold units in the residential and service apartments category worth some RM15.2bil as at Q1 of 2021. We don’t need an added supply of more properties if the existing MM2H pass holders decide to leave Malaysia, permanently.
Malaysia has been ranked rather highly as one of the best countries to retire globally. International Living, in its June 2021 publication placed Malaysia as the seventh best location in its 2021 Annual Global Retirement Index.
However, with the new revised MM2H scheme this may change. Let’s face it, the world today is a competitive market and Malaysia is not the only country in the world that offers attractive residence or investment programmes. There are other choices in the region and this includes Thailand, Vietnam and the Philippines, and even outside the Asean region.
Malaysia’s efforts to boost FDI too may be impacted, as many who have settled here have taken the MM2H route to enjoy the benefit of the programme. If the programme becomes restrictive and not investor-friendly, we would lose out when trying to promote Malaysia as an investment destination.
In summary, while the MM2H has been re-introduced, the tighter conditions will likely drive the expatriate community out of Malaysia and we will face the economic fallout when this occurs over time, depending on when their current passes expire.
Going down south to Singapore, despite the higher cost of living and costlier properties, might be a better alternative. Indeed, a tale of two cities if one were to compare Singapore and Kuala Lumpur.
Pankaj C Kumar is a long-time investment analyst. The views expressed here are his own.