China investors still upbeat about Malaysian real estate

Companies consider the country a promising destination

HONG KONG: China’s real estate investment in foreign countries fell by 82.1% in the first half of 2017, seen as one of the results of tightened measures on overseas investments since last year, according to the Commerce Ministry.

But Chinese developers, including big stateowned enterprises (SoEs), still consider the Malaysian real estate market a promising destination.

A source with a large SoE told China Daily Asia Weekly that the company is looking into several different plots in Kuala Lumpur, which will be finalised by the end of this year.

The source indicated that supervision on outbound investments is more about private companies, so SoEs can still expand overseas following the proper procedures.

In July, Chinese officials warned domestic companies to “make cautious decisions”, especially for outbound investments in key industries such as real estate. But private developers remain active, even though they might find it difficult to send money abroad to buy development land in Malaysia, as Sarkunan Subramaniam, managing director of Knight Frank Malaysia, noticed.

“I know a large private developer from China, who even after the capital controls has nearly inked a deal for one large track of land,” said Sarkunan, adding that the company is planning to take up office space in Malaysia to get their business started.

China’s monitoring of capital outflows has thrown cold water on some projects but it’s more like a “hiccup” than a permanent dampener, he said, as the favourable foreign residency scheme, cultural similarity and strong China-Malaysia ties under China’s Belt and Road initiative will continue to attract Chinese investors in the long term.

According to Knight Frank, Malaysia has been the third favourite destination for Chinese developers from 2012 to 2016. About 35% of residential land transactions were carried out by foreign buyers in the last five years, of which the majority were from the Chinese mainland.

“The size (of investment from Chinese developers) will reduce, but it will still be large,” said Sarkunan.

Companies including Country Garden, Greenland, R&F, Macrolink and Agile have bought development land and brought projects to Kuala Lumpur, Johor, Penang and other places in Malaysia.

Among them, the US$100bil metropolis project by Country Garden has drawn the most attention. Built on four artificial islands, the project will house approximately 700,000 people once completed, making it the biggest of about 60 projects in Malaysia’s Iskandar economic zone around Johor Baru, according to Bloomberg.

In an interview with Bloomberg, Yu Runze, chief strategy officer of Country Garden Pacificview Sdn Bhd, admitted there was a slowdown in the first half of this year but added that the company won’t slow down or stop the project.

Ronald Pua, vice-president of the Malaysia Real Estate Promoting Association, feels the impact brought by Chinese developers, especially in Johor Baru.

Many of the Chinese developers in Malaysia target buyers from their homeland to sell the numerous houses they plan to build, but things have changed since China’s stricter restriction on capital outflows has spooked individuals from investing in overseas properties.

In January, the Chinese government reiterated that individuals should not purchase foreign currency to buy property overseas. The US$50,000 purchase limit per year remains unchanged, but an authentic reason will be needed.

Pua has seen a drop of round 20% in the number of Chinese buyers this year. He said that some developers try to attract Chinese customers with special discounts or offer loans, but the result is trivial as Chinese purchasers are concerned about transferring money overseas.

A buyer surnamed Liu, from Fujian province in south China, went on a tour organised by Country Garden at the end of 2016 to visit the Forest City project. “Around 86% of the units were sold to Chinese,” said Liu, quoting his sales manager who accompanied him during his stay. “Not just Chinese from China, but also Chinese from other countries, such as Singapore and Malaysia.”

Country Garden no longer organises tours to projects for potential Chinese buyers and has suspended its sales galleries in the Chinese mainland. Instead, the company will open galleries targeting customers in the Philippines, Indonesia, Vietnam, Thailand and Dubai between August and October to diversify its customer base, as reported by Bloomberg. “Chinese buyers might pull out in the short run, but in the long run, they still favour Malaysian properties because of the value for money,” said Shan Saeed, chief economist at Malaysia’s real estate agency IQI Global.

“We are quite buoyant about Chinese investment coming into Malaysian real estate and contributing to the economy. Most of the investors would like to be around the downtown area like the KL City Centre.”

According to him, price ranges from RM1mil to RM2.5mil will be favoured as Chinese buyers are looking for projects with a luxury, world-class lifestyle.

The high-end market would also continue to be the focus of Chinese developers, with some starting to show more interest in Kuala Lumpur as well, said Sarkunan from Knight Frank.

But he hopes Chinese developers can pay more attention to the affordable housing segment where there is local demand.

“Your profit level may not be as great (as in the high-end market), but a profit level with no sale is only two figures on a piece of paper.”

According to figures from Knight Frank Malaysia, significant year-on-year contraction of over 20% has been seen both in the volume and value of transactions of condominiums and apartments in Kuala Lumpur, while a reduction of 7.95% in volume and 4.1% in value of transactions were also recorded in Johor in 2016.