The Malaysian vs Overseas Investment Dilemma

why not properly look around and analyze what is available in Malaysia?

ACCORDING to the recently released Global Competitiveness Report 2014-2015 published by the World Economic Forum (WEF), Malaysia attained 20th placing out of 144 countries. It is also the first developing country to find its way to the top 20 ranking. This achievement even surpasses several advanced economies such as France, Australia, South Korea and my own home country, Italy, which dropped to the 49th position.

As I always say, if we want to judge or rank something, we should do it in comparison with other similar or comparable standards. So in this case, let us compare Malaysia with our immediate neighbours in the South-East Asia region.

Table 1 shows how well the Malaysian economic performance has been operating and how far its regional future Asean (The Association of Southeast Asian Nations) partners are performing in terms of efficiency and future developments.

Elaborating on the WEF Global competitiveness Report 2014-2015, it’s interesting to underline that Malaysia has been scoring extremely well in terms of Financial Market Development (ranked 4th worldwide) and of Goods Market Efficiency (ranked 7th worldwide).

WEF, being an independent association of business leaders from all around the world that keeps track of and reports about improvements or the worsening of economic performances of countries around the world, status of development and level of democracy, bases its reports on objective, realistic and informative details of the actual situation.

The Malaysian vs Overseas Investment Dilemma
Table 1

Therefore, whoever is around the world deciding to open a branch in a different country normally would rely on these WEF reports that are produced annually before acting.

I think we would all agree on the fact that the world’s financial centre of gravity is progressively shifting towards the east – attracted by China’s robust performance and by the South-East Asian region which, in the next few decades, will offer huge growth potential. In the last 10 years, all the regional economies have been showing impressive growth and steady performances.

Merging the information above with the data reported in Table 2, it is easy to gain a positive outlook on the government plan to see Kuala Lumpur and Greater KL becoming home to the regional headquarters of 100 Fortune 500 and Forbes 2000 multinational corporations by 2020.

Since 2011, InvestKL has brought in 32 new MNCs (Multinational Corporations) to establish their regional headquarters in Malaysia’s capital city. These MNCs are attracted by Greater Kuala Lumpur’s strategic location which is easily accessible to the region’s key business centres and some of the world’s most rapidly growing and important economies as reflected in the table.

However, the best is yet to come. Kuala Lumpur and Greater KL are targeting a 10 million population count by 2020. Penang, on the other hand, is increasingly becoming a world renowned destination for holiday, retirement and health tourism.

Malacca will soon see the launching of the first phase of Melaka Gateway, a project endorsed by Prime Minister Datuk Seri Najib Tun Razak, which will raise Malacca to the world stage as a tourism, wellness, business, education and entertainment destination.

Johor Baru and Iskandar Malaysia which, from a property point of view, experienced a mismatch of demands and offers are nevertheless moving steadily according to the plan. And, while foreigner investments keep coming in, Singaporean SMEs (small and medium-sized enterprises) are slowly relocating their production facilities there. It is possible to foresee a three million Iskandar Malaysian population count by 2025.

In Sarawak, the SCORE (Sarawak Corridor of Renewable Energy) initiative has been launching several projects of which the New Semelaju Industrial Park (specially designed for heavy industries with high energy consumption) has taken off and huge production plants are coming in from China and Korea.

The Malaysian vs Overseas Investment Dilemma
Table 2

Last but not least, Sabah, with its tourism and leisure driven growth and an extremely active Developers Association, SHAREDA (Sabah Housing and Real Estate Developers’ Association) has been planning a substantial number of new project launches that are poised to reshape the Kota Kinabalu skyline.

How is the outlook for the next five years? It does look positive with good promise for capital appreciation and a reasonable return on investment ROI (return on investment).

Even though the picture looks quite good and promising, Malaysian investors keep on looking overseas to find investment opportunities. Let’s have a look at other property markets.

Singapore and Hong Kong: The top two

Let’s look at Singapore and Hong Kong first. These countries form two of the biggest goldmines in South-East Asia.

We know that property prices in Singapore and Hong Kong have been going up drastically since the past two years.

During the second half of last year, these prices reached their peak. Newspapers reported that in October last year, the Hong Kong office market was going to crash soon. They also carried stories on how the Singapore housing authorities had been introducing more stringent curbing measures in June and August last year.

In comparison to Malaysia, it is important to note that properties in these two countries are not freehold and foreigners face many limitations.

Looking at the values of our nearest neighbouring country, Singapore, property prices have been going beyond SGD 1,000 per sq ft. In fact, you have to be a millionaire to buy a new property development where prices fall easily within the range of SGD1.5mil (RM3.99mil) to SGD2.5mil (RM6.65mil).

Indonesia and Thailand: Complicated settings

Despite being located not far away from Malaysian soil, both Indonesia and Thailand are rather infertile ground for investments.

Their lower currencies do not amount to much while political stability and government transparency have remained at an impasse.

The Malaysian vs Overseas Investment Dilemma
Table 3

Thailand, in particular, has been plagued by political crises since the 2006 military coup of then Prime Minister Thaksin Shinawatra who was accused of corruption. Since then, various violent protests have been staged by political groups which have created a chaotic situation in terms of governability. In addition to that, southern Thailand has also been frequently experiencing insurgent activities involving shootings and killings. Investing in a politically unstable country is a very risky move, so your best bet is to search for other places to invest your money.

Despite having a very attractive exchange rate, Indonesia, on the other hand, is largely plagued by graft. According to a 2013 corruption perception index by advocacy group Transparency International, the country ranked 114th out of 175 countries polled. In contrast, Thailand was ranked 102nd place while the Philippines came in 94th. Malaysia was ranked as the 53rd country while Singapore came in fifth.

If an investor is prepared to accept extra costs which are very likely to burden his investments, he can surely try investing in less stable countries but the risk is really not worth it.

We can keep on analysing other possible investment destinations such as the UK, Australia or the US but let us remember the status of our currency in terms of exchange rate risks and the enforced legalities that these countries have which ultimately will really bring down the proposed ROI.

Final considerations

Investing overseas is not easy. Firstly, the general situation of the property market in the country you are choosing to invest in has to be carefully studied. Research needs to be done coupled with a general market analysis.

All this will contribute to relatively high cost and time-wise, you will need to have a lot of free time.

Imagine that the proposed property is really attractive. Once you have gone through the whole purchasing process, the next step that needs to be satisfied is to find a proper management company.

The Malaysian vs Overseas Investment Dilemma
Table 4

The cost here too will possibly eat into a good part of your promised return on investment. I’m not saying that it’s not good to invest overseas. For sure, it is a good option.

However, before moving overseas, why not properly look around and analyse what is available in Malaysia?

Why should we decide to invest in countries where properties are already three to five times more expensive than in Malaysia, and whose markets are super mature, overprotected or just too young and unpredictable?

Have a look at where Malaysia is compared with other countries in the region in terms of values and their possible appreciation for residential properties using the ratio generated between average property value and average per-capita income as shown in Table 3.

And, when evaluating commercial space, it is wise to also consider what Malaysia has to offer in comparison with most of the other countries as shown in Table 4.

>> REI Group of Companies CEO and co-founder Dr Daniele Gambero gives presentations on the property market and welcomes feedback at
>>Sources: Napic Property market Report 2013, CIMB, World Bank, International Monetary Fund, World Economic Forum, Ho Chin Soon Research, REI Archives.

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