No joy for Malaysia’s property sector from China’s reopening

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The PH government’s move to stop foreign purchases of Forest City property in 2018 angered many Chinese property investors. (AFP pic)

PETALING JAYA: After nearly three years of self-imposed isolation, China finally reopened its borders on Jan 8, and Asean countries including Malaysia are expecting millions of Chinese tourists to return this year.

The reopening story has raised hopes among Malaysian real estate players who are striking a bullish tone about the return of Chinese investment in properties.

However, some property analysts are sceptical this will happen because China’s capital controls policy remains, and the lingering effects of a blunder by the Pakatan Harapan (PH) government in 2018.

Kashif Ansari, group CEO at Juwai IQI, a real estate technology company, predicts rapid growth in investment from Chinese buyers in Malaysia.

“During the pandemic, Chinese property investment abroad dropped between 50% and 60%. We are expecting investment to return to pre-pandemic levels by mid-2024,” he said.

As of December 2022, Juwai IQI’s Chinese buyer enquiry report ranked Malaysia 7th in their list of destinations. The list was topped by Australia, the US and Canada.

Fifi Syafiza, a real estate negotiator with Keller Williams Malaysia, said the reopening has led to a “flurry of transactions” with several buyers from China looking to snap up property they had originally set their sights on before the pandemic.

She pointed to visa schemes, including Malaysia My Second Home (MM2H) and the recently launched Premium Visa Programme (PVIP), providing greater incentives to Chinese nationals buying property in Malaysia.

A contrarian view

The buoyant forecasts from real estate players seem misplaced when contrasted with the views of local property analysts.

CBRE WTW managing director Tan Ka Leong noted China’s ongoing capital controls and domestic property market downturn for the consultancy’s wary outlook on the impact of China’s border reopening.

“Capital controls that were instituted by China in 2016 have still not been lifted. We see this as a key limiter in Chinese investment having any substantial impact on Malaysia’s property market,” he told FMT Business.

Data from property research group CRIC revealed sales from China’s 100 largest property developers fell more than 40% in 2022. With as much as 70% of Chinese wealth tied up in housing, price falls and a collapse in sentiment could have adverse effects on Chinese demand for Malaysian property.

Consilz Tan, a senior lecturer at Xiamen University’s school of economics and management, echoed the need for caution.

Noting there remains a severe overhang of high-rise property – a favourite of Chinese buyers – in major cities, she questioned whether Chinese investment alone was able to plug this expanding glut in the local market.

“Major developments like Forest City in Johor have contributed to the growing overhang of high-rise units in the market,” she said. “I am more optimistic of discernible impacts from China’s reopening being felt in the retail and tourism sectors than in the property market.”

The overhang in high-rise development was particularly bruising for the Malaysian property market in 2022. Average transacted price fell as low as 19%, with Johor alone recording 4,800 unsold units.

Chinese investors ‘bruised’ by PH government

Another property analyst, who asked not to be named, gave a damning assessment of the state of potential Chinese investment in Malaysia’s property market.

He chided the Dr Mahathir Mohamad-led PH administration’s move in 2018 to stop Chinese purchases of Forest City property and its subsequent refusal to extend MM2H privileges to Chinese buyers in the massive project.

This subsequently led to Forest City’s developer, Country Gardens Holding Co, shifting their selling focus to other foreign markets.

In late August 2018, Mahathir caused an international stir when he announced Malaysia would not allow foreigners to buy residential units built at the US$100 billion (RM426 billion) Forest City project.

“One thing is certain, that city that is going to be built cannot be sold to foreigners. We are not going to give visas for people to come and live here,” Mahathir told reporters then.

His statement was carried by major wire agencies and widely reported around the region, especially in China.

However, a week later, he made a U-turn and said foreigners could buy properties in Forest City, but stressed the PH government would not issue them visas to make Malaysia their home. Despite the partial retraction, the damage had already been done to Malaysia’s reputation in the eyes of Chinese investors.

“The attempted ban was bruising to Chinese buyers and has affected sentiments towards investing in Malaysia. Without the incentive of MM2H, Chinese buyers are more than able to look elsewhere,” added the property analyst.

So, it appears China’s reopening will unlikely lead to a surge of property investment into Malaysia. The irony is that PH chairman and Prime Minister Anwar Ibrahim may now have to undo the damage done by his nemesis to regain the confidence of China’s property investors.