BY Chris Prasad
Hurdles seem aplenty these days, don’t they? High prices, mismatched demand and supply, banks tightening up on loan approvals, government housing schemes that result in mass confusion rather than mass aid… I could go on, but why depress ourselves?
In light of such incredible negative forces in play, I wonder if it is high time to relook some of the earlier imposed restrictions to avoid a complete standstill in the market. One such is the RM1 million minimum purchase price imposed on foreign buyers of properties (RM2 million in some states).
Brought into play early 2014, the floor price for foreign property ownership was introduced to help mitigate rising prices. Back then, the argument was that strong appetite for mid-ranged properties among foreign buyers was propelling prices upwards and putting them beyond reach for local buyers.
A blanket ban was then put on foreign ownership of properties below the RM1 million mark, so that property stock in this margin would be reserved for Malaysians. In some states, where the glut in high-end properties was particularly alarming, the floor price for foreign ownership was pushed up to RM2 million in order to refocus foreign attention in that direction, and hopefully, improve take-up rates.
A year later, some of us are beginning to wonder if that is the best strategy to employ. It turns out not all foreign buyers are particularly interested in luxury properties, and many – especially those who were once enticed by our Malaysia My Second Home programme – are actually working class citizens looking for a place to bask in our tropical sun, affordably.
The truth is we were never really a magnet for sheikhs, princes or presidents. Sure, we wanted to lure upmarket international buyers, but buyers from this group are spoilt for choice; and when the world is your oyster Bora Bora will always sound better than Penang. RM1 million may not be much for a Brit earning £50,000 a year, but at that price, there are probably better investments to be made in the lucrative UK market.
We were, however, fairly effective in grabbing the attention of those who previously thought that having a second home in a lush tropical landscape was beyond their means. We were also attracting lucrative attention from land-starved Singaporean mid-income earners, for whom the prospect of space in the Lion City is a rapidly diminishing probability.
A business acquaintance recently brought to my attention a much-ignored plight these days, the plight of the seller. No, not the billion-ringgit development firms, but individuals who were told that investing in property was the best step they could take towards improving the financial status of their families.
In this economic environment, not everyone is selling to make a quick buck. Some are selling to recover their investment, and already, some are selling because the bearish economy dictates that they have to.
For them, buyers are diminishing. In part, because of stubbornly high prices, but also because of cautious buyer appetite and reduced bank loan approvals.
For them, alienating foreigners means shrinking the pool of potential buyers, particularly those who are more likely to qualify for a loan because their financial stability and security is not linked to the local economy.
Yes, ultimately, we all want to see price stabilisation in the market, but while we are waiting for that cure to kick in, we also don’t want to see a flat line in transactions. Yes, the RM1 million benchmark for foreigners seems petty compared to a whole host of measures we should be employing to rejuvenate the market, but it is also one of the easiest policies to drop.
The economy isn’t rosy. The country needs cash. Foreign investment isn’t a bad thing. Less hurdles the better.
(ED: This commentary was originally published in the July 2015 issue of P360. It has been re-posted here because the issue is of ongoing relevance.)