In the recent Budget 2020 announcement, Finance Minister Lim Guan Eng announced that the government will lower the threshold for foreign property ownership in urban areas.
Here’s what it involves:
- Foreign ownership threshold lowered from RM1 million to RM600,000
- Applicable to high-rise properties in urban areas
- Limited to one-year period in 2020
- No citizenship given out to foreign property buyers
By lowering the threshold, the government aims to reduce the supply overhang of condominium and apartments.
So, what does this mean for foreign buyers thinking about getting a property in Malaysia? And how will this affect local buyers?
Malaysia has some of the most relaxed foreign ownership requirements in ASEAN
Even before Budget 2020’s changes to the ownership threshold, Malaysia has had pretty relaxed foreign ownership requirements. Here’s how Malaysia compares to other ASEAN nations:
Malaysia: Foreigners have to meet the minimum purchase price, which varies by state. It would cost a foreign buyer at least RM400,000 to buy a property in Sarawak, and at least RM2 million in Penang Island.
Indonesia: While land ownership (hak milik) is closed to foreigners, foreign buyers can acquire the right to the use of the land (hak pakai). But hak pakai can make it hard for foreign buyers to get a mortgage from local financial institutions. In addition, buyers have to meet the minimum purchase prices, which varies by region. 
Philippines: Generally, land ownership is restricted to Filipino citizens. However, foreigners can buy condominium units, as long as 60% of the building is owned by Filipinos. 
Thailand: Generally, foreigners cannot directly purchase land in Thailand. However, they can own condominium units, as long as 51% of the building is owned by Thais. 
Vietnam: Foreigners cannot own land in Vietnam (although neither can Vietnamese citizens – in Vietnam, land is collectively owned by the people, and managed by the state). However, foreigners who are residents can purchase residential properties if they obtain a “land use right”.Compared to other ASEAN countries, Malaysia has pretty relaxed foreign ownership laws. Now, with a lower property threshold – the main barrier of entry – it’s even easier for interested foreign buyers to invest in Malaysian property.
Will a lower threshold make Malaysia more attractive for foreign property buyers?
The lower threshold could appeal to foreign buyers who want to purchase a property in Malaysia, but haven’t been able to in previous years because of the RM1 million requirement.
We spoke to two thirty-something expats living and working in Kuala Lumpur.
Sahil, a digital marketing specialist, said that when the RM1 million threshold was in place, buying a property in Malaysia wasn’t on his mind at all. But now, with a lower threshold, he can give property purchase some thought, and start making enquiries about the next step that he can make.
Likewise, Achmad, a UI/UX Designer, said that the previous threshold of RM1 million was too high for him. The lower threshold gives him hope that property purchase could be possible in the near future.
However, while a lower threshold could encourage foreign buyers in the short term, it may not have a significant long-term impact. Here’s why:
Temporary measure
Lowering the threshold is only a temporary measure – limited to the year 2020 – to reduce the supply overhang.
According to Tang Chee Meng, chief operating officer of Henry Butcher (M) Sdn Bhd, the government will probably review the threshold again after the overhang situation has improved.
Depends on state implementation
While the federal government has proposed to lower the threshold, its actual implementation depends on each particular state government. Economic Affairs Minister Datuk Seri Mohamed Azmin Ali said recently that the threshold is “up to the state government to decide”.
Some states may choose not to follow the national standard at all. For instance, states like Penang and Selangor have thresholds up to RM2 million – we don’t know if they will adopt the federal government’s proposal.
Sluggish growth in Malaysia’s housing market
Foreign buyers who are primarily looking to invest may be put off by Malaysia’s slowing pace of growth. In the past few years, Malaysia’s House Prince Index has lagged far behind the kind of growth we’ve seen in the years 1990 to 2017. Some states (including Kuala Lumpur, Sabah and Sarawak) even saw negative growth in the first quarter of 2019.
Rental yields have fallen as well. The general rental yield for high-rise residential properties stands at 3.5% as of 2018, down from 7% to 9% ten years ago.
Source: Housing Watch
Herman, an Indonesian commercial manager working in Kuala Lumpur, shared with us that his family bought a high-rise property in Kuchai Lama, back in 2012. However, the property’s value has hardly gone up since then. In contrast, his family’s other properties in Jakarta have shown higher valuation growth in the past few years.
Even with the lower entry price kicking in next year, Herman said that his family would rather invest in property elsewhere, due to Malaysia’s sluggish housing market.
Will a lower foreign threshold affect local property buyers?
Following the Budget 2020 announcement, some Malaysians voiced concerns that increased foreign property purchases will create competition for local buyers, and worsen the lack of affordable housing situation for local Malaysians.
In response, the government has clarified that the lower threshold will only be applicable to existing unsold units, and not to new projects that are yet to be launched. In other words, foreigners will only be able to buy properties that local Malaysians aren’t buying anyway. Most Malaysians do not purchase properties valued at RM600,000 above – over 70% of home loans approved are for first-time buyers of properties priced below RM500,000.
Temporary fix
So, is Malaysia now more attractive for foreign buyers? In the short term, maybe. But the lower threshold seems to be a temporary measure that could be reversed in the near future. In addition, those buying to invest may want to look elsewhere, due to Malaysia’s slowing residential growth rate and declining rental yields.
