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FAQ, Malaysia Property Investment

Investors look to the geopolitical haven of Malaysia to park their money

Key takeways:

  • Malaysia benefits from a diversified export base by being Asia’s only major net exporter of oil and gas and the world’s second largest exporter of palm oil.

 

  • The region is acting as an inflation hedge as the Ukraine war pushes global commodity prices higher. 

 

  • In Q1 of this year, Malaysia’s economy registered a 5% GDP growth.

 

  • The main drivers of the recovery are the revival of the tourism sector with the reopening of international borders, growth in commodity prices, and demand for manufacturing activities, especially semiconductor production.

 

  • Compared to most of its Southeast Asia counterparts, Malaysia allows foreigners to own both property and land on a freehold basis.

Southeast Asia shows signs of recovery in the wake of the covid-19 pandemic

In stark contrast to China’s steadfast implementation of a zero-covid public health policy, Southeast Asia has opted for the “living with covid” approach. When China reinstated lockdowns in the major cities of Shanghai and Beijing earlier this year, Southeast Asian countries like Malaysia, Thailand and Vietnam reopened their international borders ahead of the busy summer travel season to allow vaccinated travellers to freely enter. This has facilitated a strong revival in Southeast Asia’s tourism sector and encouraged consumption activities.

Investing in commodity exporting Malaysia to hedge against rising commodity prices

The pandemic has directly contributed to rising global inflation due to prolonged supply chain disruptions, fuelled by government stimulus packages and pent-up demand, and exacerbated by the war in Ukraine. Food and energy prices are hitting record highs.

Of the countries in Southeast Asia, Malaysia benefits from a diversified export base by being Asia’s only major net exporter of oil and gas and the world’s second largest exporter of palm oil. Thus, the region serves as an inflation hedge as the Ukraine war pushes global commodity prices higher. Strong commodity prices will bolster the balance sheet of the Malaysian government, leading to more infrastructure investments, which directly correlate with GDP growth.

Malaysia’s central bank recently announced that a GDP growth of 5% was registered in the first quarter of 2022.  The main drivers of the recovery are the revival of the tourism sector, the growth in commodity prices, and the growth of manufacturing activities, especially semiconductor production. 

Malaysia is expected to be the largest beneficiary of the RCEP free trade agreement in terms of gains in exports

Malaysia presents compelling long-term growth opportunities with continuing infrastructure projects, reviving tourism, accelerating digital transformation, strengthening corporate governance, and as an alternative manufacturing base to China.

On 18 March 2022, Malaysia joined The Regional Comprehensive Economic Partnership (RCEP), which is the world’s largest free trade agreement (FTA) between 15 countries. The RCEP is an ASEAN driven initiative linking 10 ASEAN member countries with China, Japan, South Korea, Australia and New Zealand. The FTA covers a population of 2.2 billion and a combined GDP of US$26.2 trillion or 30% of global GDP.  

Malaysia will benefit from the eventual removal of 90% of tariffs between member nations and a reduction of non‑tariff trade barriers. The country will also enjoy an enhanced business environment, with new regulations on intellectual property protection, government procurement practices and e‑commerce, and the removal of barriers to the services sector. According to Malaysia’s Ministry of International Trade and Industry, Malaysia is expected to be the largest beneficiary of the agreement in terms of gains in exports with a projected US$200 million increase among the ASEAN countries.

Tech multinationals seek alternative manufacturing bases to China

The pandemic has triggered multinationals of clothing to consumer electronics to seriously reassess their sources of raw materials, and parts assembly. Given China’s ongoing battle with covid-19, companies are looking to reduce their operations in China and are turning to Southeast Asia to secure their supply chains. This trend has been under way even before 2020 when investors experienced increasing Chinese labour costs and higher taxes because of the US-China trade war since 2018.

Malaysia has been capturing investments from multinational tech companies. Demand for semiconductors (i.e. computer chips) has been growing for years as the world becomes more digital given its use in all machinery from smartphones to cars. The covid-19 pandemic’s severe disruption of global supply chains has further exacerbated the worldwide semi-conductor shortage. 

Malaysia plays an indispensable role in the global semiconductor supply chain accounting for 13% of the world’s supply. The country’s semiconductor industry is concentrated in the island-state of Penang, which represents 80% of the nation’s contribution. Last year, Penang registered the largest share of foreign direct investment (USD17 billion) in its manufacturing industry in Malaysia in 2021. 

Malaysia’s technology sector stands to benefit from the US-China trade war and geopolitical issues with the US imposing export restrictions on China’s largest chip firms. Semiconductor companies are announcing investments in fabrication plants to meet increasing demand. In 2021, Intel the world’s largest semi-conductor manufacturer further invested USD7 billion to create a new advanced facility in Penang’s Bayan Lepas Free Trade Zone.

Malaysia welcomes foreigners to own property and land on a freehold basis

Malaysia is a popular location for foreigners to invest in property given the ease of owning freehold property and even land compared to most of its Southeast Asia counterparts like Thailand and Vietnam. As a former British colony, Malaysia upholds a common law legal system and English is used in business dealings.

Thailand and Vietnam do not allow foreigners to own land, and typically restrict foreign ownership to condominiums only. Vietnam generally restricts foreigners to purchase condominiums under Land Use Right leases for a period of 50 years. Should the foreigner marry a Vietnamese national, it will then be possible to own a freehold property in Vietnam. The total number of units owned by foreigners in a condominium building must not exceed 30%. In Thailand, foreigners are restricted to owning foreigner designated condominium units of no more than 49% in a single building.

Source:

https://themalaysianreserve.com/2022/06/07/hsbc-projects-5-5-gdp-growth-ringgit-to-reach-rm4-28-in-2h22/

https://www.bloomberg.com/news/articles/2022-05-07/asia-stock-stars-may-see-more-tailwinds-even-as-world-tightens

https://www.nst.com.my/news/nation/2022/06/806037/malaysia-gateway-between-china-and-asia

https://research.hktdc.com/en/article/MTAxOTAxMjgyNQ

https://www.nst.com.my/business/2022/03/781098/rcep-comes-force-malaysia-march-18-2022-miti

https://www.voanews.com/a/southeast-asia-latin-america-set-to-gain-in-post-pandemic-supply-chains/6628941.html