By Joseph Wong

Many Malaysians invest in properties abroad - from the one-off apartments near the universities that their children are studying to the hardcore real estate investors who reap foreign revenue as income sources. And with as many as 1.86 million Malaysians working abroad, buying a home in those countries is a given. 

But is it the same scenario for foreigners for the Malaysian real estate industry? In 2023, Malaysia had around 2.1 million foreign workers. This figure includes both documented and undocumented foreign workers across various sectors such as construction, manufacturing, agriculture and services. 

Sadly, the bulk of foreign workers in this nation are of the lower income bracket and do not invest in real estate. Unless accommodation is provided by the employer, they will usually opt for abodes that tend to offer the lowest rents. This exacerbates a multitude of  issues. Firstly, they are competing with the lower income earners who are also seeking homes that will not impact too much on their take-home salary or wages. Secondly, some landlords take advantage of this scenario and cash in by charging foreign workers higher rents, knowing that it is not easy for them to secure a place. This puts pressure on the lower income Malaysians who may be edged out from gaining an affordable home to rent. Moreover, some housing areas become dominated by a particular nationality, creating pocket colonies of foreign nationals that locals avoid and depreciating the value of property there.

For the higher earners, many expatriates (expats) have the tendency to rent rather than buy a home in Malaysia. This is due to two main reasons, namely, most expats are engaged on contract basis usually on a yearly term so buying a home doesn’t make good economic sense. The other reason is that the expat is unsure if they would stay in Malaysia for a longer duration. Unless they find that this nation is conducive to them, then they will be unlikely to purchase or invest in real estate here.

As for institutional investors, it is a whole different ball game. Their strategic investments across various sectors, from commercial to residential, industrial to hospitality, contribute to economic development and shape the urban landscape. To bolster Malaysia's attractiveness to foreign investors, it is essential to address key challenges and capitalise on emerging opportunities.

The Malaysian real estate market boasts a robust ecosystem, with institutional investors such as mutual funds, insurance companies, sovereign wealth funds and real estate investment trusts (REITs) playing a pivotal role. These investors inject capital into diverse projects, driving economic growth and fostering sustainability initiatives. With 19 listed REITs valued at an estimated RM41bil, Malaysia's real estate sector presents ample investment opportunities, with KLCC Property emerging as the largest REIT in the country.

With environmental, social and governance (ESG) and sustainability issues having  emerged as central themes in real estate, institutional investors increasingly recognise the value of green building practices. JLL Malaysia's research and consultancy head Yulia Nikulicheva highlighted the growing demand for eco-friendly and energy-efficient properties, particularly in the office segment. 

Companies today face a multitude of challenges, including cost management, sustainability and talent retention and attraction. At a time when companies worldwide are looking to increase performance, efficiency and innovation whilst also prioritising cost control, Asia-Pacific offers considerably lower operating costs, at nearly 70% less than the US, based on Knight Frank research, said its occupier strategy and solution  global head Tim Armstrong.

“For every square foot of office space, occupiers can expect to save on average USD70.86 (RM339.60) in the four cities (India, Philippines, Malaysia and Vietnam) compared with mature markets. This translates to a staggering 54% cutback in occupancy costs annually,” he said.

Stocks fall short

However, the existing office stock falls short in providing green features, signalling opportunities for investors to retrofit and upgrade older buildings to meet modern standards. By prioritising sustainability initiatives, Malaysia can attract environmentally conscious investors and enhance its global competitiveness.

This is where the government also needs to play its part in attracting foreign buyers and investors even as property developers do their part to make their developments more attractive to the international market. Government policies and regulatory measures significantly influence institutional investors' decisions. That is not to say that the nation has not been doing anything. Malaysia has implemented various initiatives aimed at stimulating the real estate market, including tax incentives for development projects and special economic zones to attract foreign investment. 

Favourable central bank policies, maintaining low financing costs, further enhance the attractiveness of property investments. Despite these incentives, challenges such as inflationary pressures and global economic uncertainties persist, impacting investor sentiment and investment decisions. But the government needs to remember that on the international platform, Malaysia is not the only Asian country vying for foreign direct  investment (FDIs).There are many nations out there fight tooth and nail to divert FDIs into their nations. Two questions come into mind where government policies are concerned: Is the government doing enough to differentiate Malaysia’s incentives from its competitors? And how active are the government agencies in promoting the nation overseas?

On the local front, key sectors such as prime office spaces and logistics and warehousing continue to attract interest from institutional investors. The rise of e-commerce and Malaysia's strategic location in regional supply chains have fueled demand for logistics and warehousing facilities. However, challenges such as limited available properties and infrastructure constraints underscore the need for strategic investments and development initiatives in these sectors. Additionally, diversification across segments is emerging as a key strategy for investors, allowing for risk mitigation and optimised returns.

Promising prospects

Malaysia's offshoring industry, encompassing Shared Services and Outsourcing (SSO) and Business Process Outsourcing (BPO), has witnessed substantial growth, particularly in the mid-90s with the establishment of major international players like Intel, IBM, DHL and Fujitsu, pointed out Knight Frank Malaysia office strategy and solutions executive director Teh Young Khean. 

“This growth was fueled by the government's Multimedia Super Corridor (MSC) initiative. Today, the landscape has transformed into a thriving Global Business Services (GBS) sector, boasting 607 companies in Malaysia as of 2021, with 58% being foreign direct investments. Notably, around 30% of these entities represent Forbes Global 2000 and/or Fortune 500 companies. With the new Malaysia Digital status announced by the government, GBS players have a wider option of buildings to choose from and Malaysia has observed many GBS companies setting up across various sectors. The expansion reflects Malaysia's dynamic approach to fostering a conducive environment for business growth and innovation," he said.

While Malaysia offers promising investment prospects, several challenges still must be addressed to attract more foreign capital. The country's relatively small market size and exchange rate volatility may deter investors seeking stable returns. Moreover, transparency and regulatory enforcement are essential to instil confidence among foreign investors. Collaborations with local partners who possess market knowledge and regulatory expertise can facilitate foreign investments and mitigate risks associated with unfamiliar markets.

To attract foreign investment, Malaysia must actively promote awareness of its real estate potential and address investor concerns. Developers and stakeholders play a crucial role in engaging with investors, highlighting the country's investment opportunities and addressing concerns such as currency stability and regulatory compliance. Enhanced transparency, robust regulation, and high-quality developments are imperative to instil confidence and attract sustained foreign investment in Malaysia's real estate market.

At the end of the day, knowing that Malaysia holds immense potential to attract foreign investment in its real estate sector is already a winning step. By leveraging sustainability initiatives, favourable economic policies and strategic partnerships, Malaysia can position itself as a desirable destination for real estate investment, driving economic growth and development in the region. Addressing key challenges and fostering a conducive investment environment will be crucial in realising Malaysia's vision of becoming a global hub for real estate investment and innovation.

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