A demand for more mid-to-high-end housing likely to rise

Chinese foreign direct investment (FDI) in Malaysia is on the rise, reshaping key sectors of the economy and having a profound impact on the real estate market. As the nation continues to position itself as a key player in Southeast Asia, Chinese capital is playing a pivotal role in accelerating this transformation.

According to IQI co-founder and group chief executive officer Kashif Ansari, Chinese FDI has not only increased but has also evolved in surprising ways that are fueling economic growth and transforming industries across the nation. With Chinese companies having invested RM126.4bil, representing 7% of Malaysia's annual GDP, the ripple effects are being felt throughout the economy, particularly in the property sector.

Shifting investment trends

In 2024, Chinese FDI has taken a strategic turn, with three key trends reshaping its impact. Firstly, Chinese capital is shifting away from G7 economies, such as the United States and Europe and moving towards Southeast Asia. Malaysia, along with its regional neighbours, has become a significant beneficiary of this pivot. Investments are now being funnelled into key sectors like automotive, real estate, semiconductors and raw materials. This shift is resulting in more targeted and long-term investments, particularly in greenfield projects where new facilities are being constructed, as opposed to simply acquiring existing assets, according to Ansari.

This strategic move toward greenfield investment is particularly beneficial for Malaysia, as it brings in not only capital but also expertise, innovation and the creation of new jobs, he said. 

Approximately 99.5% of Chinese investments in Malaysia in 2024 have been greenfield projects, compared to just 75% before the pandemic. This trend points to a growing commitment from Chinese companies to establish long-term operations in the country.

Another notable shift is the declining role of Chinese state-owned enterprises (SOEs) in Malaysia's investment landscape. While SOEs once dominated Chinese FDI, private companies now account for the majority of investments. This trend highlights the growing importance of Malaysia in the growth strategies of Chinese private firms, which are increasingly setting up operations and hiring local talent.

“Private companies see Malaysia as a key part of their growth strategy. They’re setting up operations here, hiring local talent, and locating a significant part of their global ability to produce goods right here in Malaysia,” said Ansari.

The sectoral impact

One of the key beneficiaries of Chinese investment in Malaysia is the semiconductor manufacturing sector. As a global player in semiconductors, Malaysia has become a hub for Chinese companies looking to capitalise on the country’s established supply chains and expertise. Semiconductor production has been driving employment growth, not only in factory jobs but also in high-skill positions such as engineering and supply chain management. This trend is expected to continue, with thousands of new jobs being created in the semiconductor industry, further boosting Malaysia's global standing in this sector.

Beyond semiconductors, other high-tech industries such as information and communications technology (ICT) have also seen a surge in investment. These sectors are poised to generate higher revenues per worker compared to less advanced industries, like hospitality, leading to higher wages and improved job opportunities for Malaysians, explained Ansari.

Impact on the property sector

The surge in Chinese FDI, particularly in manufacturing and high-tech sectors, has a direct impact on Malaysia’s real estate market, with increasing demand for industrial and commercial properties. The influx of Chinese businesses looking to establish factories, processing plants and chip fabrication facilities is driving up demand for industrial real estate, particularly in key manufacturing hubs like Penang, Johor and Selangor.

In Penang, where semiconductor manufacturing is concentrated, the demand for land is particularly high. Given that the state is expected to run out of developable land by 2030, land reclamation efforts are already underway to create more industrial zones. As demand for industrial land rises, property prices are also expected to increase, offering potential for higher returns on investment for property owners.

Similarly, commercial real estate is expected to benefit from Chinese investment as companies establish new offices, research and development (R&D) centres and other facilities. Cities like Kuala Lumpur, Cyberjaya and Johor Bahru are expected to see a rise in demand for office spaces, especially in technology parks and innovation hubs. This growth will further stimulate the development of commercial properties, increasing yields for property investors and developers.

A surge in mid-to-high-end housing

The real estate market is also poised for growth in the residential sector. As Chinese companies hire local talent and relocate employees to Malaysia, there will be a growing demand for housing near industrial and commercial centres. High-skilled professionals working in sectors such as semiconductors, engineering and tech will seek more upscale housing, leading to an increase in demand for mid-to-high-end properties.

This trend is expected to lift the overall demand for residential properties in key urban areas, contributing to rising property values, Ansari predicts. Additionally, with the increase in wealth generated by Chinese FDI, Malaysia’s middle class will likely expand, further boosting the housing market, particularly in suburban and urban regions.

Chinese FDI is more than just a financial boost for Malaysia—it is reshaping the country's economy and creating opportunities in key industries such as manufacturing, technology and real estate. The shift toward long-term, strategic greenfield investments is driving demand for industrial, commercial and residential real estate, while also creating jobs and raising wages.

As Chinese companies continue to view Malaysia as a critical part of their growth strategy, the property market stands to benefit from both direct and indirect impacts. Industrial zones will expand, office spaces will be in higher demand and residential properties—especially in the mid-to-high-end range—will see a surge in interest. This influx of capital and development is setting the stage for a vibrant, more prosperous Malaysian economy, with the property sector at its core.

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