Property
BRI catalyst for property sector
Ang Hui Hsien 
Chinese firms have extensive participation in local infrastructure projects such as Melaka Gateway
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WITH the emergence of China as an economic powerhouse over the past decade, Chinese investments have become much sought-after by other economies – a major turnaround from the country’s former closed-door policy.

China’s Belt and Road Initiative (BRI) has been described as the clearest manifestation of its vision and influence and has directed Chinese investments towards countries through which the routes run. And Malaysia’s property sector will be a key beneficiary of the spinoffs arising from the regional initiative.

Chmiel points out the BRI has placed greater focus on the Southeast Asia region

Six economic corridors were identified under the BRI, including Southeast Asia, and Juwai.com chairman Georg Chmiel notes one of the two countries within the region that are often brought up in relation to the policy is Malaysia.

“The BRI helps create additional investments in the region, particularly in Malaysia as well as in Thailand and to a certain extent, the Philippines and Indonesia. I believe these countries will benefit the most in the long term from this initiative,” he says.

Chinese investors’ favourable outlook towards Malaysia is bolstered by several factors, such as the latter’s business-friendly environment as well as advanced infrastructure.

The Chinese government’s decision last year to impose restrictions on capital outflows have threatened to dampen the positive effect of the BRI on real estate in Malaysia

However, some parties have offered a different view of the relationship between the capital controls and BRI, pointing out that both policies may seem contradictory but can actually complement each other.

 

Increased attention

Southeast Asian countries scored highly in the Belt and Road Index developed by global property consultancy Knight Frank, with Malaysia ranked sixth – Singapore took the top spot.

The index assesses 67 countries (excluding Palestine and Syria) who have signed official cooperation agreements with China for the BRI by assigning specific weightage based on normalised values in six categories.

These include economic potential, demographic advantage, infrastructure development, institutional effectiveness, market accessibility and resilience to natural disasters – Malaysia reportedly performed above par in the first two categories.

Knight Frank Malaysia executive director of capital markets Allan Sim points out the significance of China’s presence and its potential impact on the Asia Pacific region.

“Malaysia’s strategic positioning along the Belt and Road link promises revolutionary transformations in terms of the country’s real estate landscape as well as significant infrastructure projects with extensive participation by Chinese firms,” he says.

These include the East Coast Rail Link and Melaka Gateway projects slated for completion in 2024 and 2025 respectively, with China-based companies also showing strong interest in the proposed high-speed rail project which will link Kuala Lumpur to Singapore once completed in 2026.

Chinese developers also have a heavy presence in local property projects, most notably the Country Garden Group which has no fewer than five projects in Malaysia totalling about RM445 bil in gross development value (GDV) (see table).

Echoing similar sentiments is Knight Frank Malaysia managing director Sarkunan Subramaniam who believes the BRI comes at a time when countries need China’s capital to boost their economy.

“Trade as we know it will change in less than 10 years from now as a result of the BRI with China’s dominance. Malaysia’s strategic location in the BRI route can propel it to a key regional ally to China’s BRI plan, reaping economic benefits for itself in the process,” he notes.

Chmiel points out the BRI has placed greater focus on the region as both the sea corridor and land-based route goes through Malaysia and down to Singapore, revealing there has been a surge of enquiries received by Juwai.com for Southeast Asian properties. Juwai.com is the largest international property website in China which connects overseas sellers to Chinese buyers.

“The BRI adds infrastructure and other investments to the region and as such, supports jobs which then create wealth which then creates investments in real estate.

“In terms of enquiries, what we have noticed is that over the last 12 months, there has been a strong increase in enquiries into the region, particularly Malaysia and Thailand,” he tells FocusM.

Malaysia recorded a 138% increase in enquiries for the whole of 2017 compared with the previous year, which Chmiel reveals is the biggest increase among countries in the region and one that he believes will continue growing.

Similarly, Thailand also experienced an improvement last year from 2016 in terms of the level of enquiries into its local real estate with a 114% increase.

 

Coveted properties

Apartments emerged as the top two in-demand properties alongside villas, with Chmiel revealing that 57% of all enquiries that come in through Juwai.com are for the former.

“Enquiries for Malaysian properties are concentrated along the BRI, with key locations being Penang, Kuala Lumpur, Melaka and Johor.

“Kuantan also has a lot of investments because a port is being built there while enquiries into East Malaysian cities would be Kota Kinabalu and Semporna in Sabah where the sea route goes around,” he says.

A collaboration between IJM Corp Bhd and Guangxi Beibu International Port Group, the Kuantan Port expansion in Gebeng is estimated at RM4 bil and targeted for completion this year.

Chmiel reasons areas with strong investments will attract more people to come in, which will in turn, have an impact on the local real estate market.

In addition to residential properties, Chmiel reveals Juwai.com has also been receiving enquiries for halal food production factories, medical towers and other similar industrial projects.

Knight Frank believes Chinese interest in Malaysia’s real estate stemming from the BRI will spill over into the industrial sector, with the e-commerce boom enhancing demand for logistics and warehousing spaces.

“Industrial and mixed-use assets in Malaysia will be buoyed by the rising interest from Chinese investors into the manufacturing sector where Chinese manufacturers are expected to set up production facilities here,” says Knight Frank’s Sim.

This augurs well for the Malaysia-China Kuantan Industrial Park (MCKIP), the first Malaysia National Industrial Park jointly developed by both Malaysia and China.

A local consortium comprising IJM Land Bhd, Sime Darby Bhd and the Pahang government holds a 51% interest in the MCKIP located near Kuantan Port, while the China consortium of Guangxi Beibu and Qinzhou Investment owns the balance 49%.

Sim says that similarly, the industrial sector will also benefit from China playing a pivotal role in developing Malaysia’s digital economy, alongside the rapid development in the country’s logistics and warehousing sectors.

China’s giant Alibaba Group have been drawn to set up its first regional hub outside China at the KLIA Aeropolis Digital Free Trade Zone Park (DFTZ) in Sepang. The close ties between Malaysia and China also led to the appointment of Alibaba founder Jack Ma as the former’s digital economy adviser.

Concurring with Sim is Trendzone Engineering and Construction (Malaysia) Sdn Bhd CEO Wang Bing, who highlights Malaysia’s unique geographical location and friendly international relations as major selling points for Chinese players like himself.

Malaysia is an attractive destination for investors from China, says Wang

“China is investing significant resources into restoring the glory of the former Silk Road of the Sea and Malaysia acts as a strategic logistics hub which stands to benefit from efforts to strengthen trade connectivity between the East and West,” he says.

 

Malaysia’s appeal

According to Wang, Malaysia is an attractive destination for retirement and education purposes as well as to property investors and property-related businesses from China due to a number of factors.

Apart from its location which places it as one of the key points along the BRI links, its similarities to China in terms of language, lifestyle and culture are also viewed by Chinese investors as a major advantage.

Wang notes the local community’s efforts in carrying Chinese cultures and traditions through multiple generations have also positioned Malaysia as an ideal education centre for Chinese parents who want their children to develop a broad vision without forgetting their roots.

Other favourable factors include a stable political climate, well-developed financial infrastructure, diverse cultures, usage of English as well as comprehensive education and legal system.

“For companies from China aiming for overseas business development, they can use Malaysia as a strategic base to strengthen their business and consolidate their resources before expanding into the Asean regional market and further onto the Middle East market,” explains Wang.

A top-rated healthcare system also makes Malaysia a top choice when it comes to being a real estate investment destination, with much emphasis being placed on developing its medical tourism industry and position as the fertility and cardiology hubs of Asia.

“There is great focus on developing Malaysia’s healthcare system into the best in the world, which has been rated by International Living magazine as the top globally,” says Juwai.com’s Chmiel.

That’s not all as Malaysia is home to quality English education. “Many international schools from the US, UK and other places have affiliates and campuses here, and many people go to these schools to get access to high-quality education,” he adds.


Capital controls silver lining

While the BRI has acted as a major driver, Chmiel notes the rising interest in Southeast Asian properties could also be attributed to the capital controls imposed by China towards the end of 2016.

“A second reason was the stronger capital controls in China which meant the affordability of overseas investments dropped so people focused more on countries where real estate is more affordable,” he says.

This would explain the decline in enquiry levels for real estate in countries such as the US, UK and Canada which saw a 9% drop while Thailand and Malaysia reported a surge in interest.

“Real estate as an investment in Malaysia is one of the most affordable, relatively speaking, as it delivers very strong returns compared to the other countries and cities in the world,” Chmiel points out.

He also downplays concerns about the downsides of China’s capital controls on its foreign investments, believing it to be a good move instead.

“Foreign reserves are up and the currency (renminbi) is much stronger because the flow of money out of the country is low,” he explains.

He believes the restrictions will be relaxed in the medium term as there are a lot of investments happening along the BRI.

Growing Chinese influence

LAUNCHED by China in 2013, the Belt and Road Initiative (BRI) covers the land-based Silk Road Economic Belt as well as the 21st Century Maritime Silk Road, spanning across 69 countries and covering some 60% of the world’s population.

Initially introduced as One Belt One Road before assuming its present name in 2016, it has drawn Chinese interest to countries considered core to the initiative’s success, including Malaysia.

In recent years, the local real estate market, in particular, has seen more and more participation from Chinese companies while there have been increasing projects geared towards the appetite of buyers from China.

“What people are looking for first and foremost is financial as there’s a threshold so these properties need to be RM1 mil and above. The second bit is the return as Chinese investors – who make up a significant number – prefer returns of 7% or more,” observes Juwai.com chairman Georg Chmiel.

He stresses the threshold helps keep the affordable housing segment – where most Malaysians tend to look in – protected, which ultimately works out well for the supply and demand of homes in the market.

“With this threshold, Malaysia is in a very good position compared to other places such as Australia where there is no threshold for foreign ownership and prices have been driven up too high for the average Australian,” he points out.

He believes the investments from China are coming in at the right time, and that capital controls announced by the Chinese government in late 2016 will not stop their interest, citing the multi-billion Forest City real estate project in Johor as an example.

“Forest City by the Country Garden Group will be there for the next 20 years and in the long term, it will strengthen southern Malaysia’s property market.

“There is also a lot of infrastructure being built in this region from which projects like Forest City will then benefit and receive strong demand,” he adds.



This article first appeared in Focus Malaysia Issue 279.