Impressive price increases in Kuala Lumpur
House prices in Kuala Lumpur increased by a remarkable 6.9% in 2006. This follows impressive price increases of 7.2% in 2005 and 6.3% in 2004.
The increase in property prices in Kuala Lumpur is driven by strong demand for luxury properties. Other states attracting foreign investment registered house price increases: 4.1% in Penang (Pulau Pinang), 3.6% in Johor and 2.7% in Perak.
However, according to the Department of Valuation and Property Services, the national house price index rose by only 2.1%. The states of Negeri Sembilah and Sengalor registered price changes of -4.1% and -0.6%, respectively.
The subdued mass market is generally due to oversupply and the government’s attempt to make housing more affordable for the over-all population. According to a Global Property Guide study on housing affordability, Malaysia has the lowest house-price-to-income ratio in Asia.
Based on the type of housing, high-rise units registered the highest price change of 5.1%, followed by detached houses (3.9%) and terraced houses (2.1%). Prices for semi-detached units dipped by 0.8%. From 2000 to 2006, price of detached houses increased by 28%, semi-detached 21%, terraced houses 15.9%, and high-rise units 15.5%.
Active luxury rental market
Property was hot in Malaysia in the early 1990’s, with two particular peaks – in 1991, when a 26% y-o-y real price growth was achieved, and in 1995, with 18% real price growth. After the Asian Crisis hit Malaysia, prices fell as much as 39% between 1997 and 1999 for luxurious detached house in Kuala Lumpur.
Malaysia’s rental market is small, only 6% of the housing stock in the private rental sector. About 85% is owner-occupied. Government-provided housing accounts for 7% of the housing stock.
The active luxury rental market caters mainly to expatriates, centered on Kuala Lumpur. Due to the increase in foreign investments, rental yields in Kuala Lumpur are healthy, ranging from 7% to 8.7%.
Ownership limits eased, CGT abolished
Several factors are expected to further boost the high-end real estate market. Foreign ownership rules were relaxed in Dec 21, 2006. Foreigners no longer need to ask permission from the government when buying properties worth MYR250,000 (approx US$74,000) or above. Further, the limit on the number of properties foreigners can buy has been removed. There are also no more restrictions on the use of property. Before, foreigners could only buy at most two units, and they could not use them investment purposes.
The relaxation of the foreign ownership limits is in line with “Malaysia: My Second Home Programme.” The programme allows people who fulfill certain criteria to stay in the country as long as possible on a social visit pass with a multiple entry visa.
In addition, the government abolished capital gains tax in April 2007 to boost the property sector. Previously, non-resident individuals were charged Real Property Gains Tax (RPGT) at a flat rate of 30% on gains made on the disposal of real property within the first five years, and 5% thereafter.
