Malaysia has long been a popular destination for foreign investors of luxury properties, with its picture-perfect resort locations and relaxed government policies towards foreign ownership.
As with all countries in the region, the luxury sector has been hit hard by the global credit crisis, with prices for condominiums in Kuala Lumpur dropping by as much as 20 to 25 per cent in recent months. Alongside the crisis, the city has also had to contend with an oversupply of luxury residences, following a condominium construction boom that began in early 2004.
But the drastic drop in prices is not as bad as it seems. Robert Ang, managing director of Savills Rahim & Co, explains that the drop comes from the fact that in the run-up to the credit crisis many sellers were putting unrealistic price tags on their properties.
'Many of these condominiums were constructed in 2004 and 2005, when the supply of luxury residences was limited. But when these developments were completed, the situation changed drastically,' Mr Ang says. 'With the influx of foreign buyers, the people selling these condos were getting very aggressive with their pricing.'
For example, typical buyers had bought new condominiums in 2004/05 for M$700 (HK$1,500) per sqft. 'Many of these buyers were hoping to sell their investment at a return of 100 per cent, or even M$1,500 per sqft. This was unrealistic. With the crisis, many of these people are putting more realistic values on their property, such as M$1,200 or M$1,100 per sqft. This in part accounts for the large drop in price recently.'
Coming online in the capital this year are several luxury residences, including The Troika, in Kuala Lumpur's Petronas Towers area.
Designed by Norman Foster and developed by Bandar Raya Developments, it will be Malaysia's tallest residential development and the country's first globally branded residential development. It is one of the prime examples of how developers in the country are becoming more ambitious in using world famous designers and architects.
'Completion is expected at the end of this year,' Mr Ang says. 'The developers are bullish and are expecting about M$2,000 per sqft, and are prepared to give a guaranteed yield of about 10 per cent for two years.'
According to a Knight Frank research report into the state of the market in the second half of last year, although most developers have chosen to go ahead with planned developments, many of them have chosen to defer the launch of new projects as buyers adopt a 'wait and see' approach to investment in the country.
At the end of last year, the average price per sqft of high-end condominiums was about M$1,200. But buyers can expect this price to drop, as even when the global economy picks up there will be an oversupply of luxury properties, Mr Ang says.
'However, if you compare Malaysia to the rest of the Southeast Asian region, or even the greater Asian region, I think the country still looks attractive because of the government's policies and the government's views towards foreign investment.'
There are practically no restrictions on foreign investment in Malaysia, and a foreigner can buy any number of residential properties. 'Also, we are attractive because in 2006 the government abolished capital gains tax.'
Financing is available for foreign investors but, as with many countries who have felt the pinch of the credit crisis, banks are getting more cautious about how much and whom they offer loans to.
Outside of Kuala Lumpur, the resort island of Penang has always been a popular spot for foreign investors.
According to Knight Frank, this year, the Malaysian government will open up more areas of the island for investment. High-end condominiums, opening shortly, include the Harmony Residences, a 34-storey block developed by BSG Properties. Each 5,000 sqft unit will be priced from M$500 per sqft.
'For those buyers who are looking purely at capital appreciation, the focus is still on the Kuala Lumpur city centre. But for second-home buyers, the most popular areas are the islands of Penang and Langkawi, where obviously it is more of a lifestyle purpose,' Mr Ang says.
There is no oversupply of these types of residences in these areas, so the market price more realistically reflects their true market value.
Traditionally, foreign investors in Malaysia have come from developed nations, but more recently a growing number are coming from the Middle East, East Asia, Bangladesh and Pakistan. Mr Ang says that the prime motivation for some of these new investors is the problems they face at home and the need to put their money somewhere safe. Malaysia is seen as a successful moderate Muslim country.
Mr Ang explains that although the market may drop further in the near future, now is the time for buyers to start looking, so that they can make the most of opportunities when they arise.
'When the recovery comes there will be good capital appreciation,' he says.