Property owners in Malaysia's hot spots, especially around Kuala Lumpur, enjoyed double-digit growth during a three-year bull run up to 2012. But, as the market comes down from a heady high, most expect a correction this year, and the next up cycle could be some time away.
For cashed-up investors in the post-crisis recovery years, it was easy to see the attraction. Malaysia's economy remains strong, expanding at a rate of 4.5 to 5 per cent last year, with 5 to 5.5 per cent growth forecast for this year.
Like Hong Kong, the city's business environment is well-developed, drawing thousands of foreign companies from around the world to establish operations there. And with that influx comes demand for housing. As IP Global's CEO Tim Murphy told potential investors last year: "In the next 15 years, Kuala Lumpur's population will grow by 40 per cent and, by the end of 2030, it will be bigger than the size of London."
And yet, it's one of the cheaper property markets in Asia. Direct foreign ownership is allowed, so unlike some other countries in the region, there are no entry barriers. If you're into real estate, what's not to like?
What has changed is not so much the fundamentals, nor even the demand. As Knight Frank points out, citing two recent developments, the market for high-end condominiums remains strong. "Both ViPod Residences and Quadro Residences have reportedly achieved 100 per cent and 96 per cent sales rates, respectively, indicating sustained demand for well-positioned high-end residences," the property consultancy says.
But last month saw the introduction of the latest round of cooling measures. Even though these are not as severe as in Hong Kong or Singapore, their weight "largely surprised" analysts, who were expecting a lighter touch, according to Empower Advisory.
The crux of these is the Real Property Gains Tax (RPGT), which imposes a 30 per cent levy on net gains of property disposed of within three years, for Malaysian nationals and foreigners alike. The minimum purchase price for foreigners has also been doubled - from 500,000 ringgit (HK$1.2 million) to 1 million - and the Developer Interest Bearing Scheme (DIBS), where developers used to incorporate interest rates on housing loans during the construction period, has been outlawed.
The aim, Empower Advisory says, is to encourage foreigners towards long-term investment in higher-value property, rather than speculation.
Nicholas Holt, Knight Frank's Asia-Pacific head of research, agrees that the RPGT "will dampen demand to some extent". But he also points to other factors - a number of obstacles to the Malaysian economy, and headwinds in the property market - which could lead to some correction this year. Inflation, for example, stands at 2.2 per cent - up from 1.8 per cent - adding rising cost pressures. An interest rate hike is expected this year, which may further dampen sentiment.
Siva Shanker, president of the Malaysian Institute of Estate Agents, says it's happening already. The market had come off the boil last year even before October's budget announcement, when sales "went into a tailspin" in response to the cooling measures. From 2010 to 2012, he says, prices in some areas went up by 20 to 35 per cent - a level of unprecedented growth which he says is "no good for anybody".
This was spurred by easy pickings: "all sorts of innovative schemes" by developers who would bundle 100 per cent of a property's purchase price, plus costs and interest-free periods, into an offer, enabling speculators to buy without putting any money upfront. "Literally without taking your wallet out, you bought a property, paid nothing until completion and - because the market was rising so fast - as soon as it was completed, you could flip it for a 20 to 30 per cent deal and walk away with money you made out of thin air."
This was neither sustainable nor healthy, Shanker says. "The fundamentals cannot hold that sort of growth. If we'd carried on at that level, the market was going to crash - inevitably, the proverbial bubble would burst."
Shanker "fully supports" the latest tightening measures following the stringent Responsible Lending Guidelines introduced in 2012, which he believes will result in a quiet period for sales for at least the first two quarters of this year, followed by a "small hump" when the GST is introduced in April next year. Beyond that, his view is that the market will consolidate in 2015, "and my opinion is that we will hit a high in 2016".
He also expects that 2014/15 will see a shift away from new properties to the secondary market. "There are plenty of properties with much lower prices, just looking for an owner," he says.
Developers face a tougher sell this year, but if he was a buyer, Shanker would "certainly" look at the secondary market. "The days of being able to buy a property without putting any money down and, in two years, selling it for a 30 per cent profit - those days are absolutely over. As the market continues to mature in Malaysia, I think we will see less of these sporadic spurts of growth, and more steady, quiet growth."
Tongue in cheek, Shanker calls this "organic growth versus orgasmic growth". "We won't have any more orgasmic growth, where everything shoots up in a couple of years, but nice, steady growth of between 5 and 10 per cent per year, which is beautiful - a healthy way of making money in property, and it's sustainable in the longer term."
Knight Frank agrees that while the outlook remains "challenging" for now, opportunities still hold for the longer term. "[Malaysia] remains as an attractive investment destination in the region due to its stable property market and relative lower housing prices that continue to offer reasonable returns," says Judy Ong Mei-chen, executive director. While transaction volume may well decrease, growth can still be expected in selected "hot spots" due to limited supply, scarcity of land, and sustained localised demand from owner-occupiers and upgraders.
What you can buy for US$427,000
A new apartment in the final release of the Richmond, a luxury high-rise in Mont Kiara, a desirable Kuala Lumpur locale. Prices have been unchanged since previous releases, IP Global reports.
What you can buy for US$434,000
A used, three-storey semi-detached freehold house in Taman Melawati, comprising six rooms, fully renovated, in a quiet, low-density area.