Friendlier MM2H criteria vital to reduce property overhang

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By Vigneswar Rajasurian

Malaysia has long been a desirable destination for expatriates. In 2002, the Ministry of Tourism and Culture suggested the “Malaysia My Second Home” (MM2H) programme, under which qualified applicants were eligible for a multiple-entry visa of up to five years, with the option of renewing.

As a result, foreign investment in residential property, which stood at RM204 million in 2000, reached RM1.4 billion in 2010 and recorded an annual growth rate of 25% within the period.

Despite political uncertainty, foreign interest in Malaysia arguably remains strong. The country ranked 7th in the 2021 Annual Global Retirement Index by the magazine “International Living”, while “Travel Awaits” recently ranked Penang as the third-best island in the world and the first in Asia to retire in.

Malaysia also proved its worth as a destination for medical tourism – 1.22 million people travelled here in 2019 alone for medical and healthcare purposes, according to Statista.

Coupled with a low cost of living and better quality of life, Malaysia possesses the necessary ingredients to continue to draw migrants.

Revised criteria

Given the pandemic and international travel restrictions, the MM2H programme was frozen in August last year but was recently reintroduced with revised criteria.

Monthly income to qualify is increased from RM10,000 to RM40,000 a month, and liquid assets amounting to RM1,500,000 have to be shown.

The fixed deposit requirement is increased to RM1,000,000, although RM500,000 can be withdrawn for education, healthcare or to purchase a home. It was previously RM150,000 for those over 50 and RM300,000 for applicants below that age. RM50,000 must be placed for each additional dependent.

Applicants must spend at least 90 days in the country, and the minimum age has changed from 21 to 35.

The annual visa fee has been raised from RM90 to RM500, and there will now be a processing fee of RM5,000 on principal applicants, plus RM2,500 for each dependent, charged by the Immigration Department.

Image from FMT

The department will also be in charge of new applications once the relevant legal processes have been undertaken.

Critics have argued that the new requirements are drastic, and that the criteria should differentiate between the 57,000 existing pass holders and future applicants.

Overhang and foreign purchasers

According to the National Property Information Centre (Napic), residential overhang – that is, property that has already been built – in the first quarter stands at 27,468 units and RM18.48 billion. This is a reduction of 0.3% compared with the fourth quarter of last year.

Property prices appear to stabilise at the current low (see PropertyGuru Malaysia Property Market Index Q3 2021). The latest insights from PropertyGuru Malaysia Property Supply Index also show a spike of 34.53% YoY in Q2 2021 and a 11.35% QoQ growth overall.

As long as supply outweighs demand, stakeholders will continue to face repercussions in the primary and secondary real estate markets. Stricter MM2H criteria may exacerbate the overhang as the nation also grapples with a recession from the pandemic.

Property developers, real estate agents, investors and homeowners face tougher competition selling property in an aggravated buyer’s market, more so if the property is priced beyond the reach of the average Malaysian.

A common sentiment is that foreign purchasers push out local buyers and eventually drive property prices up. Such opinions are often ignorant of overhang statistics and state regulations, which dictate the type and price range of properties foreigners are allowed to purchase.

The bulk of residential overhang (51.8%) are properties priced below RM500,000, of which 24.1% are below RM300,000. The price range of these properties, which are not allowed to be bought by foreigners owing to state regulations, are within the means of average Malaysians.

Expatriates in Kuala Lumpur are only allowed to buy property above RM1 million, and although a lowered RM600,000 threshold was mentioned for last year, no official announcements were made.

Further examination of Napic data also shows that 34.3% of residential overhang is priced from RM500,000 to RM 1 million, and 14% priced above RM1 million.

These amount to the largest value of residential overhang at RM14.03 billion, and make up 48.3% of total residential overhang – upon which a revitalised and friendlier MM2H scheme could have a significant effect.

Insights gathered internally from PropertyGuru DataSense also show that the top locations for foreign purchases in 2016 and 2017 continue to be those with a sizeable expatriate count such as KL City Centre, Mont Kiara, Desa Parkcity and Iskandar Puteri in Nusajaya.

Foreigners made up only 0.22% and 0.24% of total buyers in 2016 and 2017 respectively, affirming there is ample room for foreign investment in local real estate.

One of the top locations for foreign purchases is Kuala Lumpur City Center. Photo by Marc Wieland on Unsplash

Economic benefits

Beyond rejuvenating the ailing real estate market, foreign investment brings wide economic benefits and opportunities that trickle down to local businesses and schools.

Highly skilled foreigners widen the country’s talent pool and boost competitiveness in the international arena, driving more foreign companies to invest in Malaysia, which in turn leads to more investment in residential property.

For these reasons and more, the MM2H programme is well accredited and its return lauded. But the timing and requirements of the revisions may deter future applicants and drive away existing expats during a period of global hardship.

Retirees will also struggle with meeting the drastic changes if the new requirements apply retrospectively.

Not only will efforts to reduce residential overhang be undermined, but a greater supply of high-end properties will flood the sub sale market as existing migrants leave the country, leading to greater oversupply.

A friendlier MM2H programme is not a one-stop solution to reducing oversupply, given that the bulk of overhang residential properties can only be purchased by Malaysians. But it would be a step in the right direction, and issues pertaining to the type and price of properties that foreigners may buy can continue to be mitigated at the state level.

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