WHILE the outlook for Malaysia’s property sector has been projected to be less than stellar this year, it is still seen as heaven to foreign investors and looks set to benefit from China’s Belt and Road Initiative (BRI).
According to Knight Frank Malaysia managing director Sarkunan Subramaniam, China’s BRI is the catalyst that will turn the balance of power towards the east.
“The BRI policy comes at a time when many of its neighbours need China’s capital to boost their economy,” he says.
Sarkunan says that while capital controls will slow China’s private capital investments in the BRI, the state-owned companies continue their plan to invest in port and rail infrastructure to ensure “all roads lead to China”.
“Malaysia’s location in the BRI can propel the country as a key regional ally to China’s initiative, reaping economic benefits in the process,” he says.
China’s BRI is a multidimensional infrastructure network featuring land-sea-air transportation routes and supported by major railway, port and pipeline projects. Launched in 2013, it aims to revive the great Silk Road linking it with Europe through billions of dollars of infrastructure investment across six economic corridors.
According to Knight Frank’s “Chinese Corridors in Malaysia” report, which was launched on Wednesday, the property consultancy says it expects to see greater capital inflow from China’s BRI into Malaysia.
Despite China’s curb on capital flight, we continue to see keen Chinese interest in the country’s rail and port projects as well as in other sectors, namely manufacturing, logistics, construction and real estate.
At the launch event of the report earlier in the week, Knight Frank Malaysia capital markets executive director Allan Sim said the industrial and mixed-use assets in Malaysia will be buoyed by the rising interests from Chinese investors in the manufacturing sector – where Chinese manufacturers are expected to set up production facilities.
“Similarly, the industrial sector will also benefit from China playing a pivotal role in developing Malaysia’s digital economy, alongside the development in Malaysia’s logistics and warehousing sectors.
“Over the longer term, we can expect a flow-on effect to business activities, creating a demand for hospitality-related services,” he says.
Meanwhile, Knight Frank’s “Chinese Corridors in Malaysia” report – citing UBS Investment Bank – says Malaysia is likely the biggest beneficiary of the BRI in Asean, and second only to Pakistan in all of Asia.
“In its survey of Chinese corporates investing overseas, UBS found 15% to 25% of 500 large Chinese corporates highlighted that they were looking to invest in Asean – and within Asean highlighted Malaysia as their most preferred destination.
“Of these large companies wanting to invest in Asean, 90% said they were looking into investing in Malaysia.”
Knight Frank says Malaysia will continue to attract Chinese investments in the manufacturing sector supported by tariff-free access to regional markets, lower operational costs, tax incentives, amongst other factors.
“The recent capital control measures are not likely to adversely impact genuine investments and the projects under the government-to-government initiatives, such as the on-going Malaysia-China Kuantan Industrial Park project.”
Knight Frank adds that Malaysia’s highly diversified economy, strong manufacturing foundation with well-developed transport infrastructure and good connectivity, proactive government policies alongside a sound legal system will continue to create opportunities for Chinese players to invest within and beyond the manufacturing sector.
“Already, there is significant existing Chinese investment in the country’s major infrastructure and port projects such as the East Coast Rail Link; Gemas-Johor Electrified Double tracks; Kuantan Port and Kuala Linggi International Port expansions.
“The Chinese are also looking to participate in the proposed high speed rail (HSR) project connecting Kuala Lumpur to Singapore as well as in the urban regeneration of the former Sungai Besi air force base that will house the terminus for the eagerly awaited HSR line.”
The multi-billion ringgit Bandar Malaysia project, situated on 486 acres of prime land at the city fringe, is expected to be developed over a 20-25 year period.
As for the residential segment in the real estate market, with the capital control measures impacting sales of properties in selected projects targeting mainly Chinese buyers, Knight Frank says it sees developers such as Country Garden Pacific View Sdn Bhd, shifting their focus to the wider global market to boost revenue.
“In the meantime, however, the growing number of Chinese citizens granted residency under the Malaysia My Second Home programme, the single biggest nationality, is seen as positive for the property segment. More Chinese developers are also seen to be participating in smaller and niche projects targeting the domestic market.
“We believe that this curb is temporary and with more Chinese investments flowing into Malaysia due to its strategic position along China’s BRI corridor, the spillover effects into various market segments will continue to benefit the country.”
At the launch of the report on Wednesday, Knight Frank Asia Pacific’s head of research Nicholas Holt said the influx of Chinese developers into Malaysia, despite intensifying the level of competition for local players, is ultimately a “win-win” situation for both parties.
“It means more investments coming into Malaysia. More competition is good for the consumer and the economy. People will up their game, enter joint ventures and create opportunity for knowledge transfer.
“It could also see investments going into China and lead to bilateral trade and investments.”
According to the Economic Report 2017/18 released in conjunction with Budget 2018 announcement, Malaysia’s annual trade with countries along the Belt and Road exceeded RM850bil in 2016, and with BRI, it is expected to increase further in the next decade.
Knight Frank, in its report, says Malaysia has maintained its pole position as China’s largest Asean trading partner since 2009.
“As of the first half of 2017, Malaysia-China bilateral trade expanded 28% to RM139.2bil, supported by a 41% surge in exports to RM59.8bil – mainly in the electrical and electronic products, petroleum products, chemicals and chemical products, rubber products and liquefied natural gas.”