The Minister of Finance, Lim Guan Eng, has expressed his intention to reduce the minimum price at which foreigners can buy property from RM1 million to RM600,000, effective next year. This is to help address the growing property overhang. The ‘property overhang’ represents the number of completed properties which have not yet been sold. This move will be welcomed by some foreigners, especially those living outside the higher priced areas where properties are less expensive.

It seems this is meant to be a temporary lowering of the limit, probably only one year, to help ease the glut and will only apply to those properties which are completed and unsold.

It should be noted that in Malaysia, each state sets their own limits for foreign property purchase. Some states have already set limits lower than RM600,000 for foreigners wishing to buy. The figure set by the government is a guideline which applies to Federal Territories (and which they hope each state will follow). However, some states like Penang and Selangor have set higher limits for certain areas of their respective territories and also for different types of property (i.e., landed vs strata title, for example). Quite a few states already have lower limits for Malaysia My Second Home (MM2H) visa holders.

In 2015, there were nearly 11,000 units completed but not sold, but as of the end of the first quarter of this year, that number had surged to over 32,000 with an estimated aggregate value of RM20 billion. Of these, only about 4,000 units were priced over the required RM1 million selling price. By dropping the minimum price threshold to RM600,000, another 5,000 units would move into the available category.

The substantial property overhang is a problem because the property industry impacts the economy in a number of ways, and a supply of unsold properties with a value of around RM20 billion certainly has an impact on the country’s finances.  On top of this glut, there are currently over 80,000 more houses, apartments, and other residential properties now under construction which will be completed in the next three years.

The Minister of Housing has, however, expressed some reservations about lowering the threshold, quoting concerns from some Malaysians, presumably because of feared upward price pressure in the market. She apparently still favours some programme linked to the MM2H programme.  In fact, there has been much talk about encouraging people to join the MM2H programme in order to increase property sales, but that programme is struggling right now because of the arrears in processing applications and increasingly stringent rules on eligibility.

We continue to believe that it would be appropriate to set different limits for people with permanent residency or work visas in Malaysia. This would hardly put pressure on prices, but would be a welcome gesture towards people who have put their faith in the country and work here helping the economy grow and would like to stay here. Equally important, it would help the current property overhang.

Feature image credit: Deva Darshan on Unsplash.