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THE CHINA REPORT

Malaysia-China diplomatic and trade relations are on a strengthening momentum with a timely visit from Premier Wen Jiabao to Kuala Lumpur, April this year.

by Chan Tze Wee

In terms of bilateral transactions, China is Malaysia’s largest trading partner, second largest export destination and largest source of import in 2010. Malaysia has also been China’s largest trading partner in ASEAN for three consecutive years since 2008. Despite the global economic crisis, Malaysia’s exporttoChinaregistereddoubledigit growth of 14.5% valued at RM80.60 billion in 2010. During Premier Wen’s visit on 29th April, a total of eight agreements and MoUs were signed between Malaysia and China. The list includes:

•Agreement on Expanding and Deepening Economic and Trade Cooperation between Malaysia and China

•Agreement between Malaysia and China on Framework Agreement to Facilitate Mutual Recognition in Academic Higher Education Qualifications.

•Joint-Venture Agreement between Smelter Asia Sdn Bhd and Aluminium Corporation of China Limited (CHALCO)

•MoU between Beijing Foreign Studies University and Universiti Malaya on Jointly Establishing Chinese Studies Centre

•MoU Resolving Traffic Congestion in Penang between the state government and Beijing Urban Construction Group Co. Ltd

•MoU on MSC Malaysia Human Capital Development Programme in ICT Industry between Multimedia Corporation Sdn Bhd (Mdec) and Dream Catcher Consulting Sdn Bhd with Huawei Technologies (M) Sdn Bhd

How does this bode for the Malaysian real estate sector? The obvious beneficiary is increased investments in corporate real estate. Using Huawei Technologies’ presence in Malaysia as acasestudy,Huaweiisthecountry’s largest Chinese investor since entering the Malaysian market in April 2001, as tracked by the Malaysian Investment Development Authority (MIDA). The MoU signed on assistance to help Malaysia train 10,000 telecom professionals in the next five years, making Malaysia one of the few global human resource centers for Huawei.

This would be followed by plans to develop a Malaysian training centre to fulfill the training initiative. Currently, Huawei has 645 employees in Malaysia, where close to 10% are Chinese nationals Taken from a wider view, this is but one of 120 companies with Chinese interest across various industries operating in Malaysia as of 2011. Suffice to say, the expanding presence of internationalcompanies in Malaysia will bring along an increased demand for housing, amenities and other services associated with serving the business community.

Malaysian real estate potential to the Chinese investor

With one of the world’s fastest growing insurance markets, China’s insurance premium totaled RMB 1,452.8 billion and this market is expected to become the world’s fourth largest insurance market by 2018. By February 2011, Chinese insurers have total assets under management (AUM) of RMB5.2 trillion. The China Insurance Regulatory Commission (CIRC) issued a September 2010 circular (“CIRC Circular 79”) that explicitly permits China’s insurance companies to invest their assets in private equity. The allowed investments may be either direct or indirect, making China’s insurance companies potential equity investors in onshore companies as well as limited partners in onshore private equity funds or “RMB funds”. The aggregate investment in any one private equity fund may not exceed 20% of the fund’s total offering size.

With this, up to 10% of the RMB5.2 trillion assets are allowed to invest in real estate. For some context, real estate investment by Chinese insurers stood at RMB40 billion at end 2009, less than 10% of the RMB520 billion permitted as at February 2011.

With the Chinese insurance market’s widening investment horizon as an example of further liberal steps by the Chinese government, Malaysian players targeting inbound investments must continue positioning and lobbying for China’s attention and beyond.

Aside from the immediate advantage of geographical proximity and benefits conferred by being part of the China-ASEAN Free Trade Agreement, enhancing the current government-to- government relations between Malaysia and China is crucial to continue creating buy-in from Chinese conglomerates and investors alike. Over the course of 2011, the Malaysia-China engagement looks to solidify with further official visits such as the minister of industry and trade’s return visit to Shanghai in December, following the Deputy Prime Minister’s visit in March.

On the homebuyer level, increasing enquiries on Malaysian real estate opportunitieshavebeenrecordedfrom Q22011.SomeattributethistoPremier Wen’s recent visit as recognition of China’s closer ties with Malaysia. Various forms of enquiries have emerged. Chinese real estate agents are testing the viability of promoting primeMalaysianpropertiestotheirlocal clients in 1st tier cities.

Similar to the requirements of most foreign real estate buyers in Malaysia, the sought after formats are condominiums within the range of 500 – 2,000sq.ft. An additional criteria more unique to the Chinese target market is higher enquiries for themed properties such as golf villas and beachfront properties. Kuala Lumpur, Penang and Kota Kinabalu are the immediate areas of interest.

On the construction and development front,Chinesecompaniesareenquiring on the prospects of development or equity joint ventures with credible Malaysian parties. At this stage of infancy,mostinvestorquestionsarestill focused on supplementing their initial marketresearchstages–understanding Malaysia’s real estate outlook, growth prospects and clarification of government regulations.

In the long run, Malaysia’s favourable position within the ASEAN countries and its outward looking policies will need to remain highly competitive against the promising growth prospects of other South East Asian countries. Perhaps a larger aspiration would be to fit into a China + 1 strategy where Malaysia features as the complementary regional office to China for global investors expanding into Asia Pacific.

Source from Property Quotient - A Malaysia Property Incorporated Publication (June 2011 issue 13)