Summary: Investing in Kuala Lumpur (“KL”) property is still not without risks due to the slower economic climate, but it could be worthwhile to use this down-cycle to do some homework to prepare for the next up-cycle. In this article, we identify five potential long-term catalysts that could lend support to property prices in KL, namely the introduction of high-speed train between KL and Singapore, increased MRT connectivity within Greater KL, attractive Ringgit, favourable young demographics and KL being a major One Belt One Road hub.
Our ground checks included meeting local real estate experts and visiting traditional KL city centre regions such as the Petronas Towers region, Jalan Bukit Bintang, Mont Kiara and Jalan Ampang (Embassy Row). We also visited emerging fringe townships that will be MRT-ready soon, such as Sungei Buloh, Sungei Besi and Bukit Jalil.
Malaysia – seeking for opportunities amid uncertainties
Our first stop was KL, the capital city of Malaysia.
Malaysia has achieved a commendable GDP growth of approximately 5% p.a. over the last two decades. However, in the last 3 years, its momentum has slowed down due to softer global economic conditions, falling commodity prices and weaker Malaysian Ringgit (RM). Its property market also slowed as property measures were tightened since 2013 to curb speculative activities, amid rising supply with unit completions.
As we focus our attention on KL, one key question to ask is whether its property market is worth another look, especially at this stage of the down-cycle.
It is difficult to time the bottom, but we think it is worthwhile to do some homework on KL and identify potential long term catalysts that could lend support to its property prices in future.
What are the five potential catalysts for Kuala Lumpur’s long term property prices?
- High speed train a potential game changer. Kuala Lumpur appears to be an undervalued capital city in Malaysia. The most luxurious apartments at the city center (such as Four Seasons, Pavilion Elite, Binjai on the Park, etc) are only selling at less than USD800 psf, a fraction of the price compared to the adjacent city of Singapore. A high speed train connecting KL and Singapore will be completed by 2026, which could shorten the travel time to 90 minutes, narrow the property price difference between the two cities, and provide upside to high-end projects in KL.
- Increasing MRT connectivity. The Malaysian government has invested significantly to expand the public transportation infrastructure of Greater KL. The region has three sets of MRT lines that are in various stages of expansion, and when completed they will cover significant areas of Greater KL and this could boost housing values over time.
- Malaysian Ringgit is near all-time low. The Ringgit has been weakened partly by the prevailing unsustainable low oil price. This could provide an attractive entry point to the property market in KL, especially for foreign property buyers.
- Favourable demographics. Malaysia has a young population, with a median age of 28.5, which is one of the lowest in ASEAN (source: World Population Prospects). This bodes well for the demand for property, as a young population is likely to translate to more housing formation in the future. As well, its urbanization rate is relatively modest at 74%, and this trend will continue to drive rural-urban migration into cities such as KL (source: World Urbanization Prospects).
- “One Belt and One Road” (OBOR) initiative. This OBOR policy was introduced by the Chinese government as early as 2013. By picking Malaysia as a major OBORhub in ASEAN region, there could be more collaboration between China and Malaysia, especially in terms of infrastructure, investments and trade.