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Economic Factors in Malaysia

To understand Malaysia’s economy it is imperative to analyse one of the most important factors of the change which happened in the country’s economy during the 22 years when Dr Mahathir bin Mohamad was Prime Minister. During his term, Tun Dr Mahathir bin Mohamad, responsible for several other achievements, shifted the economic focus of the country from mainly agricultural to mainly industrial centring on the manufacture of computers and consumer electronics.



The result is apparent, with GDP growth reaching an average of over 6% per year for 16 years and which today continues a healthy growth, low unemployment figures of under 4% since 1992 and low inflation, despite the recent global rise in petroleum retail prices.

One of the most significant driving forces of the Malaysian economy today is the expansion in domestic demand, largely due to the private sector, a key player since 2003.

Forecasts
Analysis of the 2008 budget sees the economy in the long term being driven by the private sector, with important steps being implemented to reduce the cost of doing business, promoting national and foreign investment and promoting competitiveness. Several steps are being taken to improve the country’s competitiveness, including the introduction of a new business traveller visa as well as multiple entry visas for Chinese and Indian nationals which are likely to increase the demand for transitory residences (rental properties).

Additionally, RM 858 million (€ 177 million or just under £ 124 million GBP) has been allocated to the Tourism sector with the goal of improving and diversifying the tourist attractions and upgrading tourist facilities. A Tourism Infrastructure Fund of RM 200 million has been created to further promote tourism activities in Sabah and Sarawak, the two Malaysian states which make up Malaysian Borneo.

As well as the announced 50% exemption on stamp duty tax for the purchase of one property whose purchase prices is under RM 250.000, the government also implemented a RM 50 million fund with the aim of providing financing guarantees for low income groups to purchase property through Bank Simpanan Nasional and Bank Islam. Additionally, contributors to Malaysia’s social security/retirement planning EPF will benefit from the government’s Home Financing Scheme which allow for monthly withdrawls from their EPF fund to finance the purchase of a house.

Low cost of living
The cost of living in Malaysia is still very low in comparison to western cities. For example, student rent can cost anywhere between RM 300 (€ 62 or £ 43) for shared accommodation to RM 1200 (€ 247 or £ 173) per month at the higher end of the spectrum.

Meals traditionally can cost between RM 2.50 (€ 0.50 or £ 0.30p) for roadside meals up to RM 50 for a special occasion (€ 10.30 or £ 7.20).

However if you really have something to celebrate, you could also spend as much as RM 250 (€ 50 or £ 30) for a luxury dining experience in a renowned Kuala Lumpur restaurant, winner of the “Best Oriental Restaurant” award in 2004 during the Malaysia Tourism Awards. Due to the modern atmosphere and culture variety in Malaysia, you can spend as much as your heart desires (or as little).

Property market set for healthy growth
With all of the actions which the government in Malaysia are taking to promote foreign investment in real estate in Malaysia, as well as promoting the purchase of property by Malaysians, the value of real estate is likely to see considerable growth over the coming years. As the market has only really just opened up to overseas investors, now is the best time to enter the market.

The commercial real estate sector is seeing substantial growth, with a major investment by local and foreign companies expanding their existing office locations, relocating to Malaysia or simply opening new ventures in the country. The government has created an environment which promotes national economic competitiveness and benefits the creation and operation of enterprises.

This significant relocation has created a high demand for residential real estate, and with more incentives for companies set for 2008, there is no reason to assume things will change.

Incentives are not only planned for the corporate world of Malaysia though. In 2006, the real estate market was officially opened up to global property investors as the process for purchasing property was streamlined and simplified and further in 2007 as the government announced their decision to abolish Capital Gains Tax on real estate sales which take place after 31st March 2007.

With a strong economy, healthy increase in commercial real estate and active promotion of the government for corporate and individual purchase of real estate, this market, still very much in its infancy, is coined as one of the favourites by major analysts. There are, of course areas which are considered favoured locations and significantly more promising due to local submarket trends.

Inflation
Inflation in Malaysia is generally kept very low. For example during the years of 2002 and 2004, inflation was at a controlled low of 2% however due in large part to the global increase in retail prices of petroleum products, inflation rose in 2005 to 3% and again in 2006 to 3.9%, where it was kept by the government who made a commitment not to raise the retail price any further. The government are still carefully controlling the situation.

Economic expansion
With many incentives from the government to stimulate further economic growth and competitiveness amongst national and international companies operating in Malaysia, the healthy and steady growth of the country’s economy is set to continue for the years to come. The commercial real estate sector is increasing significantly each year as more and more companies relocate or open in Malaysia, the subsequent increase in residential property around these commercial hubs has also been significant. My Second Home Malaysia, beneficial policies and the removal of several barriers has also increased the interest of international property investors in Malaysian property and the Tourism sector has seen steadily increasing figures in recent years.

Because the economy of Malaysia is focusing on and being driven by the private sector, and internal growth rather than relying only on export products, the country’s economy is looking at very healthy years to come.

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