On 4th February 2016, Malaysia came together with eleven other countries in Auckland, New Zealand and signed a new trade agreement known as the TransPacific Partnership Agreement (TPPA). The eleven other countries that participated in the signing of the TPPA include Australia, Brunei, Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore, the US and Vietnam.
WHAT IS TPPA?
The TPPA is a free trade agreement between the aforesaid member countries with the aim to promote economic growth and investment among the member countries. Malaysia is expected to benefit from the TPPA through expanded markets access opportunities and lower trade barriers in the aforesaid member countries. TPPA upon implementation will also allow for free movement of the population of the member countries within the member countries. Malaysia Gross Domestic Product (GDP) is projected to increase by USD107 billion (RM444 billion) to USD211 billion (RM876 billion) over 2018-2027 upon implementation of the TPPA.
THE EFFECT OF TPPA ON THE PROPERTY SECTOR
Global investment in Malaysia is projected to increase by USD136 billion (RM565 billion) to USD239 billion (RM993 billion) over 2018-2027, attributable largely to higher investment growth in textiles, construction and distributive trade. The projected increase of global investment in the textile industry, construction industry and distribution trade sector will have a significant spill over effect into the property sector in Kuala Lumpur and in the area surrounding the ports area in Malaysia.
The greatest spill over effect would result in the following:-
i. All Properties: The greatest advantage of the TPPA would be the free flow of population within the aforesaid twelve countries. There is a total of 805.4 million population as at 2014 and the amount is set to increase exponentially. In Malaysia, foreigners are allowed to purchase all types of immovable properties provided that the properties are valued above the general threshold price as set by the local government in Malaysia (i.e RM1 million in Kuala Lumpur) and subject to other restrictions. The other restrictions include properties which are built on Malay reserved land and properties allocated to Bumiputra interest in any property development project as determined by the State Authorities. The increase in movement of of population through and from Malaysia will increase the product marketability of the properties in Malaysia leading to an increase in the consumer market base and a stronger demand in the rental market and the sale of properties within Malaysia;
ii. Demand for Commercial Buildings: MNCs from member countries will be looking to establish branches and headquarters to expand its market access opportunities. Experts in the property sector are predicting a glut of office spaces in the KL city in the near future leading to competitive rental rates for offices in Kuala Lumpur. In view of the above, Malaysia is set to attract multi-national corporations (MNCs) to invest in our country due to the attractive rental prices, favourable currency exchange rate and availability of office space in the region. Majority of the MNCs will be looking to rent or lease properties in the short term especially in locations which are accessible and visible. Global Investors would also be investing in higher-end commercial properties in the long term. As mentioned in my previous article in May, commercial properties in prime location are in huge demand i.e crowd generating areas with great accessibility near highways, light rail transits and public transport stops.
iii. Industrial Properties: Many MNCs will be also looking to rent factories and warehouses with offices. In addition, Malaysian companies will have greater market access to member countries leading to an increase in output and storage requirement. In the circumstances, the two factors will generate a demand in Malaysia for industrial properties such as factories, factory land and warehouses in areas surrounding the sea ports in Malaysia pushing up the price of industrial properties.
iv. Residential Properties: The TPPA will play a major factor in creating wealth and jobs in Malaysia. Expatriates who have left Malaysia are expected to return under the employment of MNCs or return for investment purpose. The TPPA will also attract foreign citizens especially working professionals and investors to operate in Malaysia leading to an increase of demand in the rental market for residential properties in Malaysia. The government has also created special incentives to attract foreigner to purchase real estate in Malaysia under the Malaysia: My Second Home Programme (MM2H). As a result, there will be a surge in demand for middle to high-end residential properties by foreign citizens.
Aside from the aforesaid countries which have signed the TPPA, there are six other countries that have expressed their interest in joining the Trans Pacific Partnership in the near future. These countries are Colombia, Philippines, Thailand, Taiwan, South Korea and Indonesia. This would bring added advantage to the property section in Malaysia.
This article was first published in the iProperty.com Malaysia May 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine. Better yet, order a discounted subscription by putting in your details in the form below!