1. FACILITAT ING & PROMOT I N G I N VE ST M E N T F O R M A LAY S I A N R E A L E S TAT E | www.malaysiapropertyinc.com
June 2011 issue 13 INVESTOR PREFERENCES
The China Report
POLICY
It’s All a Question of Intention
COVER STORY
A Vertical City IN A NUTSHELL
Growing Retirement Savings
SPOTLIGHT Through Property
Southern Prosperity
GRAPHICALLY SPEAKING
SPECIAL REPORT Landed Property Price in 1Q2011p
Poised for Growth Compared with 1Q2010
A VERTICAL CITY
The transformation of what was once plantation land into one of Kuala Lumpur’s premier
high-rise residential enclaves offers a development model worthy of emulation
Who would have thought that what was by Afiq Syarifuddin
previously part of a rubber plantation
would one day become a sought-after Figure 1: Map of Mont’Kiara
high-rise residential address? The tale
of Mont’ Kiara’s evolution is one worthy
of note, not just because it’s a true blue
Malaysian real estate success story, but
also because of the lessons it offers
both developers and property investors
alike.
In a period of just 15 years, Kuala
L u m p u r ’s M o n t ’ K i a r a e n c l a v e
has garnered the respect not just
of Malaysians, but also of the
international community in Malaysia,
many of whom make a bee-line to there
to find a place to live. Attracted by the
concept of community living and the
developer’s focus on quality of life,
their presence has helped turn it into a
vibrant, desirable place to live and this
has increasingly drawn Malaysians to
high-rise living in the area.
Today, Mont’ Kiara has turned into a
suburban township complete with
amenities and lifestyle outlets.
It is the only suburban township
that constitutes primarily high-rise
developments in Kuala Lumpur. Its
reputation has grown in tandem with
its size and it is now considered by many
to be the “Damansara Heights of high-
rise living” (Damansara Heights is one
of Malaysia’s premier landed residential
property enclaves).
(continued next page) Source: Ho Chin Soon Research

2. COVER STORY 2
Figure 2: Existing Condominium Developments in Mont’ Kiara
Project Name Developer Gross Floor Subsale Price Asking Rental Rental Completion
Area (sq.ft) (RM/sq.ft) (RM/sq.ft) Yield (%) Date
Amarin Kiara Amarin Group 4,073-6,141 600 2.89 5.78 Jan-08
Kiaramas Sutera Asia Quest Holding 1,347-4,100 400 3.00 9.00 2004
Hijauan Kiara Bukit Kiara Properties 2,090-3,732 600-800 3.20 6.40 Mar-08
Verve Suites Bukit Kiara Properties 633-1,213 800 6.00 9.00 Ongoing
Casa Kiara I Dijaya / Sunway 1,235-4,573 430 2.50 6.98 Apr-06
Flora Murni Tian Gloval 1,615-5,490 455 2.62 6.91 2006
Laman Suria Sunrise Bhd 931-2,147 520 2.50 5.77 Jan-04
Mont’ Kiara Meridin Sunrise Bhd 1,787-4,487 650 2.50 4.62 Jan-09
Mont’ Kiara Damai Sunrise Bhd 2,272-11,000 590 3.00 6.10 Jul-04
Mont’ Kiara Bayu Sunrise Bhd 798-2,300 500 3.00 7.20 Oct-02
La Grande Kiara Nikmat Kuasa 1,961-7,335 456 3.04 8.00 2005
Source: MPI Research
(from previous page) School, Mont’ Kiara International no longer be affordable to the masses.
School, Australian International School
M o n t ’ K i a ra c o m p r i s e s m o s t l y and Lycée Français de Kuala Lumpur Therefore it is pertinent that the
condominium developments, with which offer British, American and and proposed new development’s pricing is
a some supporting retail and office French curricula. in tandem with the supply and demand
components. The residents are, situation.
interestingly, made up of 30 different Due to its desirable location and
nationalities, of which Japanese good accessibility, Mont’ Kiara On top of strategic location and
and Koreans constitute a majority. has experienced healthy capital accessibilities, developers also need
Mont’ Kiara also hosts a multitude of appreciation over the years. Prices here to put extra weight on the building
businesses located in the office space hover in the region of RM500 to 750 design, facilities and amenities that will
and shoplots located around the per square foot and have been rising improve the overall resident’s quality
township. steadily due constant demand. The of life. The environment also has to be
average rental and yield is RM2.86 psf designed to include amenities such
The main business hub is known as Plaza and 6.89% respectively. as schools, shopping complexes and
Mont’ Kiara, where many established parks, as these are necessary to create
multi-national companies have taken T h e r e a r e c u r r e n t l y 1 4 2 , 0 5 9 a self-sustaining enclave that offers a
up office space. Other commercial condominium units in the market, convenient and vibrant lifestyle.
hotspots are Seni Mont’ Kiara, Solaris reported by the National Property
Mont’ Kiara and Solaris Dutamas. A Information Centre (NAPIC) in the Once the “hardware” is in place the
notable foreign investment in Mont’ Property Market Report 2010. Of note developer of such an enclave would need
Kiara is Cheung Kong Group’s foray into is the fact that 17,922 units are coming to put in the “software”, which is the
the area with ARA Asia Dragon Fund into the market, further increasing the services, activities and other offerings
through One Mont’ Kiara. This retail- supply in Kuala Lumpur alone. that will give residents a lifestyle
office development is valued at RM321 experience unlike any other. In Mont’
million. Although there are concerns of Kiara, for example, even residents’
oversupply in the market, this is a broad- transportation needs are taken care of
The competitive edge that Mont’ Kiara based phenomenon and occurs only in through a shuttle service that takes
has is its location which is 8km away specific pockets in Kuala Lumpur City them to major shopping areas in the
from the bustling city centre of Kuala Centre where branding, positioning and vicinity. Exciting activities in the form of
Lumpur and proximity to exciting planning are ambiguous. In this respect, a weekend bazaar offer the opportunity
townships with various amenities. Mont’Kiara has been way ahead of the for community shopping and family
Accessibility to Mont’ Kiara from rest right from its inception, thanks outings, while the nearby commercial
Petaling Jaya and Bangsar is convenient to the smart strategies employed by precincts hold out the taste of
through the SPRINT Expressway and Sunrise Berhad, the developer that was vibrant entertainment and dining out
the North-South Expressway’s Jalan instrumental for first carving a vertical experiences.
Duta exit.The area also boasts excellent city out of plantation land.
infrastructure and easy access to the Mont’Kiara appears to have avoided
recreational facilities of nearby Bukit It is little wonder why investors are being marred by oversupply and slow
Kiara. attracted to Mont’ Kiara. Key factors take-up, a fact that developers of high-
for a successful property market can rise enclaves would want to take note
International schools have also found be determined through the saleability of. Its secret lies in ensuring a winning
their way into this township to serve and offer price. However, once the initial formula right from the start and in
and cater for the educational needs of developer price has reached a certain sustaining the formula for the long
the residents’ children. For instance, threshold, the asking price would then term.
Mont’ Kiara has Garden International only attract the upper-tier market and

3. SPOTLIGHT 3
SOUTHERN depend on individual ‘qua’ (energy
areas), and there are altogether nine
PROSPERITY ‘quas’.
PQ: How does Feng Shui affect property
values?
Prof. Choo: We can see over time
how some properties or areas thrive
while others stagnate.Human factors
undoubtedly play a role, but Feng Shui
by S.Sulocana also has influence in enhancing harmony
Professor Joe Choo is not what you and value of the property. For instance,
expect of a feng shui expert. The first auction properties are often shied away
thing that startles you upon making from as they are associated with bad
Prof Choo’s acquaintance is the fact energy. People are looking at all these
that this feng shui master is in fact a factors and more when purchasing
feng shui mistress. And a petite, pretty properties these days. There are many
one to boot. All thoughts of greying, factors that contribute to the value of follows the wife’s ‘qua”. Feng Shui is all
bearded sages ruling the feng shui world property such as location, design and about finding the equilibrium of the Yin
fly out of the window the minute she developer. Feng Shui is just one part of and Yang. In this case, Yang is the male
begins to speak. She is witty, charming it and not the sole contributing factor. and Ying is the female. Male attracts
and chatty, and very modern in her the energy, while female contains the
outlook to life. She has the ability to PQ: From a Feng Shui perspective, energy.
make one feel totally at ease in her what are the upcoming areas in Greater
company within minutes of meeting Kuala Lumpur? PQ: How do developers in Malaysia
her. Prof. Choo: The Seri Kembangan incorporate Feng Shui into their
area in the south of the Klang Valley. developments?
The diminutive President of the According to the ‘qua’, south is good for Prof. Choo: It depends on how intensely
Malaysian Institute of Geomancy the next two years and this area will they want to adhere to the principles.
Sciences was recently awarded a see positive growth for the next two The principles are best incorporated
Professorship by the Shanghai Jiao years. Capitaland and YTL have gone from inception to completion. This
Tong University in China. She works into Seri Kembangan. The Klang Valley is includes the design and structure of the
with some notable listed companies prosperous because it is intertwined by building, drainage, energy substation,
in Malaysia and acts as consultant to the Gombak and Klang rivers. The KLCC water tank, sewerage pond, landscaping
various development projects. She area will continue to be robust as it is features and flow of the road.
also contributes articles on Real Estate positioned at the concave of the rivers.
Feng Shui for a number of publications One of the residential projects that
in Malaysia. According to Feng Shui principles, if has fully incorporated the principles is
the river embraces the land (‘concave’), Mitrajaya Berhad’s C180° condominium
Property Quotient (PQ) caught up with the energy will be collected. On the project in Cheras. I worked with the
her recently to learn about how feng opposite side (‘convex’), the energy is architects to draw up plans for the
shui has begun to influence real estate dispersed. We can see the effects on the project.
practices in Malaysia. fertility of the soil. The vegetation on .
the concave side is greener and lusher PQ: What is the property outlook for
PQ: What is Feng Shui and why do compared to the convex side. year 2011?
people place great emphasis in adhering Prof. Choo: The southern part of
to its principles? PQ: What are the basic Feng Shui Malaysia, which is Johor will be doing
Prof. Choo: Feng Shui literally means principles to consider when purchasing well. Property prices in Johor, especially
wind and water. The whole idea of Feng properties? the high-end and commercial properties,
Shui revolves around conserving Live Qi Prof. Choo: The Flow of the river. will see a consistent and steady growth.
(Energy), using the understanding of Properties that are positioned on the
its behaviour and response to wind and concave of the river will prosper. In the northern part of Malaysia, Penang
water. will see rapid growth and prices are
When purchasing residential property moving upwards parallel to the Klang
There are four aspects to Feng Shui, the back portion of the house needs Valley. In the Klang Valley, the areas
namely Harmony, Money, Health and to be higher than the entrance. This that will see an increase in activity and
Advancement. These aspects impact a will ensure the prosperity of the unit growth are those in the southern part
person’s needs at various times of their does not flow out of the property. The such as Sri Kembangan, Sungai Besi and
life. More and more people now have position of the entrance depends on the Balakong.
an understanding on Feng Shui and individual ‘qua’. The ‘qua’ is determined
its disconnect from religion. They are by the date of birth of the individuals.
more receptive to incorporating Feng The position of the main entrance
Shui principles as a means to enrich and follows the ‘qua’ of the man of the house If you would like to know more about Feng Shui, kindly
enhance their lives. Feng Shui principles and the master bedroom and kitchen contact Prof. Joe Choo: joechoo@divine-element.com

4. SPECIAL REPORT 4
POISED FOR Figure 3: Tourist Arrivals and Receipts to Malaysia, 2001-2010
Receipts
GROWTH
Tourist Arrivals
(RM’ million) (in’ million)
60,000 30
The Malaysian hospitality
industry is growing on the back 50,000 25
of increasing tourism and MICE 40,000 20
activities
30,000 15
20,000 10
10,000 5
0 0
by S.Sulocana 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Malaysia’s Hospitality Industry is
flourishing thanks to the ‘Malaysia Truly Legend: Receipts (LHS) Arrivals (RHS)
Asia’ campaigns carried out around the
Source: Tourism Malaysia
globe by Tourism Malaysia. The industry
is experiencing additions in the form of
The tourism industry in Malaysia Several big names entered the
hotels and hospitality-related services
continues to show resilience despite the hospitality industry last year.
to cater for an increasing number of
global economic crisis. The total receipts DoubleTree by Hilton made its mark
business travelers, as well as the tourism
in 2010 increased to RM56.50 billion by opening a 540-room hotel in the
and Meeting-Incentives- Conventions-
compared with RM53.37 billion in 2009. Kuala Lumpur city centre and Banjaran
Exhibitions (MICE) industry segments.
Total receipts have been experiencing Hotsprings resort by local hotel
a steady 10-year compounded annual operator Sunway City Berhad opened
Tourism Malaysia is also actively
growth rate of 13%. 25 luxury villas.
promoting the MICE segment to mark
Malaysia as the preferred destination
Tourism Malaysia figures show there Notable brands that will be coming on
to hold such events. Malaysia’s unique
were 2,367 hotels and 168,497 rooms stream are The Regent, Hyatt and St
selling proposition is its strategic
in the country as at the end of 2010. Regis. The Regent will be entering the
location as the hub of the Asia Pacific
As at March 2011 there were 215 four- market in 2011 with a 250-room hotel
region, its sophisticated facilities and
star and five-star hotels in Malaysia, of complemented by 102 luxury residential
the lower cost compared with the rest
which 60 hotels offering 23,129 rooms apartments in Kuala Lumpur city centre.
of the region.
are located in the Klang Valley area.
Hyatt Hotels & Resorts, which currently
The hospitality industry appears to be
The average hotel occupancy rate in operates two hotels in Malaysia, will
flourishing in Kuala Lumpur, Johor Baru,
2010 was fairly stable, standing at 60% be growing its brand to have bigger
Penang, Kota Kinabalu and Langkawi.
in 2010. The average room rate for three, representation in popular tourist cities
A total of 24.6 million tourists entered
four and five-star and budget hotels in Malaysia namely Penang, Malacca,
Malaysia in 2010, marking an increase of
hovered around RM160, RM224, RM365 Langkawi and Johor Bahru. Hyatt
4.2% year-on-year compared with 23.6
and RM100 respectively. currently manages the 330-room Hyatt
million in 2009.
Regency Kuantan in Pahang and the
Figure 4: Number of Hotels and Rooms Supply in Malaysia, 2001-2010 288-room Hyatt Regency Kinabalu in
Sabah. The hotel chain owners are also
No. of rooms No. of hotels
(in ‘000) anticipating the opening of Grand Hyatt
(in ‘000)
hotel located in the Golden Triangle in
180 2.6 2013. The hotel will offer 412 rooms,
2.4 bringing the total inventory of Hyatt to
150
1,030 rooms.
2.2
120
2.0 St. Regis by Starwood Hotels and Resort
90 1.8 Group will be entering the industry in
2014, setting a new benchmark in
1.6
60 terms of room rates. Located in KL
1.4 Sentral, the primary transportation
30
1.2
hub in Kuala Lumpur, hotel rates are
expected to hover around RM1,000. The
0 1.0 development will include a 208-room
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
hotel and 160 units of apartments.
Legend: Supply of Rooms (LHS) Supply of Hotels (RHS) (continued next page)
Source: Tourism Malaysia

5. SPECIAL REPORT 5
Figure 5: Recently Opened Establishment, 2010
Opening in 2010 Hotel No. of Rooms/ Location Completion
Rating Facilities Date
Banjaran Hotsprings 6 25 units Perak Jan-10
G City Club Hotel 5 180 rooms Kuala Lumpur Mar-10
Shah Alam Convention Centre n/a 208,000 sq.ft Selangor Apr-10
Fraser Place (Serviced Apartment) 5 215 units KLCC May-10
The Philea Resort & Spa 6 201 units Malacca May-10
DoubleTree by Hilton 5 540 rooms, Kuala Lumpur Aug-10
20,000 sq.ft
(meeting space)
TOTAL 720 rooms /
441 units
Source: MyCEB
(from previous page) be expanding its routes in the coming
years. Currently, Tune Hotels and
The need for branded budget hotels Grand Paradise Hotels are the only
in Malaysia has also increased over two branded budget hotel chains in
the years, due to cheap travel offered Malaysia. The chains operate nine and
by low cost carriers (LCC), Air Asia and two hotels respectively in various states
FireFly. The rapid expansion of local in Malaysia.
and international routes has also
contributed to the growth of budget Malaysia’s hospitality industry has a
travelers and even business travellers long term growth potential, judging
looking for economical fares. by its resilience despite the global
economic turmoil and global pandemic
The LCCs have become a transit mode outbreaks. An important point to
to other destinations. Air Asia has note is that the hospitality industry is
expanded its routes to 78 destinations investor-friendly, with no restrictions
around the world, including the on foreigners owning any type of
recent additions of Seoul, Paris and hospitality asset. At present, 58%
Christchurch. Firefly, on the other hand, of four and five-star hotels in Kuala
DoubleTree by Hilton
flies to 18 destinations and will Lumpur are owned by foreign entities.
Figure 6: Incoming Supply of Rooms/ Facilities until 2016
New Development Hotel No. of Rooms/ Location Expected
Rating Facilities Completion Date
The Regent 5 236 rooms KLCC 2011
The Regent Residence 5 115 units KLCC 2011
Allson Capital Hotel 4 236 rooms Kuala Lumpur 2011
Pullman 5 515 units Kuala Lumpur 2011
Impiana Hotel (extension) 4 180 rooms KLCC 2011
(existing 335 rooms)
Fraser Residence n/a n/a Kuala Lumpur 2012
Traders Hotel 4 286 rooms Johor Bahru 2012
Grand Hyatt 5 450 rooms KLCC 2013
St. Regis Hotel 6 200 rooms, Kuala Lumpur 2014
32,300 sq.ft
(meeting space)
MATRADE Convention Centre n/a 1 million sq.ft Kuala Lumpur 2014
W Hotel 5 150 rooms Kuala Lumpur 2016
TOTAL 1,765 rooms /
115 units
Source: MyCEB, MPI Research

6. INVESTOR PREFERENCES 6
THE CHINA
REPORT
Malaysia-China diplomatic and trade
Tianjin
relations are on a strengthening
momentum with a timely visit from Beijing Bohai Rim
Premier Wen Jiabao to Kuala Lumpur,
April this year
Chengdu Shanghai Yangtze
Delta
Chongqing
Guangzhou
by Chan Tze Wee
Pearl River
In terms of bilateral transactions, China
Delta
is Malaysia’s largest trading partner,
second largest export destination Source: www.chinasuccessstories.com
and largest source of import in 2010.
Malaysia has also been China’s largest real estate sector? The obvious companies in Malaysia will bring along
trading partner in ASEAN for three beneficiary is increased investments an increased demand for housing,
consecutive years since 2008. Despite in corporate real estate. Using Huawei amenities and other services associated
the global economic crisis, Malaysia’s Technologies’ presence in Malaysia as with serving the business community.
export to China registered double digit a case study, Huawei is the country’s
growth of 14.5% valued at RM80.60 largest Chinese investor since entering Malaysian real estate potential to the
billion in 2010. During Premier Wen’s the Malaysian market in April 2001, as Chinese investor
visit on 29th April, a total of eight tracked by the Malaysian Investment
agreements and MoUs were signed Development Authority (MIDA). With one of the world’s fastest growing
between Malaysia and China. The list The MoU signed on assistance to insurance markets, China’s insurance
includes: help Malaysia train 10,000 telecom premium totaled RMB 1,452.8 billion
professionals in the next five years, and this market is expected to become
• Agreement on Expanding and making Malaysia one of the few global the world’s fourth largest insurance
Deepening Economic and Trade human resource centers for Huawei. market by 2018. By February 2011,
Cooperation between Malaysia and This would be followed by plans to Chinese insurers have total assets
China develop a Malaysian training centre to under management (AUM) of RMB5.2
• Agreement between Malaysia and fulfill the training initiative. Currently, trillion. The China Insurance Regulatory
China on Framework Agreement Huawei has 645 employees in Malaysia, Commission (CIRC) issued a September
to Facilitate Mutual Recognition where close to 10% are Chinese nationals 2010 circular (“CIRC Circular 79”) that
in Academic Higher Education Taken from a wider view, this is but one explicitly permits China’s insurance
Qualifications. of 120 companies with Chinese interest companies to invest their assets in
• Joint-Venture Agreement between across various industries operating in private equity. The allowed investments
Smelter Asia Sdn Bhd and Aluminium Malaysia as of 2011. Suffice to say, the may be either direct or indirect, making
Corporation of China Limited expanding presence of international China’s insurance companies potential
(CHALCO) equity investors in onshore companies
• MoU between Beijing Foreign Studies as well as limited partners in onshore
University and Universiti Malaya on Malaysia is the Country of private equity funds or “RMB funds”.
Jointly Establishing Chinese Studies Honour in the upcoming The aggregate investment in any one
Centre 8th China-ASEAN Expo held private equity fund may not exceed 20%
• MoU Resolving Traffic Congestion in of the fund’s total offering size.
Penang between the state
annually in Nanning, Guangxi.
government and Beijing Urban Industry clusters to be featured With this, up to 10% of the RMB5.2
Construction Group Co. Ltd in the Malaysia Pavilion include trillion assets are allowed to invest
• MoU on MSC Malaysia Human Property Development, Food & in real estate. For some context, real
Capital Development Programme estate investment by Chinese insurers
in ICT Industry between Multimedia
Beverages, Health & Wellness, stood at RMB40 billion at end 2009,
Corporation Sdn Bhd (Mdec) and Building Materials and a less than 10% of the RMB520 billion
Dream Catcher Consulting Sdn Bhd strong representation from permitted as at February 2011.
with Huawei Technologies (M) Sdn all government offices with a
Bhd
presence in China.
How does this bode for the Malaysian (continued next page)

7. INVESTOR PREFERENCES 7
Malaysia
6,187,400
6,000,000
3,000,000
1,000,000
500,000
200,000
Figure 7: Chinese Diaspora
Source: WSJ Research, The Shao Center at Ohio University, CIA World Factbook
(from previous page)
With the Chinese insurance market’s
Factbox
widening investment horizon as an The many angles of potential Chinese interest into Malaysian real estate:
example of further liberal steps by the
Chinese government, Malaysian players • Shanghai’s high concentration of Malaysians offers the opportunity of
targeting inbound investments must tapping into an accessible database as well leveraging on Shanghai’s
continue positioning and lobbying for extensive business networks
China’s attention and beyond.
• Hong Kong’s corporate community includes China mainland companies that
Aside from the immediate advantage have larger exposure to foreign markets by virtue of being listed in Hong
o f g e o g ra p h i c a l p r ox i m i t y a n d Kong
benefits conferred by being part of the
China-ASEAN Free Trade Agreement, • The Pearl River Delta Region is made up of China’s southern coastal cities
enhancing the current government-to- and provinces. Familiarity with Malaysia is highest in this part of China.
government relations between Malaysia
and China is crucial to continue creating • Malaysia is the 4th largest population within the Chinese diaspora around
buy-in from Chinese conglomerates and the world (Wall Street Journal, July 2010).
investors alike. Over the course of 2011,
the Malaysia-China engagement looks to
solidify with further official visits such unique to the Chinese target market is promising growth prospects of other
as the minister of industry and trade’s higher enquiries for themed properties South East Asian countries. Perhaps
return visit to Shanghai in December, such as golf villas and beachfront a larger aspiration would be to fit into
following the Deputy Prime Minister’s properties. Kuala Lumpur, Penang and a China + 1 strategy where Malaysia
visit in March. Kota Kinabalu are the immediate areas features as the complementary regional
of interest. office to China for global investors
On the homebuyer level, increasing expanding into Asia Pacific.
enquiries on Malaysian real estate On the construction and development
opportunities have been recorded from front, Chinese companies are enquiring
Q2 2011. Some attribute this to Premier on the prospects of development or
Wen’s recent visit as recognition of equity joint ventures with credible
China’s closer ties with Malaysia. Malaysian parties. At this stage of
Various forms of enquiries have infancy, most investor questions are still
emerged. Chinese real estate agents focused on supplementing their initial
are testing the viability of promoting market research stages – understanding
prime Malaysian properties to their local Malaysia’s real estate outlook, Upcoming MPI China Market Events are open for
clients in 1st tier cities. growth prospects and clarification of participation from Malaysian developers and real estate
government regulations. companies. Please contact MPI for further information.
Similar to the requirements of
most foreign real estate buyers in In the long run, Malaysia’s favourable • September 2011: Malaysia Property
Malaysia, the sought after formats are position within the ASEAN countries and Showcase, Shanghai
condominiums within the range of 500 its outward looking policies will need to • October 2011: China-ASEAN Expo,
– 2,000sq.ft. An additional criteria more remain highly competitive against the Malaysia Pavilion, Nanning

8. POLICY 8
IT’S ALL A chasing the property was not the In one case [1], the Courts held that
expectation of profit by sale. the gains arising from the disposal of
QUESTION OF the land were subject to RPGT. It was
So how does one distinguish between commented that the evidence showed
INTENTION a property held as trading stock or that the property was the only property
investment? The Malaysian Courts have bought and kept by the taxpayer for
decided in a number of recent cases that investment. There was no evidence
S. Saravana Kumar discusses the
the distinction simply depends on the to show that the taxpayer had been
distinction between income tax and intention of the taxpayer. dealing in land before they acquired the
real property gains tax property. In fact, there was no evidence
The Courts have held that the mere to show that the taxpayer had other
realisation of investment is not income transactions in property before. There
under the ordinary concepts and usages was also no evidence to show that the
of mankind. However, profits arising taxpayer was a developer before the
from the sale of any property acquired transaction. The purchase of the said
for the purpose of trading are subject property was the only transaction
In property transactions, profits to income tax. In these circumstances, carried out by the taxpayer. In those
derived upon disposal of a property by the focal point of enquiry by the Courts circumstances, the Courts held that
a taxpayer are subject to income tax or is the dominant purpose for which it could not be said that dealing in
real property gains tax. This distinction the particular property was originally land was the principal activity of the
depends on the taxpayer’s intention to acquired.It is encouraging that the taxpayer.
hold the parcel of property either as a Courts have commented that the mere
trading stock or as an investment. presence of an intention to sell property Similarly, the Courts had also held that
at a profit at some future date is not of where a taxpayer takes no serious effort
It is important to identify this intention itself, sufficient to cause the profit to to obtain a loan facility from a financial
as the tax treatment between the be taxable if the dominant motive in institution and has no capabilities to
two types of property is different and purchasing the property was not the develop land [2], such land is held to be
disputes can occur between the taxman expectation of profit by sale. the taxpayer’s investment. The gains are
and taxpayer about the nature of the then subjected to RPGT.The mere fact
profits derived upon disposal of the The Courts are guided by the badges of that a taxpayer made a gain because
property. trade as the criteria for distinguishing the land was near the main road or a
between profits subject to income tax good location does not automatically
Any profits arising from disposal of a and those subject to RPGT. The main make the gain liable to income tax. In
trading stock are subject to income badges of trade are the dominant another interesting case [3], it was held
tax at the rate of 25%. Meanwhile, any purpose of acquiring the property, that the taxpayer had invested in the
gains arising from the realisation of an subject matter of transactions, property by reason of its proximity to a
investment are subject to real property period of ownership, frequency of nearby town. The value of the taxpayer’s
gains tax (RPGT) at the rate of 5%, if it transactions, circumstances for sale, land merely appreciated in the course
was owned for a period of less than 5 motive or intention of taxpayer and of time due to the development of the
years. If the investment was owned for methods of sale. surrounding areas.
a period of more than 5 years, it is not
subject to RPGT. On the other hand, trading requires an The factors highlighted above were not
intention to trade. The question to be seen by the Courts as factors alluding to
So how does one distinguish between asked is whether that intention existed trading but rather investment. In this
a property held as trading stock or at the time of the acquisition of the regard, it is crucial that a taxpayer is
investment? The Malaysian Courts have property. Was the property acquired aware of the potential tax implication
decided in a number of recent cases that with the intention of disposing of it at a in managing his tax affairs prudently.
the distinction simply depends on the profit, or was it acquired as a permanent
intention of the taxpayer. investment? [1] ALF Properties Sdn Bhd v Ketua Pengarah Hasil
Dalam Negeri [2005] 3 CLJ 936
The Courts have held that the mere Often, it is necessary to ask further [2] Au How Cheong Sdn Bhd v Ketua Pengarah Hasil
realisation of investment is not income questions: an investment may be sold Dalam Negeri (No.R(3)(1)-14-02-2006
under the ordinary concepts and usages in order to acquire another investment [3] E v Comptroller-General of Inland Revenue (1950-
of mankind. However, profits arising thought to be more satisfactory and 1985) MSTC 106
from the sale of any property acquired that does not involve an operation of
for the purpose of trading are subject trade notwithstanding whether the Next issue: What are the factors that
to income tax.In these circumstances, first investment is sold at a profit or at allude to trading?
the focal point of enquiry by the Courts a loss.
is the dominant purpose for which
the particular property was originally The Courts have held that a purpose S. Saravana Kumar is a tax lawyer with Lee
acquired. It is encouraging that the so qualified and suspended does not Hishammuddin Allen & Gledhill. He holds a Master of
Courts have commented that the mere amount to an intention to trade. At Laws in Taxation from the London School of Economics.
presence of an intention to sell property best, it is a mere contemplation until He appears regularly in court for various tax and
at a profit at some future date is not of the materials necessary to a decision on customs disputes. Saravana also advises on tax advisory
itself, sufficient to cause the profit to be the commercial merits are available and & planning, tax audit & investigation, transfer pricing
taxable if the dominant motive in pur- have resulted in such a decision. and international tax aspects.

9. IN THE NUTSHELL 9
GROWING Figure 8: Total Assets in US$ trillion and Annualised Growth in Asset of Top 20
Funds, 2010 (Split by Fund Domicile)
RETIREMENT Total Asset
(US$’ trillion)
Annualised
Growth
SAVINGS 1.6
(%)
50
THROUGH 1.4 40.6
40
PROPERTY
1.2
1.0 30
0.8
Asian pension funds are becoming
0.6 20
incresingly enamoured of real 12.8 14.0 14.7
11.7 11.8
0.4
estate as a long term investment 5.0 6.3 10
0.2 3.5 3.6
option
0 0
Netherlands
Singapore
Denmark
Malaysia
S. Africa
Canada
Korea
China
Japan
USA
Legend: Total Assets in USD trillion (LHS)
by Hazrul Izwan & A.Lalitha
Annualised Growth Rate (RHS)
A pension fund is generally the biggest
“
player in the investment world, ahead Source: Towers Watson
of mutual funds, insurance companies,
currency reserves, sovereign wealth asset growth of 12.4%. China’s National
funds, hedge funds, or private equity. Social Security Fund has shown
Major demographic
Over the past decade, the total assets of tremendous growth of 40.6%, followed changes in Asia will see Asian
pension funds globally have increased by Denmark (14.7%), Singapore (14.0%), pension funds reassessing
more than 75%, from US$17 trillion in Canada (12.8%), Malaysia (11.8%) and their current conservative
2001 to over US$30 trillion in 2010. Korea (11.7%).
asset allocations. Increased
Towers Watson estimates that the In many countries, particularly the levels of real estate in their
Top 20 pension funds worldwide developed nations of the West, the portfolios offer an important
contributed more than 13% to the real estate sector has generally been asset class for Asian pension
market. From 2004 to 2009, this sector considered to be an attractive asset
has undergone an average annualised class for long term investment. In the
funds to achieve portfolio
diversification and meet their
Figure 9: Top 20 Pension Funds significantly increasing future
liabilities in an effective risk-
Rank Fund Country Total Asset
(US$ million)
adjusted manner”
1 Government Pension Investment Japan 1,315,071 Professor Graeme Newell,
2 Government Pension Fund-Global Norway 475,859 University of Western Sydney
3 ABP Netherlands 299,873
4 National Pension Korea 234,946 early 70s, pension funds began investing
5 Federal Retirement Thrift USA 234,404 in real estate, predominantly in the
6 California Public Employees USA 198,765 office, retail and industrial sectors. Over
7 Local Government Officials Japan 164,510 the last 40 years, more than a hundred
8 California State Teachers USA 130,461 billion dollars have been injected into
9 New York State Common USA 125,692 the property market through a number
10 PFWZ Netherlands 123,390 of investment modes such as direct
11 Central Provident Fund Singapore 122,497 acquisition, real estate investment
12 Canada Pension Canada 122,067 trust (REITs), unlisted real estate funds
13 Florida State Board USA 114,663 and joint-ventures.
14 National Social Security China 113,716
15 Pension Fund Association Japan 113,364 In Asia, however, real estate has not
16 ATP Denmark 111,887 traditionally made up a significant level
17 New York City Retirement USA 111,669 in most portfolios. Asian pension funds
18 GEPF South Africa 110,976 focus mainly on domestic low-yield
19 Employees Provident Fund Malaysia 109,002 assets, particularly fixed income and
20 General Motors USA 99,200 equities.
Source: Towers Watson (continued next page)

10. IN THE NUTSHELL 10
“
(from previous page) in an effective risk-adjusted manner,” he
explained in a report on the significance
The exposure level in Asian pension of real estate in Asian pension funds.
funds is typically lower than in US,
With greater
Canada, UK and Australia. Japan, which Colliers International (HK) Ltd regional institutional involvement in
has the world’s largest pension fund, director David Faulkner said, “With direct real estate
allocates less than 2% to real estate greater institutional involvement in investment in Asia, more
investments. direct real estate investment in Asia,
more income producing properties are
income producing properties
This scenario appears to be changing, now being traded.” are now being traded”
however, as more and more Asian
pension funds look for new asset Recent years have witnessed intense David Faulkner,
classes in a search of good and stable reform efforts in pension funds around Colliers International (HK) Ltd
yields. Real estate is increasingly being the globe. Malaysia’s largest pension
considered as one such asset class that fund, the Employee Provident Fund Recently, EPF and Singapore’s
offers safe diversification with stable (EPF) has also stepped up to increase Guocoland entered into 20-80 joint-
yield. the asset allocation for real estate. venture agreement to develop a US$2.6
Figure 10: EPF’s Gross Investment Income in 2010 billion mixed-use development which is
Money Market expected to be completed in 2015.
Instrument 2.9%
Since early last year, EPF has been
Property &
Equities 45.5% revealing its top equity investments
Miscellaneous
in Bursa Malaysia on a quarterly basis.
Income 0.5%
This is to promote greater transparency
and to reassure its members that the
US$ 8.02 investments are being undertaken in
the interest of growing their retirement
billion Malaysian
Government
savings and in accordance with
investment and corporate governance
best practices.
Securities 22.1%
EPF has shares in property development
Loans & Bonds 29.2% and property-related companies such
as Malaysian Building Society Berhad
Source: Employees Provident Fund (EPF)
(67.25%), Malaysian Resources
University of Western Sydney professor “Currently, the pension fund has less Corporation Berhad (41.78%), WCT
of property investment Graeme Newell than 2% of its total accumulated funds Berhad (21.33%), Sime Darby Berhad
said major demographic changes in Asia [amounting to US$ 140 billion] invested (15.29%), SP Setia Berhad (14.86%) and
will see Asian pension funds reassessing in properties. However, it has a IJM Corporation Berhad (14.67%).
their current conservative asset strategic asset allocation target of 5%
allocations. for properties,” said EPF deputy chief In order to create a vibrant domestic
executive officer for investment Shahril property market, EPF has pledged to
“Increased levels of real estate in their Ridza Ridzuan. continuously increase its real estate
portfolios offer an important asset exposure. Although EPF’s fund size is
class for Asian pension funds to achieve Local properties owned by the EPF smaller compared with pension funds
portfolio diversification and meet their include Sogo Shopping Complex, Wisma in Europe and US, it is more proactive in
significantly increasing future liabilities KFC, MAS Academy, Block A (Plaza implementing its real estate strategy.
Sentral) and Gurney Resort Hotel. EPF
“
is also involved in a mixed development EPF reported that its property and
greenfield project at the 3,000-acre miscellaneous income last year rose
Rubber Research Institute Malaysia 17% to USD34.4 million in 2010 from
Currently, the pension land in Sungai Buloh which it acquired US$29.3 million in the preceding year. As
fund has less than 2% of its for close to US$1 billion. such, total gross investment income in
2010 reached US$8.02 billion compared
total accumulated funds While aggressively exploring the with US$5.74 billion in 2009.
invested in properties. domestic market, the EPF is also
However, it has a strategic increasing its exposure overseas and is Moving forward, Malaysian pension
asset allocation target of 5% actively seeking investable properties funds can adapt to increase their
in Singapore, Australia and the United exposure and stimulate the property
for properties” Kingdom. market by establishing clear real
estate risk management procedures,
Shahril Ridza Ridzuan, Its international investment strategy particularly in terms of a risk-sharing
Employees Provident Fund (EPF) includes the acquisition of London strategy that includes joint-ventures
properties The Fleet Street, One and co-investment with other major
Sheldon Square and Portman Square for pension funds, sovereign wealth funds
US$789 million in August 2010. and real estate investors.

11. GRAPHICALLY SPEAKING 11
LANDED PROPERTY PRICE IN 1Q2011p
COMPARED TO 1Q2010
PENANG KUALA LUMPUR
• Island: +5% • Central: +7%
• Seberang Perai: +3% • North: +9%
• South: +17%
SELANGOR
• Petaling: +12%
• Kelang: +5%
• Gombak: +8%
JOHOR
• Hulu Langat: +12%
• Johor Bahru: -4%
• Batu Pahat: +5%
• Muar: +1%
• Kluang: -4%
• Segamat: +11%
CAPITAL APPRECIATION FOR VARIOUS HOTSPOTS IN KLANG
VALLEY, PENANG AND JOHOR
KLANG VALLEY PENANG JOHOR
Bandar Utama +23.3% Greenlane +12.3% Bdr. Baru Permas Jaya +9.5%
Bandar Sri Damansara +21.8% Sungai Dua +11.6% Taman Daya +8.8%
Bangsar +12.9% Pulau Tikus +10.7% Taman Perling +8.3%
Source: NAPIC, CBRE, Raine & Horne, KGV-LSH, MPI Research
Note: All analysis is based on
•Capital appreciation as at 1Q 2011p compared with 1Q 2010
•Selected housing schemes
•p = Preliminary data

12. 12
ABOUT US
Malaysia Property Incorporated is a Government initiative set
up under the Economic Planning Unit to drive investments in
real estate into Malaysia.
As the first port-of-call for real estate investment queries,
Malaysia Property Inc. connects interested parties through
an extensive network of government agencies, private sector
companies, real estate firms, business councils and real estate-
related associations.
MPI has two core objectives; to create international awareness
and to establish connections between foreign interests and
Malaysian real estate industry players, ultimately contributing
to real estate investments into the country.
For further information and
up-to-date tracking of Malaysian real estate data, visit:
www.malaysiapropertyinc.com
For further enquiry, write to:
info@malaysiapropertyinc.com
Disclamer: This report contains information that is publicly-available and has been relied on by Malaysia Property Incorporated on the basis that it is accurate and
complete. MPI is not liable if the case proves to be otherwise. No warranty or representation, express or implied, is made to the accuracy or completeness of the
information contained herein, and the same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any
special listing conditions imposed.