KUALA LUMPUR: It doesn’t take much to be among the richest 1 per cent in Malaysia.
According to a recent report by property consultancy Knight Frank, the entry point to the 1 per cent club of the richest people in Malaysia was just US$485,000 in net wealth last year. Compare this with US$12.4 million for Monaco, which has the world’s densest population of super-rich individuals, Switzerland at US$6.6 million or Singapore’s richest at US$3.5 million.
This is not necessarily an unfavourable situation.
While the Knight Frank report did not provide the number of individuals in Malaysia who met the minimum US$485,000 needed to be among the country’s richest 1 per cent, it did state that the country had 85,126 high net worth individuals (net worth of at least US$1 million) in 2022, and 721 ultra rich individuals with more than US$30 million net worth each.
Together, these figures indicate that there were at least 85,847 individuals in Malaysia’s top 1 per cent club last year. Projections from Knight Frank’s Wealth Sizing Model suggest this number will nearly double to 165,883 by 2027 (164,839 high net worth individuals and 1,044 ultra high net worth individuals).
This presents an opportunity for Malaysia, which is vying to position itself as a prime destination for affluent investors. It also holds significance for Malaysian Prime Minister Anwar Ibrahim, which has made strengthening the economy one of his main focus areas.
“(Malaysia) has to be attractive for investments, period. Whatever needs to be done, whatever is necessary to ensure that Malaysia remains an attractive, competitive destination for investments, we will do,” Mr Anwar said at the annual Milken Institute Asia Summit on Sep 13.
THE GLOBAL RACE FOR INVESTMENT
Malaysia’s pursuit of wealthy investors is part of a larger global race among nations to secure foreign capital and talent. In 2022, global foreign direct investment (FDI) flows reached US$1.3 trillion. For Malaysia specifically, FDI accounted for 61.7 per cent of total approved investments in the country last year, or RM163.3 billion (US$34.8 billion).
The infusion of wealth and capital from rich investors can have a transformative impact on Malaysia’s economy. These investors bring not only financial resources but also expertise, networks and connections that can stimulate local industries.
One of the key strategies Malaysia has implemented to attract overseas retirees and wealthy investors is the Malaysia My Second Home programme (MM2H).
Launched in 2002, the programme grants eligible participants a multiple-entry social visit pass, allowing them to stay in Malaysia for up to 10 years, with the option of renewal. Between 2002 and 2019, close to 50,000 foreigners were approved under the MM2H programme.
In a surprising move, however, the government in 2021 introduced more demanding requirements, reducing uptake for the scheme. This included a quadrupling of the minimum monthly income to RM40,000 and increasing the required period for physical presence to 90 days in a year.
This was not all. More onerous was the new bank deposit requirement of RM1 million, up from the previous amount of RM150,000 to RM300,000, and that of liquid assets of RM1.5 million (up from RM350,000 to RM500,000 previously).
It was almost as if the revised MM2H wanted to dissuade potential applicants since other countries in the region had less stringent thresholds. Since the regulations were tightened in 2021, there have been a 90 per cent drop in the number of applicants.
A second programme to attract wealthy foreigners is the Premium Visa Programme (PVIP). This programme is not by any stretch of imagination less demanding in its requirements than that for MM2H, with applicants having to open a local fixed deposit account of about RM1 million.
PVIP differs from MM2H in that it allows applicants to conduct business and seek employment; it does not require a minimum period of stay in Malaysia and waives the need to show proof of liquid assets.
At first glance it is quizzical why a country that seeks to attract wealthy investors should raise the thresholds; and why it should position itself to be less competitive than other countries in the region.
There have been calls from various quarters for the MM2H regulations to be eased, with the Johor sultan urging the government on multiple occasions to revise the conditions. In April, the government confirmed that it would review the criteria for the programme.
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DID MALAYSIA MISREAD THE MARKET?
Malaysia may want to distinguish itself as being a cut above the rest. Since it offers a higher level of facilities, it has probably chosen to prize itself more highly, only that it may have misunderstood the market.
As mentioned, attracting affluent foreigners has a ripple effect on various sectors, including the demand for high-quality housing and the growth of medical services catering to the wealthy. This, in turn, stimulates the construction industry and bolsters the property sector.
Furthermore, overall consumption can be expected to swing upwards with well-heeled consumers splurging on goods and services.
As with its FDI policy, which aims to attract technologically sophisticated investments and top end talent, the second home policy is priced out of the reach of ordinary folks because the government is only interested in the top segment of the expatriate market. The government’s primary objective is not promoting diversity but harnessing economic benefits.
It is only those with the means who can create the market for exclusive commodities, luxury condominiums and high-end hospitals that resemble hotels.
There are different segments of foreigners who would want to make Malaysia their second home, including retirees, individuals seeking holiday homes, property investors and those seeking refuge from challenging conditions in their home countries.
In the past, Malaysia may have courted retired Japanese citizens, but more recently, the focus has shifted to the Chinese for several reasons. The once booming Chinese economy is an alluring catchment area. Malaysia offers an avenue for the growing number of Chinese millionaires seeking to diversify their property investments abroad.
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FOREST CITY IN SPOTLIGHT
One development that has been hurt by policy changes in Malaysia is the 1,370-hectare Forest City mega-project in southern Johor state.
Built by embattled Chinese developer Country Garden, the US$100 billion project, which was at one time supposed to be a part of the Belt and Road Initiative, has now fallen into disuse.
Progress on the project has failed to achieve any vibrancy. Foreigners are not clamouring to live in this area. Even the locals do not talk about Forest City.
Despite eight years of construction work, the project remains just 15 per cent completed. Only 9,000 people live in Forest City despite having 28,000 residential units completed thus far.
Seeking to reignite interest in the project, Mr Anwar last month announced that Forest City would be designated as a special financial zone, offering tax incentives and multiple entry visas.
Malaysia’s attractiveness to foreigners will depend on the group that the government is more interested in welcoming. While China was previously a focal point due to its growing wealthy elite, its slowing economy might impact the influx of Chinese investments, particularly among retirees deterred by higher deposit requirements.
In 2019, Malaysia could boast that it had the highest number of applicants for its residence-by-investment programme. That may no longer be a claim that the government can make.
This shortfall need not be seen as a failure; it could well be that Malaysia is looking at the more niche segments of eligible foreigners. After all, the second home programme is more than 20 years old and has to adjust to changing times.
Dr Shankaran Nambiar is Head of Research at the Malaysian Institute of Economic Research and the author of Regaining Control: Malaysian Economic Policy During Covid and Beyond.