Business Booms for Malaysia's Hotel Sector
2014 was a good year for Malaysian tourism, attracting international brands like Kempinski, Four seasons, Fairmont, Ritz Carlton, Ibis and Hilton to Kuala Lumpur's expanding market, with plans to commence operation in the capital over the next three to five years.
Visitor numbers throughout last year increased more than 10% to 18.4 million, despite the drop in tourists in reaction to the disappearance of Malaysian Airlines flight MH370 in March 2014. Malaysia's government have pulled out all the stops to support investment in its hotel sector granting Investment Tax Allowance and Pioneer Status for new hotels with 4 and 5 star ratings. Hotels that are 100% foreign owned also qualify for these tax incentives, which is a big attraction for international hotel brands.
The government's Malaysian Investment Development Authority (MIDA) has identified the country's tourist sector as one of the 12 National Key Economic Areas (NKEAs,) set to attract investment in its private sector to drive the nation towards high-income status and global competitiveness.
The goal of Malaysia's government is to push tourism by investing heavily in its infrastructure and providing attractive incentives to foreign hoteliers seeking to expand in Southeast Asia. The government's Tourism Transformation Plan sets a target of 36 million tourist arrivals annually, contributing €36bn to the economy each year by 2020.
Latest hotel developments in Kuala Lumpur include a joint venture between Singapore developer Oxley Holdings and Dubai's Jumeirah Group – the luxury hotel brand behind the Emirate's iconic Palm Islands. The JV plans to operate a 190-room luxury Jumeirah hotel with a further 273 premium residences carrying the group's brand in Malaysia's most visited destination, it's capital city - Kuala Lumpur.
Commenting on Oxley's fifth luxury hotel in the region, chairman and chief executive Ching Chiat Kwong said: "This partnership with Jumeirah Group further enlarges and reiterates our presence in the Malaysian market." He added that Oxley are seeking to launch more hotel developments in Malaysia, Cambodia and Indonesia as part of its strategy to expand its investment in property.
In terms of smaller-scale property investment in Malaysia, the strong dynamic in the country's tourist sector in resort areas where there is significant and rising demand provides plenty of value growth opportunities, particularly in Kuala Lumpur.
Affordability remains a major issue for domestic buyers in Malaysia and sales volumes fell by around 8% year on year during 2014, while prices soared 72% over the same period of time. The country's central bank, Bank Negara introduced cooling measures to curb rising household debt that stands at almost 87% of GDP, with loans for properties forming the bulk of household debt at around 47%.
With property prices at levels beyond the reach of many Malaysian nationals, foreign investment in the country's private rental sector is on the rise. Apartment prices in Kuala Lumpur are reasonable at between €1,300-€2,600/m2 and value growth in the city has reached stability. The prime attraction for investors in the capital is rental income.
Gross rental yields in Kuala Lumpur have registered a decline over the past year, with rents not keeping pace with rising nominal prices. The highest value growth investment is in the 120m² apartment category which has recorded gross returns of between 7% and 8% over the last 12 months.
As major names in the international hotel business continue to construct and open luxury operations in Malaysia, demand for investment property in resort areas is set to increase significantly. With plenty of yield opportunities in both the country's domestic private rental market and the tourist sector, there is plenty of scope for investment in Malaysia at the current time.
