Malaysia's real estate market is expected to attract more investors from China thanks to the preferential MM2H visa program. (Source: Bloomberg)

When China announced plans to invest 170 billion ringgit ($35.9 billion) in Malaysia last year, many real estate companies in the Southeast Asian country began planning to roll out the red carpet to welcome potential investors and homebuyers from Beijing.

Optimism is in the air, with property developers buoyed by promising numbers of Chinese nationals taking up My Second Home (MM2H) – a long-term residency visa programme introduced by the government to encourage foreigners to move to Malaysia. Launched in 2002, MM2H offers foreign investors long-term visas of up to 10 years.

Figures released in March 2024 showed that as of January 2024, 24,765 MM2H card holders were Chinese citizens, or 44% of the more than 56,000 card holders, up from 16,000 in 2019.

However, all expectations are just speculation and many do not believe these figures reflect the economic benefits to Malaysia in the real estate sector as well as the economy in general.

“The problem is that there are no reliable and accurate statistics on the number of foreigners owning property in Malaysia,” said Siva Shanker, CEO of a subsidiary of Kuala Lumpur-based property consultancy Rahim & Co. “I don’t think the Chinese are flocking to Malaysia to buy property.”

With trade and technology tensions with the US showing no signs of easing and the domestic economy recovering slowly after the pandemic, many Chinese investors have decided to shift their business to neighboring Southeast Asian countries.

Although Malaysia’s MM2H programme is seen as benefiting from the southward push by Chinese investors, many are concerned that the programme may not live up to expectations given its framework, which requires cardholders to purchase real estate here and have a minimum monthly overseas income of RM40,000.

Malaysia's real estate market experienced a boom in demand from Chinese investors in the mid-2000s, with a series of large projects, notably the Forest City high-tech city project in southern Johor state.

The $100 billion project, which broke ground in 2016 and was expected to house 700,000 people, is now in limbo as thousands of potential Chinese buyers pulled out after Beijing imposed a series of harsh measures on developer Country Garden.

“That was the peak of demand from Chinese investors. That is now over,” said Siva Shanker.

Demand from Beijing buyers is likely to increase when the Johor-Singapore Special Economic Zone comes into operation later this year, according to Paul Khong, group managing director of international real estate consultancy Savills Malaysia.

Besides real estate, tourism is also expected to continue to grow thanks to the increase in visitors from China. According to data released by the Malaysian government last week, nearly 1.2 million tourists from the Northeast Asian country visited the "country of a hundred islands" in the first five months of 2024, spending about 8.8 billion ringgit during their stay. The number of Chinese visitors to the Southeast Asian country increased dramatically by 194% compared to the same period last year.

Malaysia is expected to welcome 5 million Chinese tourists this year - surpassing the pre-pandemic record of 3.1 million Chinese visitors - with help from visa-free arrangements introduced in conjunction with the 50th anniversary of diplomatic relations between the two countries.

Higher education is also expected to attract more interest from China as Malaysia is among several destinations in Asia that have seen a surge in demand from the Northeast Asian nation’s international students looking for alternatives beyond Australia, the UK and the US.

Data released by international education market tracker ICEF Monitor last month showed that more than 39,000 Chinese students enrolled in Malaysian universities in 2022. Another 26,630 Chinese students applied for admission to Malaysian universities in 2023.

"Malaysia, along with other Asian destinations such as Japan, Singapore, Hong Kong SAR (China) and Thailand, is currently gaining great interest due to its advantages such as geographical proximity, affordability and presence of many highly ranked universities," according to ICEF Monitor.