Foreign retirees losing interest in Malaysia’s MM2H residency scheme after rules revamped

KUALA LUMPUR - Foreign retirees have grown cold on the ‘Malaysia My Second Home’ (MM2H) residency visa scheme, industry players say, after the latest revamped rules make it compulsory for them to purchase property in the country and hold it for at least 10 years.

Even a new category of visas for residents in special economic or financial zones, aimed at upcoming developments in Johor, is unlikely to lift demand for the scheme, economists told The Straits Times (ST).

British national Mohamed Shabir, 41, who had wanted to retire in Malaysia with his two children, said he changed his mind after finding out about the mandatory property purchase, although the bank deposit was manageable.

“I was interested in the Silver five-year visa scheme, and the mandatory property purchase does not make sense, and what is worse is the requirement to hold it for 10 years. I will keep my options open to other countries in Asia such as Thailand and Indonesia as I like the beauty and diversity of the continent,” said Mr Shabir, who currently works at an investment bank in the United Kingdom.

Under the fresh guidelines released in June, qualified applicants are required to have bank deposits of between US$150,000 ($203,300) and US$1 million, and buy a property with a minimum value from RM600,000 (S$172,000) to RM2 million, depending on which category of visa they apply for. They also need to hold the property for at least 10 years.

Agencies which process applications for the residency scheme told ST that they are seeing a significant decline in interest, with as many as 90 per cent of prospective applicants losing interest since the new policy was announced on June 14.

“Initially we had over 500 interested applicants, but the number has dwindled to less than 50 due to the revised regulations. Malaysia has revised the MM2H programme twice in the past three years, and these changes have made foreigners feel unwelcome and unwanted,” said Ms Farisa Athirah, a senior executive at My Expat MM2H agency based in Kuala Lumpur.

Another expatriate services agency in the capital city, which did not want to be named, said its clients are disappointed by the new rules, particularly with the mandatory purchase of property, as they would need to spend a minimum of RM1.7 million to more than RM6 million, depending on the visa scheme chosen.

“We have lost about 90 per cent of our clients. Our clients feel that the new guidelines are more strict than the 2021 guidelines by the previous government because of the property purchase. From 100 interested applicants, fewer than 10 are interested in applying to the new scheme,” said the agency.

When the MM2H scheme was first introduced in 2002 to attract retirees, it brought in 48,471 foreign retirees and their dependents who contributed an estimated RM58 billion to the local economy over a 17-year period, according to industry experts.

However, subsequent rule changes in 2021 under the previous government, which hiked the level of investment needed and flip-flopped on their visa conditions, have discouraged applicants. This resulted in an estimated RM9 billion lost to the local economy from 2020-2023, not discounting the effects of the Covid-19 pandemic, said Dr Geoffrey Williams, founder and director of Williams Business Consultancy.

The government’s aim in releasing the latest guidelines is to attract high-net-worth individuals and digital nomads, making Malaysia their top destination, said Tourism, Arts and Culture Minister Tiong King Sing in a Facebook post earlier this month.

A source close to the matter told ST: “The government has revised the guidelines to change the profile of applicants and attract wealthy individuals to the country, apart from its aim to boost the property sector. We believe this is best for Malaysia.”

So far, the immediate reaction from would-be applicants has not been promising.

Take, for example, the special economic and financial zones category which requires the lowest level of bank deposits at just US$32,000 for those aged 50 and above, and for now, has no minimum stipulated value for the property purchase. However, the would-be applicant must buy the property directly from a developer and hold it for at least 10 years.

“This SEZ (special economic zone) and SFZ (special financial zone) scheme is enticing, but if the location to buy a property is constrained to just Forest City in the SFZ, and it must be bought from a developer, this gives us a limited choice of where we should buy a property and stay for the next 10 years. I may not want to take up the scheme, given these restrictions,” said 45-year-old Singaporean Ahmed Tarmeze Khan, referring to the property development in southern Johor state.

Economists say the new MM2H rules would add limited value to the local economy because the residency scheme is now more restrictive and less attractive.

The new MM2H residency scheme, which targets only high-net-worth individuals, will attract fewer expatriates, resulting in minimal impact on the economy, said Dr Williams.

Even the SEZ and SFZ category will fail to turn the tide because they require investments in property that foreigners will not want to commit to for 10 years, he added.

“The new scheme will not add much value to the economy despite the mandatory property purchase. The flip-flop in policies has already made people very cautious”, he noted.

It remains to be seen whether the government has overestimated foreigners’ interest in Malaysian property, especially when the country is competing against other similar schemes as neighbours Thailand and Indonesia. Thailand introduced its Long Term Residence Visa programme in September 2022, while Indonesia launched its 10-Year Visa Second Home scheme in December 2022.

Meanwhile, making property purchases compulsory may not have the intended effect of ramping up demand for houses and is instead deterring expatriates from settling in Malaysia.

“The government has failed to correctly assess the demand for homes, as there will still be unsold units or unrented units because developers would have expected more buyers after the new revised rules of MM2H,” said Malaysian Institute of Economic Research economist Shankaran Nambiar.