Capital flight as the rich snap up London properties

As the Malaysian election draws near, two worrying aspects of the country's economy are very much in evidence. They are just pointers but significant ones to a bumpy future.

This may seem a surprise to outsiders who are rightly impressed with the strength of the nation's external position - RM139 billion (US$44.36 billion) in foreign exchange reserves and a record of huge annual current account surpluses dating back to 1998. Monetary policy is restrained and inflation is low.

But signs of concern are not just to be found in data but in anecdotes of behaviour. One such anecdote that recently came to light courtesy of a Vanity Fair magazine article on London property is that Malaysians have now joined the ranks of Russian oligarchs, Nigerian oil plunderers and the latest generation of Gulf sheiks in paying astronomical prices for houses and apartments in the classiest parts of London.

It may be an indication that some of the country's richest citizens are voting with their money if not their feet in advance of what appears to be a very tight election.

According to estate agency Jones Lang & Wootton last year, Malaysian buyers accounted for 17 percent of all buyers of new top-of-the-line central London dwellings. In other words, almost as many Malaysian are buying as Britons, who accounted for only 19 percent of this market.

Identifiable Malaysians figure as buyers of One Hyde Park (right), the most expensive new building in London overlooking Hyde Park and others probably lie behind the various anonymous offshore companies which figure as owners of most of the owners of apartments ranging in price from US$12 million to US$50 million.

It is hard to imagine that these are safe investments compared with Malaysia, given that the market is thin, the properties are often left unoccupied and that further price gains must rely on yet more flood tides of easily gotten wealth. Such floods have always been associated with commodity booms or banker banquets. London property has long been a destination for flight capital and bankers absurd bonuses.

But what does the Malaysian role now tell us about flight capital from an outwardly stable nation? And about the prospects for the commodity price boom of the past 10 years not coming to an unpleasant end?

For more, go to Asia Sentinel.