Industry experts share with REENA KAUR BHATT why they remain confident with the region amid the cautious sentiment and oversupply situation in the residential market.
According to Knight Frank’s Real Estate Highlights 1H2016 Report, as of March 2016, Iskandar Malaysia (IM) has registered cumulative investments of RM202.45 billion starting from 2006, and of this 51% have been realised.
As Iskandar enters its 10th year of development, what are your thoughts on its progress towards realising the vision to be a strong and sustainable metropolis of international standing?
IM has come a long way since its inception. With an estimated population of 1.3 million in 2005, the figure grew to roughly 1.8 million in 2013 – that is a growth of 3.8% per annum.
It is important to note that the largest contributor to the cumulative investment into IM is the manufacturing sector, with an estimated contribution of RM54 billion or 26% and according to MIDA, in 2015, Johor recorded the highest total proposed capital investment at RM31 billion. As these investments are realised, it will translate into jobs.
Job creation within IM is a key target since the inception of the ambitious masterplan – to date over 600,000 jobs have been created in the region. This is very encouraging and should be seen as a keystone to the IM masterplan. Education and healthcare sectors are also being expanded in IM with several universities, schools, hospitals and medical suites opening over the last few years.
IM’s masterplan is solid and the relevant authorities are actively attracting investors to the region through various incentives and they are getting results. It will be a while yet before the vision is realised but we are well on the way towards achieving it.
IM is on track based on the first Comprehensive Development Plan (CDP). As the development of IM was conceived and launched only 10 years ago, this milestone is no small feat.
The next 10 years will be critical as IM moves beyond the foundation – building stage into a sustainable phase which ensures a holistic balance between economic growth and the community, environment and value creation.
IM is facing a challenging situation as it enters its tenth year, with the political situation that is currently unravelling in Malaysia as well as the oversupply issue.
Firstly is the ongoing 1MDB saga that is currently under investigation – though this does not have a direct impact on IM, the ongoing investigations as well as daily news updates on the case have unfortunately affected Malaysia’s image overseas and therefore, investors’ confidence in the country.
As a result, Singaporean buyers, which used to be the majority of the property investors in IM, are adopting a “wait-and-see” approach until there is some form of clarity and closure in the case.
The second issue is concerning sustainability. Although IM’s vision on paper is laudable, the reality is another issue altogether. The many projects launched by Chinese developers seemed to take the approach of “build and they will come”. This has proven to be unsustainable if we look at some of the ghost towns that had emerged in China and Dubai.
If we were to look at the pricing of these projects, they are geared towards foreign investors with units by the thousands. This begs the question – are they going to be genuine home owners or are they merely using these homes for investment once the projects are completed?There is a real possibility that rentals could fall once all the units are ready for occupation, triggering a price war among landlords who will want to rent out their units quickly.
IM has seen growth in leaps and bounds since its inception in 2006. Though it is by no means a fully international metropolis yet, the progress has been significant and there have been many changes, both physical and societal in the city. Now as we plan ahead, I think we have to make sure that both the authorities and private entities are focused on the correct initiatives to stimulate further economic growth especially via job creation and attracting human talent.
Being on the ground in IM for the past four years, I have observed that transaction volumes are slowing down due to stringent loan requirements as well as the latest inclusion of outstanding PTPTN loans as a precondition. A glut of sorts seems to be building up in certain segments of the market, i.e. condominiums and selective landed properties.
Nevertheless, property sales in the RM300,000 – RM500,000 market segment appear to withstand the correction onslaught as many Malaysians who work in Singapore tend to acquire these properties.
As with any master planned project, the initial phase of getting the project of the ground is the toughest part. IM has definitely proven itself to be right on track – the development region has already exceeded half of its targeted population of 3 million and since its inception in 2006, has realised 51% of its targeted investments.
IM is now moving into the next phase of development; the recently launched Comprehensive Development Plan 2014-2025 (CDPii) will focus on sustainability and wealth generation, among others. With its current momentum, I believe IM would be able to realise its vision to be a strong and sustainable metropolis of international standing by 2025.
According to iProperty.com Asia Property Market Sentiment Report 1H2016, 59% of Singaporean respondents expressed strong interest to invest in Iskandar. However, respondents said they would appreciate additional discounts and they would also like to see additional policy changes that favour foreign buyers.
What do you think should be done to encourage Singaporean property buyers?
(RL) I feel that the RM1 million minimum purchase price for Singaporean buyers is not the major deterrent factor that hinders them to invest in IM as the present currency exchange generally favours these foreign purchasers. The biggest factor is more likely to be the time commitment and inconvenience of the commute between Singapore and IM.
Despite this, Singaporeans were still the second largest foreign investors into IM with RM16.6 billion across all sectors as at end 2015. While that sum is not exclusive to real estate in IM, it is still indicative of the high interest from Singaporeans.
A reduction in the minimum requirement might encourage more Singaporean buyers. Nevertheless, the types of property that foreign nationals are looking for tend to cost RM1 million or more. Potential Singaporean buyers should keep in mind what kind of property this amount (SGD332,617.82 as of time of writing in August 2016) will buy in IM if the equivalent sum was to be spent in Singapore.
(ST) Properties in IM are already cheap by Singaporeans’ standards due to their strong currency. What is needed to attract Singaporeans is not a further discount but instead seamless connectivity unlike the current traffic jam at the 2 cross-border links. With that solved, many will see the appeal of staying in IM and commuting daily to work in Singapore. In addition, security; real or perceived needs to be addressed to ensure the people’s safety. Consistent and transparent foreign house-ownership policies will build confidence among Singaporean investors too.
(KA) Additional discounts can only do so much and they will act as a short-term measure. In order to encourage Singaporean buyers, investors’ confidence must be restored by addressing the ongoing political developments in the country and the perception that there is indeed an oversupply of new homes in the market. Once these issues are addressed head on, Singaporeans will return to the market.
(RK) Definitely, Singaporean buyers are looking to enter the market at favourable pricing – whether that can be accomplished remains to be seen as the holding power of owners and developers are relatively strong. Also, policies such as international zoning plus the Vehicle Entry Permit (VEP) implementation and lack of transparency in the progress of both the Rapid Transit System (RTS) and the High-Speed Rail (HSR) have also stifled their interest. Once there is more clarity on the above issues, interest from Singaporeans will return.
(WS) Singaporean property investors and homebuyers are two different breeds altogether. With high property prices in Singapore, developments in IM provide Singaporeans with the luxury of living in a landed property and a relaxed lifestyle while commuting easily to and fro Singapore for work. Some of the latest choice developments include East Ledang Medini, Leisure Farm and Horizon Hills. Residents get to enjoy facilities such as golf courses and clubhouse perks as well as the wide array of cheap cuisines available in Johor.
On the other hand, investors of landed properties who were previously enjoying monthly rental incomes in the range of RM12,000 – RM15,000 have seen a big drop in rental rates as there are now many choices for tenants to choose from.
To encourage more Singaporean property buyers to come into IM, I would suggest the following measures:
i) A Real Property Gains Tax (RPGT) moratorium for Singaporean homebuyers.
ii) A relaxation on the threshold of RM1 million for foreigners to purchase properties in IM.
iii) A review of the foreigner’s tax levy when it comes to foreign acquisition, resale or otherwise.
(KKW) It is not surprising that there is strong interest from Singaporean buyers – the lower Malaysian currency and the comparatively higher property prices on the island republic make purchasing homes in IM very affordable for them. Also, as most homes are a convenient distance away from the Causeway, travelling to and fro is made easy – for both owner occupiers working in Singapore and investors to manage their rental assets.
Even though they have the purchasing power, Singaporeans are holding back their spending mainly due to the current global economic slowdown for contingency purposes. However, I feel that this is the best time to buy because most of the prices are currently stagnant and many developers are giving huge discounts and freebies. Buyers will not get to enjoy the same opportunity when the property market picks up.
How will the HSR and the RTS serve to accelerate property development and investment in Iskandar?
(RL) Infrastructural projects such as these which are designed to encourage the ease of movement of people are wonderful catalysts. Traffic flow will definitely be more efficient and station locations will become hotspots as the increased footfall will be ideal for commercial properties. Residential homes will also benefit from proximity to stations as they become more desirable.
Hotels, retail, and tourism industries can expect a boost as these infrastructure services essentially increase their catchment areas; guests can come from further away and at a faster rate.
(ST) The shuttle service mooted in the HSR’s Iskandar Puteri station is an excellent idea to alleviate bottleneck traffic congestion at the Second Causeway Link. The downstream beneficiaries from this service will be wide ranging from residential to land-banking. The domestic stage stop from KL to Singapore will attract those who want to seek employment in a larger city like Iskandar Puteri. The reverse can also happen if the pull from Singapore is too great and it attracts local talents to a better paying environment.
(KA) In terms of property development, it will spur more developers to acquire land banks located within close proximity to these transportation hubs and bank into the accessibility and desirability factor. We are already seeing this taking place at R&F Princess Cove in Johor Bahru and Melia Residences in Gerbang Nusajaya, both with good take-up rates.
In terms of investment, the spill over from enhanced connectivity will be multiple-fold, covering property, retail, tourism, banking and so on as it means greater conveniences for commuters and a shorter waiting time. This will be the game changer for IM as it is able to tap into Singapore’s position as an international city.
(RK) It will improve connectivity. The 2 links are bottlenecks that also constrains economic spillover from Singapore. It is very difficult for any Singapore business to consider investing or doing business in IM if the connectivity capacity remains constrained.
(WS) The spillover effects of the HSR will take time to materialise as it is estimated to be up and running only in 2026. There will be challenges along the way, in terms of track alignment, acquisition of land, relocation of the population and the sourcing of funds. A private and public partnership (PPP) initiative will go a long way in solving funding issues.
However, there is no denying the long-term development and business opportunities as a result of the project. After all, connectivity is key to boosting commercial and tourism activities.
(KKW) The HSR and RTS will definitely accelerate the property development and investment in IM especially in areas within the vicinity of the respective stations. The ease and convenience of commuting from Kuala Lumpur to IM and Singapore and vice versa is the trigger in bringing in the much-needed population into the region. Infrastructure and connectivity are vital to population growth and I am certain that the two railways will play a huge part in driving the housing development in IM.
The ‘duty-free’ Forest City mixed development which comprises 4 manmade islands spread over 1,366 hectares in Iskandar will be developed over the next 20 years.
How will this project transform Iskandar’s property landscape? In your opinion, will it be sustainable in the long run?
(RL) This is an entire city being developed from the ground up and its scope and ambition are unprecedented for an individual development in Malaysia.
20 years is a long time to project, but barring any unforeseen circumstances, it is safe to say that the following developments should have taken place by then – the business focus of IM should have shifted more towards Medini; IM whould have surpassed its targeted population of 3 million by 2025; the HSR and RTS should be up and running and educational facilities in IM and Forest City should be well established, making the area more attractive for businesses as there will be a skilled workforce available locally.
The proximity of Forest City to Singapore is important and part of its master plan is to improve access to and from the Lion City. In the long run, the ambition and sustainability of Forest City run parallel to the macro goals of IM as a whole and both stakeholders will be finding ways to cooperate and make a success of the two.
(ST) As it is, Forest City has aroused the interest of many, especially from mainland China. With the duty-free status and Import Duty Relief (IDR) status for qualified industries, the islands will become a business proposition rather than just a site for property development. Over a longer horizon, I envisage that Forest City will be attractive if it is managed into a proper business-living-tourism destination.
(KA) This is a catch-22 situation as the pricing for this development is not geared towards Johoreans but for foreigners instead. If the foreigners are genuine home owners and are applying under the MM2H scheme, then yes it will most probably be sustainable as they have the intention to live in Malaysia for the long-term. However, it could become problematic if these foreigners are buying purely for investment (rental) purposes or using it as their holiday homes. If it is the latter, then this begs the question of who will end up staying at or renting these homes.
(RK) Forest City has a long gestation period and it is too early to write it off. The way it has been launched has created both positive and negative sentiments for the current IM property market, but in the long run, I think Forest City is a huge plus point to IM.
I would think that having a big investment coming in with many potential spillovers is better than having NO investment at all. Of course, it is a big project with many aspects of managing it but then again, Malaysians should not be afraid of embracing the positives that come with it; such as increased economic activity in tourism, services, and construction. While the Chinese have traditionally been associated with property and construction in Malaysia, we are now seeing Chinese manufacturers and services coming in as well and that is also a result of Forest City’s global visibility.
(WS) The developer of Forest City, Country Garden Holdings is a heavyweight in the property industry, whose developments are usually geared for international markets. To further boost the city’s appeal, I would suggest that sustainable elements be added into the development matrix.
For instance, the development could be cultivated into the Silicon Valley of Southeast Asia by bringing in some of the world’s biggest technology companies to set up their regional headquarters there. The 20-year gestation period in many ways offers the developer a gateway to endless possibilities.
The Pengerang Integrated Petroleum Complex (PIPC) is expected to create spillover effects in Pasir Gudang. As highlighted in the Knight Frank’s Real Estate Highlights 1H2016 Report; despite the global oil and gas crisis, PIPC is still seeing committed development from stakeholders who are committing more capital to the project.
How is the Eastern Gate poised to be the next growth centre in IM?
(RL) To date, showpiece developments in IM have focused on high-end residential developments, largely in flagship zones A and B of IM.
At present the Eastern Gate or flagship zone D is trending towards the most affordable end of the real estate spectrum. Pasir Gudang has been an industrial hub for Johor Bahru for decades and employs thousands of workers. Yet more industrial development is inbound in the Eastern gate and the availability of work there will definitely attract more purchasers who are looking for homes and investments.
Furthermore, Pasir Gudang and Permas Jaya are essentially the first stops for those returning from Pengerang for a beachside holiday on the Desaru Coast.
Several developers have taken an interest in this zone including EcoWorld with their Eco Tropics and Eco Business Park 3, Mah Sing Group with their Meridin East development and UMLand with their Seri Albion development.
(ST) Although PIPC is related to the oil and gas industry, it caters to processing fuel into end products. This would mean that cheaper raw material (fuel) will be more viable for such an operation to be running. However, if the oil market continues to be weak, oil companies will reduce their capital expenditure (Capex) by rationalising their expansion plan.
Having said this, the committed development by Petronas under RAPID and the tank farming nearby will still be carried out and the downstream effects will be felt in the value chain supply – local SMEs and contractors are needed to meet the development within PIPC.
(KA) The Eastern Gate is the third phase of IM’s economic development and is the only area that had received a budget allocation from the federal government under Budget 2016 – RM18 billion for PIPC and a new public hospital in Pasir Gudang.
Investments in infrastructure and developing new economic drivers will have a positive spillover impact on the surrounding property market – more jobs being created will lead to demand for homes within the area. It could be the next Iskandar Puteri in the making as the Eastern Gate is very much like how Iskandar Puteri was when it was relatively undeveloped but where substantial budget had been allocated to develop the area.
(RK) The Eastern corridor of IM is where the traditional economic centres of Johor Bahru have been, especially in Pasir Gudang. As Pengerang is still quite a distance away, Pasir Gudang will see strong interest. With RM90 billion to spend in Pengerang in the next few years, some of it will flow to Pasir Gudang, Masai and other parts in the east.
(WS) The PIPC project has all the necessary fundamentals in place to cater to the industrial market’s needs. It is well designed in terms of logistics, with a deep water wharf for carriers to dock and is well equipped with world class storage facilities.
I believe that its business model is similar to an e-commerce warehouse and in spite of global slowdowns in the oil and gas industry, the refinery complex will remain relevant with the need for energy consumption in the immediate domestic markets of ASEAN.
(KKW) With the numerous ongoing industrial developments in the Eastern Gate region, many housing developments have sprouted up in the surrounding area. The prices of homes and even shophouses have been increasing steadily in value over the past few years. The region’s prospects are promising and it is now on the radar of developers and an increasing number of investors. In addition, with the continuous incoming foreign investments into PIPC, demand for residential properties is expected to increase in the next few years as more jobs are generated.
If someone is looking to invest in property in Iskandar this year, what would be the best kind of property to buy?
(RL) Despite the current market, there are opportunities to be found. At present, long-term investment is preferred with potential capital appreciation to be prioritised over rental yields, as it is currently a tenant’s market.
Purchasers should look towards locations between areas of growth, namely Forest City, Medini and PIPC. Good deals can still be found and these properties should grow in value as the respective developments drive the market.
Commercial investors will want to purchase in the vicinity of the HSR and RTS stations while residential investors will prefer to be within walking distance or a short shuttle bus ride away – the areas of Iskandar Puteri, JB city centre and Medini are prime candidates for investments as these are deemed to be where the stations are located.
(ST) Good asset classes for investment must be one that gives profit to investors the moment they buy said property. In the primary market, there will be developers who intentionally mark down their selling prices to create excellent sales. Investors must be on the lookout for such opportunities. In the secondary market, the current weak economy will see some ‘very eager sellers’. Again, there will be upsides when the investors buy into such properties.
(KA) I would urge buyers to look east, as prices of homes here are still affordable – at around RM350 per sq ft – but with the greatest room for capital appreciation. In terms of the best kind of property, it depends on what is your goal. If you are looking purely for rental returns, then I would suggest looking at commercial properties such as retail or hotel suites as these sectors have benefitted immensely from the falling Ringgit.
If you are a first time home owner, then look to the most affordable home but with the greatest room for capital appreciation. The Eastern Gate would be the most ideal location.
(RK) I would say look out for deals in the sub-sale market, there are probably opportunities in every segment.
(WS) IM consists of five principal flagships with each flagship having an identity and business model as per its personalised matrix. Recommendation for investment will have to depend on the investors budget, risk appetite and holding period.
(KKW) In my opinion, the best properties to buy or invest in IM at the moment are still landed homes, be it double storey terraces or semi-detached houses as the prices are still low and the potential of capital appreciation is high.
This article was first published in the iProperty.com Malaysia September 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine. Better yet, order a discounted subscription by putting in your details in the form below!