The slowing down of Iskandar Malaysia’s property sector has raised concerns amongst certain quarters although most analysts view it merely as a warranted transition. It is best described as a consolidation period as balance is achieved between supply and demand. The property “heat” in Johor has cooled down from the very high base of two years ago. Growth is naturally normalising. The softening of the overall Malaysian property market as reflected by the discouraging performance by the sector in the first half of this year has directed much scrutiny upon Malaysia’s most eminent investment hub, Iskandar Malaysia. Questions about its sustainability, oversupply of property, decline in interest from Singaporeans and the impact of the cooling measures introduced by the government are being bandied around in the media resulting in unwarranted speculation.
A Post 2014 Budget Slowdown
There is undeniably a slowdown in the property market in Iskandar Malaysia. Maybank Research in April this year quoting figures from National Property Information Centre (NAPIC) noted that the value of property transactions in Johor had fallen by 33 per cent quarter on quarter (q-o-q) in the fourth quarter of 2014 (4Q14). There are many reasons attributing to the slowdown in the property market in Iskandar Malaysia but the most damaging being the perception that there is a “property oversupply” created by the media hype surrounding Chinese developers with their high rise mixed development projects across the Johor Bahru coastline. The massive 4,000 plus acre reclamation project off the 2nd Link called Forest City by Chinese developer Country Garden for instance has received much attention that has proven to be detrimental to the market. The large number of residential condominiums and serviced apartments that have been launched in recent years in Johor Bahru City Center, Danga Bay and Nusajaya too have contributed to permeating the “oversupply notion” especially amongst investors.
The year 2014 saw Malaysia implement a slew of property cooling measures which have had an impact on Iskandar Malaysia’s property market. This include the doubling of the minimum purchase price for foreigners to RM1million from the previous RM500,000, the raising of the levy for foreigners to 2% of the purchase price from the previous flat fee of RM10,000 as well as the banning of the Developer Interest Bearing Scheme (DIBS). Bank financing too tightened as the central bank, Bank Negara Malaysia introduced new policies for bank lending. Foreigners today enjoy financing in the range of 60-80%, which is lower compared to the 80-90% that was available a few years ago.
According to data from IRDA, at the peak of the market in 2013, almost 74% of non-Malaysian property buyers were from Singapore. Admittedly buying by Singaporeans in the recent months has not been as robust as before. Property expert Khalil Adis in an email response to iProperty’s question on the current Singapore sentiment is of the opinion the falling ringgit has not led to a buying interest among Singaporeans. He says the current political situation and reports on oversupply are causing many to stay away from the market. Singaporean buyers are now far and few between and Malaysian developers with offices in Singapore are feeling the heat. Khalil however thinks they will return to the market once the political situation has improved.
There is concern amongst Singaporeans that government policies from either side may affect their investments. Changes in Malaysia’s foreign property ownership policies have had some impact on investor confidence. Trending down of property prices in Singapore have become key considerations for purchases. Singapore’s private property price index fell almost 4% at the end of 2014. Market sentiment was further affected by the increase in toll fees at the Causeway. Users would see a 5 fold increase in toll fees for using the Causeway. The Malaysian government also introduced its own Vehicle Entry Permit (VEP) fee in August 2015 with the possibility of another round of fee hikes later this year.
Slowdown is Not a Setback for Iskandar
It has been a year since Budget 2014 and the implementation of the cooling measures as well as the slowing down of the frenzied buying of the year before. Transaction in 2015 have been visibly muted especially in the light of the turn of events in Singapore – where property prices have dropped by 4%-7%, a culmination of more than 9 rounds of cooling measures implemented over the last 5 years.
However NAPIC’s data for Q1 2015 indicates that the “slowdown” is not affecting all property types in Iskandar Malaysia. Buying interest in Johor is very much dependent on the property type, area and pricing. Industrial property saw the highest growth in the number of transactions for the first quarter of 2015 compared to the same quarter last year at 51.8%. Quarter-on-quarter (q-o-q), the number jumped 16%. Another area of growth is commercial properties, which added 6% year-on-year (y-o-y) and 10% q-o-q. On the other hand, residential units fell 9% y-o-y and 6.8% q-o-q, while development land declined the most at 27.8% y-o-y and 8% q-o-q. In total, the number of property transactions in Johor for the quarter slid 6.2% compared to a year earlier and fell 4% compared to the previous quarter.
Industrial properties are still gaining traction from manufacturers. Singaporean companies looking to expand their factories or operations would consider Johor due to the proximity and pricing. As for residential properties there is a mismatch between supply and demand. While there is an oversupply of premium properties, the demand however is for medium to low cost housing especially in areas such as Ulu Tiram, Pasir Gudang, Senai-Skudai and even Johor Bahru needs to be addressed.
Data from iQ, a proprietary research tool from iProperty that tracks residential property demand based on price range over a duration reveals that there remains a high demand for medium to low priced homes. iQ in studying the demand trend for double storey homes between 2012 and 2015 in 5 keys areas namely Nusajaya, Johor Bahru, Senai- Skudai, Ulu Tiram and Pasir Gudang has discovered that there is growing affordability especially in areas like Nusajaya, Johor Bahru and Senai-Skudai where the demand for homes from RM300k – RM500k as well as in the band of RM500k – RM700k makes up about 70% of total growth. In these areas, it is important to note there is understandably a very small demand for low priced properties below RM200k.
Condominium Prices in Iskandar from 2012 to 2015 by iPropertyiQ
Double Storey Terrace Prices in Iskandar from 2012 to 2015 by iPropertyiQ
The demand for properties above RM700k remains relatively small. Even in the most affluent area of Nusajaya the demand for properties above RM1 million is marginal. In the areas of Ulu Tiram and Pasir Gudang, the findings show a growing trend in demand for double storey homes between RM200 –RM300k. However in Pasir Gudang the demand for homes below RM200k still takes up almost 40% of the total demand share. There is either a very small or no demand at all for homes above RM500k in both these markets.
In the iQ study on condominiums which focuses only on Nusajaya, Johor Bahru and Senai-Skudai given its relevancy, it is noted that between 2012 and 2015, in all three areas the demand is highest for properties between 300k and 700k. In the last 3-4 years the demand for condominiums priced between RM700k and RM1million had grown steadily especially in Nusajaya which is reflective of a changing lifestyle i.e. a preference for condominium living. Condominium in this price range occupy almost 25% of total demand from only 14% in 2012. There is marginal demand for properties above RM1 million but it is only apparent in Nusajaya. In Senai-Skudai, interestingly, the demand for condominium based on the iQ study has plunged from almost 45% in 2012 to only 17.25% in 2015.
A Maturing Market
Property experts remain unperturbed by the slowdown of the property market in Iskandar Malaysia. They believe that too much emphasis has been placed on the property sector as a measure of Iskandar Malaysia’s performance. Samuel Tan of KGV International Property Consultants in a recent email interview highlighted the fact that the property sector is not designated to be one of the main drivers of Iskandar Malaysia. He named the 6 drivers as being healthcare, multi-media, education, tourism, finance and logistics and also drew attention to the rapid progress being made in each of these sectors.
Samuel Tan of KGV International Property Consultants
Based on the latest figures released by Iskandar Regional Development Authority (IRDA), Iskandar Malaysia attracted committed investments worth RM27.22 billion between January and September 2015. The top five countries investing in Iskandar Malaysia between 2006 and September this year were Singapore, China, the US, Japan and Spain. The largest investments were in the manufacturing sector at RM52.10 billion, logistics (RM5.45 billion), tourism (RM3.10 billion), healthcare (RM2.65 billion), education (RM2.06 billion), financial services (RM0.74 billion) and creative industries (RM0.56 billion). The manufacturing sector at RM50.97 billion is the main contributor. This includes investments from the electrical and electronics, petrochemical and oleo-chemical as well as food–processing industries, all which are drivers of economic growth.
The property sector may be experiencing a slowdown, but other sectors are still moving at a rapid momentum. These investments are driving a number of catalytic projects in Iskandar which contribute to job creation and population growth which in turn will create a strong demand for residential property of different price ranges. However many of these projects are long term and while some negativity has plagued this economic development, a review of its fundamentals assures that it is merely experiencing a transition to maturing into a greater and more established socio-economic centre of global standards.