Iskandar’s booming property market has come crashing down this past year. Cooling measures implemented by the government, coupled with chronic oversupply, declining demand as well as controversial land deals have cast storm clouds over the economic hub.
This has been a year to forget for the Iskandar economic region in Johor.
After much lauded growth in the last five years, led by a robust property market, cracks began to show in Iskandar this year. Bullishness about Iskandar’s property market has been replaced with a more cautious, sometimes even bleaker outlook.
What is causing this dwindling optimism about Iskandar? For a start, the numbers don’t lie.
“In comparison to the first half of 2013, there was a drop of about 48% in terms of total transactions in the same period this year,” said V Sivadas, executive director of PA International Property Consultants based in Johor Bahru (JB).
That is an alarming drop in sales by any standards. The fact that it is happening just when Iskandar seems to have picked up momentum in the last few years has rattled the market.
According to Sivadas, this decline is across all sectors of the property market in Iskandar.
“Our records indicate 5,419 total transactions in the first half of this year at a value of about RM3.7 billion. In comparison with the first half of 2013, there was a drop of about 48% in terms of total transactions and about 37% drop in terms of total value of transactions in the first half of 2014,” said Sivadas who based his analysis on available records of properties sales within Iskandar Malaysia.
According to Sivadas, 2013 was the peak of the Iskandar market in terms of number of transactions (25,034 transactions) and total value of transactions (estimated RM20.3 billion — excluding the controversial RM4.5 billion land sale by the Johor Sultan to Guangzhou R&F). In comparison, there were 21,503 transactions in 2012, at a total value of about RM13.5 billion.
The 20-year project is spread across a sprawling 550,000 acres and divided into five flagship zones in Johor and has experienced exponential growth. It is designed to rejuvenate JB and position it as a major regional economic hub. It is targeting between RM20 billion to RM22 billion in investments targeted yearly until 2025.
Although Iskandar consists of several designated zones, property development has arguably fuelled its remarkable growth in recent years. Major property developers, both local and foreign, have flocked to Iskandar in the last five years to ride the wave of Iskandar’s property boom.
It’s not that the well has run dry for Iskandar. Recently, Prime Minister Najib Abdul Razak announced that Iskandar has attracted close to RM25 billion worth of investments this year, adding up to a total of RM156 billion investments secured for the region since its inception in 2006.
Supply outrunning demand
Even as early as January this year, it was reported that purchase bookings of new property launches in Iskandar were already down 20% to 30%. Several other factors have contributed to the cooling down of the Iskandar property market.
Last year, the federal and state governments moved to check an overheating property market nationwide. An increase in Real Property Gains Tax (RPGT), hiking minimum property purchases of foreigners from RM500,000 to RM1 million and a property levy of 2% for foreign purchases in Johor were all implemented to clamp down on speculative buying.
All of these measures slowed down the market considerably this year, Iskandar included.
Market observers have also cautioned that the influx of big Chinese developers, such as Country Garden and Guangzhou R&F, into Iskandar could backfire. Although they have brought in much needed investments, the massive scale of their launches have analysts worried about a potential oversupply or overhang in the market.
Country Garden launched 9,000 units of the Danga Bay development in 2013, a scale that was unprecedented in the Johor market. Guangzhou R&F’s development on the 116 acres it bought from the Johor Sultan is set to dwarf Country Garden’s project.
It has also been reported that Guangzhou R&F is planning to launch a staggering 30,000 units in the next few years.
These mammoth developments and launches by the Chinese developers in Iskandar have sparked genuine fears that a severe oversupply of high-end units will drag down the Iskandar region for years to come.
“Most of Country Garden’s and Guangzhou R&F’s properties are premium priced. Very few ordinary JB residents can afford them. If the Singaporeans stop buying, they will be in deep trouble. I feel their sales are already suffering, although no official figures have been released,” said Andy Mohan, a property agent in JB.
Even major local developers have not been spared the impact of the Chinese invasion in Iskandar.
Last August, UEM Sunrise slashed its annual sales target by 40% due to poor second quarter (2Q14) results, partly due to poor take up of new its launches in Iskandar.
UEM Sunrise’s new chief executive officer Anwar Syahrin Abdul Ajib has also said that the company will “re-strategise” its position and reduce its dependency on Iskandar, where it has approximately 60% of its total land bank.
The fact that UEM Sunrise, one of the biggest developers in Malaysia and master developer of Nusajaya, one of the designated zones in Iskandar, is feeling the pinch and re-evaluating its business its Iskandar is a telling sign that all is not well in Iskandar.
Tomorrow: Are Johor Sultan’s land deals hurting Iskandar?