By Khairul Khalid
With the property market expected to soften in 2014 amid economic uncertainties, will Iskandar Malaysia be able to sustain its momentum? KiniBiz examines several key factors such as cooling measures in Budget 2014, concerns about oversupply and too much reliance on foreign buyers that have cast doubts on the long-term sustainability of the Iskandar juggernaut.
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Iskandar Malaysia, the SEZ (Special Economic Zone) in Johor has seldom been out of the news since its inception in 2006. The massive 20-year project is spread across a sprawling 550,000 acres and divided into five flagship zones. It is designed to rejuvenate JB (Johor Bahru) and position it as a major regional economic hub with between RM20 billion to RM22 billion in investments targeted yearly until 2025.
Arguably, property development has fuelled the spectacular growth of Iskandar in recent years with local and international developers flocking to the area and units being snapped by eager property hunters.
Bookings fall 20%-30%
Nevertheless, with market sentiment decidedly mixed on the property market for 2014, is this upward trend about to come to a halt? Some recent property launches in Iskandar with lukewarm uptakes seem to suggest that the euphoric demand for all things Iskandar have cooled to a certain degree. This can be attributed to factors such as the measures announced in last October’s Budget 2014 to clamp down on speculation such as the increase in RPGT (Real Property Gains Tax), the increase of minimum property purchases of foreigners from RM500,000 to RM1 million and a property levy of 2% for foreign purchases in Johor.
Tan Ka Leong
“Based on market sources, there was an estimated 20% to 30% drop-off in purchase bookings with the developers since the measures were announced,” said Tan Ka Leong, Director of WTW (CH Williams Talhar & Wong). Tan added that the situation should improve within six months to a year after the market has had time to digest these policy changes.
Even if the market eventually recovers, such a sharp fall in potential sales is a definite cause for concern. Would local buyers be able to step into the breach and offset any tapering off of foreign demand, considering that the local economy is only starting to grapple with the potential long-term implications of the various price hikes announced recently?
The Singapore factor
A huge chunk of foreign property purchases are linked to the “Singapore Factor”, with our neighbours across the causeway making up a significant amount of investments in Iskandar. UEM Sunrise, the master developer for Iskandar’s Nusajaya reported that Singaporeans make up almost 75% of total foreign purchases for their projects in Iskandar.
Ironically, cooling measures imposed by Singapore’s own government could also backfire on Iskandar’s growth. Last week, Singapore announced that prices for both public and private housing in the city state have gone down after a slew of government curbs. Private residential property prices fell for the first time in about two years in the fourth quarter of 2013, while resale prices for public HDB (Housing and Development Board) flats declined for the second consecutive quarter in the last three months of 2013.
Essentially, this could make it less attractive for Singaporeans to buy properties in Iskandar with housing units getting cheaper in their own country (although the weaker Ringgit remains favourable to Singaporeans purchasers). The Malaysian government’s flip-flopping and constant changes on policies regarding foreign property purchases doesn’t help either.
“We have always ridden on Singapore as a growth driver for Iskandar but over the last few months sentiment appears to be changing. Investors are reacting to the policy changes. The increase of the foreign purchase threshold to RM1 million starting May 1, 2014 in Johor is not consistent with the federal government’s decision. We were under the impression that projects that secure development approval before May 1, 2014 will still enjoy the RM500,000 threshold. There are also complaints that applications for state consent for sale to foreigners are being delayed,” said V Sivadas, executive director of PA International Property Consultants based in JB.
Who will buy?
Recent mega development deals in Iskandar would eventually flood the Iskandar market with more property units. With the apparent slowdown in demand, this raises the pertinent question – who will buy them?
For example, last month Iskandar Waterfront Holdings (IWH) sold 38.6 acres of seafront land in Danga Bay to Singaporean developer Hao Yuan Investment Pte Ltd in a deal worth RM1.6 billion or roughly translated to RM998 per square feet (psf). It is for a joint-venture (JV) mixed development project worth RM8 billion in GDV (Gross Development Value), which includes the construction of the tallest building in Peninsular Malaysia. This adds to the over 9000 units already being developed in Danga Bay by Country Gardens, a developer from China.
Another Chinese developer Guangzhou R&F Properties purchased 116 acres of land in JB from the Sultan of Johor for a whopping RM4.5 billion (RM891 psf). Although the locations of the six parcels of land sold by the Sultan have not yet been made public, it would not be a surprise if some (if not all) of Guangzhou R&F’s developments are in the Iskandar areas that are highly sought after. They are planning a mixed development of residential and commercial properties in an area more than double the size of Country Garden’s 57 acres in Danga Bay.
These jaw-dropping foreign deals have been trumpeted in some quarters as a resounding vote of confidence in Iskandar by international investors. Others are more wary and caution that considering JB’s market size, the types of development being pursued is already approaching glut-level. Presumably with its high acquisition and development costs, these properties will be inevitably priced at a premium by the developers to recover their investments faster.
Iskandar bubble?
V Sivadas
“I am not convinced that there will be enough demand to absorb these high-end property supply in the next five to seven years. I don’t have the exact figures but easily we are looking at an additional 15,000 to 20,000 units in Iskandar alone in the next five years. This makes the KLCC and MK (Mont Kiara) bubbles in 2008-2009 look lame in comparison,” said Faizul Ridzuan, head of research for Far Research adding that a high percentage of foreign buyers won’t be using Iskandar as their primary homes.
With so much at stake, even the slightest possibility of a property bubble in Iskandar would cause jitters among investors. Sivadas points to another worry – the quality of foreign owners that Iskandar is attracting.
“Are we attracting the right type of foreigners? There has to be a cap. We need to attract quality people who could add value to the economy. We should not be just a dumping ground for Singapore and other foreign countries. The price of RM1,000 psf might be high-end for us but it can be considered within range for Singaporeans within low-middle income segments,” explained Sivadas.
Besides the quality of buyers, the quality of foreign developers involved in these mammoth deals also needs to be scrutinised. Do they offer any special skills or added value compared to the local developers available? Would they be able to deliver on time and are there any mechanisms to ensure compliance by these foreign developers? If the main objective is to obtain the highest price from foreigners for these prime lands in Iskandar, shouldn’t we invite bids in an open tender to get the best deals?
It would seem that Iskandar is now caught in a dilemma – with buyers already applying some brakes, shouldn’t Iskandar’s authorities at least decelerate the breakneck pace of developments to be more in tandem with current realities of supply and demand?
Tomorrow: Iskandar’s foreign factor – strategic or speculative?
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