I recently was blessed to have breakfast with a Hong Kong property agent who had been marketing Malaysian real estate in Hong Kong & China for the past 10 years. He had started off with Penang back in 2007, plying the tourist hotspots of Batu Ferringhi and then moved his way south to the capital city of Kuala Lumpur where projects in KLCC and Mont Kiara were popular. Most recently though, he has been active in Iskandar Malaysia and today spends every other month here in Johor Bahru, leading mainland Chinese and Hong Kong buyers and from what I could see, was very successful in getting these buyers to invest into Iskandar Malaysia’s property market.
Given his strong understanding of the Hong Kong and Chinese buyers, I took the opportunity to pick his mind on the popular questions that are on everyone’s mind whenever we talk about Iskandar Malaysia.
Why do Hong Kongers or Chinese invest in Iskandar Malaysia?
Shenzhen’s wild economic success (and surging property prices) as a hinterland to Hong Kong are an easy comparison to the Iskandar – Singapore story. For Hong Kongers and Chinese, it is easy to relate Iskandar Malaysia to a Shenzhen 20 years ago. And he makes the effort to compare living costs and costs of doing business in both countries to prove the point.
The upside potential comes from closer integration that is inevitable once the High Speed Rail and Rapid Transit System are completed in the years to come.
Are there any key differences between Shenzhen and Iskandar today?
The first point he highlights is the bad traffic between Iskandar and Singapore. In comparison, today there are 5 immigration points between Hong Kong and Shenzhen in which you can drive your car to the other side, and the traffic there are not as bad as the Iskandar – Singapore border. So to him it is not only the High Speed Rail and Rapid Transit System, there should be a 3rd link bridge as well between Singapore and Iskandar. In his opinion, the cross border vehicular traffic today more than justifies it. He also highlighted how important Hong Kong – Shenzhen’s MRT helps to move people for business and work and the fact that there will soon be a High Speed Rail from Guangzhou directly going into Hong Kong, that will further integrate China’s economy with Hong Kong’s.
The second point he highlights is the shortage of quality hotels in Iskandar. He highlighted all the different hotels he has stayed in Johor Bahru, and only a handful meeting his guest’s standards. And how the quality of hotels is describes how Johor Bahru is still under-developed compared to Shenzhen, which has a large variety of services and goods today. He regularly takes queries from his buyers on what it is like to set up a business in Malaysia, and in fact had a later appointment in the day to bring a potential foreign tenant to rent a retail shoplot in Johor Bahru.
Are they concerned about a property oversupply in Iskandar?
Buyers from mainland China or Hong Kong who have the ability to invest in property overseas, typically do so with cash they could afford to lose. Investing in Malaysia is attractive due to the low overall price quantum and freehold status, which gives them a lot of comfort in case capital appreciation requires a longer time frame. The buyers often buy cash or with minimal financing (usually 50% margin), and hence their holding power is much better and they can accept lower rental yields. It is common today in China or Hong Kong to buy property with cash or 50-60% financing (compared to Malaysia’s 90% and Singapore’s 80% margins).
Such buyers also typically are not able to ascertain whether there is an oversupply or not due to their limited understanding of the market. Hence they are advised to take a longer investment horizon, and re-assess their investments once the connectivity to Singapore improves and there is more economic spillover.
Many of the buyers have also made money by investing with these same Chinese developers during China’s property boom years in the 90s and early 2000s. And with increasingly expensive property prices back in China and Hong Kong, even the casual middle income earners can be convinced why investing overseas is a viable idea, especially with a trusted developer brand name.
Why do Chinese buyers tend to buy Chinese developer projects? Are these projects not too high density?
Property projects such as Country Garden’s Danga Bay and Forest City, while may seem high density to Singaporean and Malaysians, are in fact considered “normal” to Hong Kongers and Chinese who are accustomed to much higher densities in their local property projects. Coupled with clean, unpolluted airs, sea and water views, integrated commercial malls, low prices and a familiar Chinese top tier branded developer, it is a safer bet to them versus Malaysian or Singaporean developers, who are relative unknowns to them.
Chinese developers in Iskandar Malaysia also regularly use large numbers of Chinese sales staff, and this helps to bridge the cultural gap to assist the buyers in understanding the Malaysian market, rules and regulations as well as other hand-holding services such as children’s education or applying for the Malaysian My Second Home program (MM2H).
Why don’t they invest in Australia or the UK instead?
They do. In fact a significant number have experience investing overseas in Western countries. Malaysia has also become an investment destination since regulations in Malaysia are quite foreigner friendly for property ownership.
Will these buyers live in Malaysia in the future?
Most buyers are primarily investors looking for a store of value and potential capital appreciation. It is still too early to make any clear decision on living in Malaysia especially when Iskandar Malaysia is still largely in development. But he has seen increasing numbers of Hong Kongers and mainland Chinese in Johor Bahru and primarily are here to take advantage of 1) affordable quality education for children through the private/ international schools, coupled with a better work-life balance for families, 2) business opportunities as Chinese companies expand into South East Asia.
Right now though, buyers like the idea of short term rental programs, where their properties are rented out on short term leases to achieve higher yields and yet offer the flexibility to owners to come spend a few days a year on holiday in Malaysia in their own property.
Iskandar Malaysia is definitely on its way to achieve one its goals of being an international city. The foreign population increase has been notice-able and it is not only Singaporeans, but Chinese, Hong Kongers, Japanese and Koreans who have made their presence felt across the city.