When Iskandar Malaysia was introduced in 2006, the initial reception in Singapore was met with some scepticism due to the long under-performance of the Johor economy and at the time, there was little progress on the ground to speak of. Fast forward 6 years later in 2012, Iskandar Malaysia experienced its first boom and its first real transition into the limelight.
The opening of the Coastal Highway and Eastern Dispersal Link showcased the brand new road infrastructure where previously only palm oil plantations and secondary forests existed. 2 major theme parks were opened – the world famous Legoland as well as the Puteri Harbour Family Theme Park, well known for its Hello Kitty characters. The education hub Educity kickstarted with Newcastle University, University of Southampton and Marlborough College all starting operations that year. When the Singapore and Malaysian governments jointly announced plans to build a High Speed Rail linking Singapore, Iskandar and Kuala Lumpur, that was a tipping point that caused a massive rush of interest into Iskandar Malaysia. Many property projects reported strong sales reflecting strong retail demand and property developers both local and foreign entered the scene, grabbing prime land plots throughout the economic zone.
The year 2014 however was an “annus horribilis” by comparison. Malaysia finally introduced a slew of property cooling measures where the minimum purchase price for foreigners was doubled to RM1million from the previous RM500,000. The foreign levy for foreigners was raised to 2% of the purchase price from the previous flat fee of RM10,000. Bank financing tightened as Bank Negara introduced new policies for bank lending and the popular interest absorption scheme was banned for all developers. Foreigners today enjoy financing in the range of 60-80% , lower compared to the 80-90% that was possible several years ago and lending requirements are much stricter.
Market sentiment was further affected by the increase in toll fees at the Causeway in an almost tit-for-tat kind of reaction between both countries. By the time the damage was done, Causeway users would see a 5 fold increase in toll fees for using the Causeway. The Malaysian government also has plans to introduce its own Vehicle Entry Permit (VEP) fee in August 2015, possibly introducing another round of fee hikes later this year.
But perhaps the most damaging of all has been the “property oversupply” perception that permeates investors beliefs. And blame for this has been attributed to 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. Among those who have been seriously impacted are the 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 has also received much scrutiny in the media. Many Iskandar developers have delayed their launches due to the recent weak market response and several have gone back to the drawing board to re-plan their product propositions. In Malaysia and Singapore, where a project with over a 1,000 units would be considered large, some Iskandar developments have been building nothing less than 3,000 units per project with some media reporting as many as 20,000 units in a single project. And though millions have been spent on extensive marketing campaigns via television, radio and print ads, this may have actually done more harm than good as the artist impressions and perspectives showing thousands of units in the development only further reinforces the image of a large incoming supply of real estate.
Data from the Malaysian National Property Information Center (NAPIC) for 2014 has been most telling of the decline in Iskandar’s real estate market. Johor property prices have been weaker than other major states in Malaysia, with the House Price Index (HPI) contracting 1% quarter on quarter in contrast to the whole of Malaysia which dropped 0.2%, according to a recent report by Maybank Investment Bank. Property transactions in Johor have plummeted 33% quarter-on-quarter (Q4 2014), the biggest underperformer among major states in Malaysia, according to the same research report. Approved incoming supply within Iskandar Malaysia has also touched new highs at more than 100,000 units as of Q4 2014 putting further pressure on property prices and rents. Anecdotal evidence have already pointed to falling asking prices both for resale and rents in Iskandar Malaysia and property developers have also adjusted their pricing to suit the current market conditions after a difficult 2014 year.
The current difficult market situation has been further depressed by the various negative media reports across Singapore and Malaysia. All major newspapers and industry authorities have taken turns to pan the region. This is a total reverse of late 2012/ early 2013 when Iskandar Malaysia had been a media darling and that the only way to go was up. How much have fortunes changed. A recent H1 2015 consumer sentiment survey by a regional property portal highlighted that more than 70% of respondents were not considering to invest in Iskandar Malaysia, quite a depressing situation to be in.
Iskandar Malaysia’s property market is also affected by the negative property price trend in Singapore. Both the HDB and private property markets have seen at least five to six quarters of price declines and with Singapore being the largest foreign investor in Iskandar Malaysia, this negative sentiment has also carried over to Iskandar. Singaporean investors are being more careful and cash is reserved for possible emergencies in their own home market where rentals and resale prices are dropping and mortgage rates are rising. This symbiotic relationship with Singapore is both Iskandar’s greatest strength and weakness, where in a booming Singapore market, Iskandar will thrive due to the spillover, but if Singapore slows down, the impact is also felt meaningfully in Iskandar. And with few signs to point to a recovery in the Singapore property market, Singapore buyers for Iskandar property will be limited for the time being.
Has Iskandar Malaysia hit rock bottom? Or is there more pain coming up in the pipeline? Naysayers will point out that storms are gathering over the horizon and Iskandar Malaysia’s property market has several more difficult years to go through. But there is an alternative, more positive view that suggest that the market is just going through a temporary down cycle, and that end 2015 promises to showcase a booming, proggresive emerging economy ready to burst into the phase of growth. We discuss this further in next week’s article.