• Iskandar Malaysia: Supply Fears Overblown

  • Iskandar Malaysia has received quite the media bashing recently, especially in Singapore, after it was highlighted in parliament that there were 142,567 “incoming” units and another 193,271 “planned” units in Johor in 4Q2014. This amounts to 335,838 units, which is equivalent to the existing private housing supply in Singapore. The data was provided by Malaysia’s National Property Information Center (NAPIC).

    This statement caused some alarm within the investor community as it created the impression that there was an oversupply of property in Iskandar. But before you jump to any conclusions, it is best to understand how the figures are defined and the differences between the Malaysian and Singapore systems.

    1. The figures quoted are for the entire Johor state.

    The 335,838 figure quoted is for the entire state of Johor. Iskandar is only a subset within the state and should account for about two-thirds of the figure.

    2. Definition of “incoming” and “planned” supply are different compared to Singapore’s.

    “Incoming” is defined as any property project that has been approved by the local authorities. “Planned” supply refers to projects that are in submission with no approvals given yet and hence, have no timeframes to build. Approved projects need not necessarily have started construction and typically, approvals have a two-year validity period in which, if no construction has begun, the developer will have to seek re-approval. An approved project that does not receive good response from the market can always be deferred or amended (new approvals will be required in this case). Hence out of the 142,567 units defined as “incoming” in Johor state, the actual figure that has started construction on the ground is much lower.

    3. Malaysian developments look at land cost differently from their Singapore equivalents.

    Land cost as a component of the overall property project cost is lower in Malaysia compared with  a similar project in Singapore. As such, a real estate developer in Malaysia can afford to hold on to the land for a longer time and choose not to build if it does not receive a good market response. It will incur no penalties involved from the authorities. Many developments are also the result of a joint venture between the land owner and the developer; hence, the land carries a low holding cost or none at all. This is unlike the Singapore market, where land availability is dominated by Government Land Sales and it is uneconomical for developers to hold the land over a longer time frame as they will incur Additional Buyer’s Stamp Duty for unsold units and Qualifying Certificate penalties for developers with foreign directors. It was reported recently by Cushman & Wakefield that such extension penalties for Singapore developers may be up to $90 million for the rest of 2015 and another $238 million in 2016.

    As such, when land is sold in Singapore and approved for construction, it is almost a certainty that it will be built as developers cannot afford to wai. This is unlike Malaysia, where townships can be built over 10-15 years with construction timed to the strength of demand instead of solely on when approvals are granted. Hence NAPIC’s incoming and planned supply numbers should be looked at within this context. We also need to understand that Malaysian developers have more flexibility in choosing when to start building.

    4. “Incoming” and “Planned” supply numbers are cumulative and spread over many years.

    The “Incoming” and “Planned” numbers are cumulative, which means they consist of all the projects in various stages whether already under construction, having started a few years ago or even still on the drawing board. So while these figures can be used as a gauge of building momentum, it is not accurate to quote the 335,838 figure as a confirmed incoming property supply. And even if one were to make that assumption, it will be spread over a long timeframe of five years or more. This is unlike Singapore, where URA and HDB only make available detailed housing site plans for the next  1 year.

    5. The supply is for both private and public housing, so a right comparison should be made.

    Reference is made that the upcoming 335,838 upcoming supply in Johor is equivalent to the Singapore existing private housing supply.  The private housing supply in Singapore is only about 20% of the entire Singapore housing stock and that if you include public HDB housing, it’s total housing stock is much larger, at 1.2 million units and this serves a population of 5.3 million (4.4 people per home).

    Johor state has a similar ratio where there is a total of 720,000 existing homes serving a 3 million population (4.16 people per home). These figures for Johor are inclusive of all home types be they landed, high rise or low-cost homes, public and private. In Malaysia, private housing makes up the vast majority and this serves all levels of the population. Public housing in Malaysia is quite minimal, unlike Singapore. So in comparing housing supply, it should be the sum of both public and private to make an accurate comparison and you can see here with a correct comparison, the population/supply ratios in Johor and Singapore are actually quite similar.

    6. The majority of properties being built are meant for the local Johorians.

    Malaysian regulations only allow Singaporeans to purchase properties that are valued at RM 1 million ($367,500) and above (prior to 1st May 2014, it was RM500,000 and above; and the Medini zone is exempted). The 335,838 incoming supply in Johor consists of homes that are in ALL price categories. Based on NAPIC’s transaction figures, homes above the RM500,000 range would generally be in the 75th percentile or higher for all property transactions conducted in Johor. This indicates that the majority of properties that are being built in Iskandar Malaysia are meant for the local population, and that the supply meant for foreign purchasers is not as large as suggested.

    With that we hope this article clarifies some of the misperceptions that the public may have with regard to the Iskandar Malaysia housing situation. It is true that incoming supply in Iskandar has increased in the recent years but that is to be expected with a booming local economy, rising investments and higher local incomes. Seeing the higher incoming supply as a potential problem is a “glass half empty” perception; others would argue that it points to a growing population and confidence in the economy (a “glass half full” scenario). The Chinese developers could be right after all, that once the High Speed Rail and Rapid Transit System are completed, we could see a population boom that outstrips all the current supply that we see today.

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