Data from Malaysia’s National Property Information Center for the first quarter of 2016 has reaffirmed that property prices are coming under pressure and trending downwards.
The weak economic performance of both Malaysia and Singapore have filtered down into property market, with transaction volume in 2015 lower by 11% compared to 2014. Singapore flirted with technical recession in the 2nd half of 2015 and Malaysia has revised downwards its projected GDP growth for 2016 to 4% p.a. instead of the expected 4.5%-5% p.a. range, reflecting the weak conditions of their respective economies.
Market sentiment towards Malaysia has also been poor with a prolonged drop of oil prices since late 2014 and political uncertainty, both of which have led to a weaker Ringgit. The demand in Singapore for overseas property investments shifted to safe havens such as the United Kingdom, Japan and Australia or the more exotic, potentially higher return destinations of Cambodia and Vietnam.
Iskandar Malaysia’s property market is heavily influenced by Singapore’s own domestic property market as the 2 economies are closely intertwined and buyers make purchase or rental decisions based on comparisons between both cities. As Singapore property prices have fallen 9% from the peak in mid 2013 and rental rates are dropping, prospective buyers and tenants of Iskandar Malaysia may re-consider their options and stay put in Singapore, especially in these times of economic uncertainty and if they are risk averse. Iskandar Malaysia’s property prices will only see a sustained pick up once Singapore’s own property market supply – demand fundamentals recover, which only seems possible from 2018.
Long Term Catalysts for Iskandar Are Still Intact
While the news may be bad in the short term, we remain heartened by the fact that longer term trends for Iskandar Malaysia are still sound.
The first is the Singapore government’s commitment to transform the Singapore economy into one that is less labour reliant, with increased productivity and more internationalization, and not just be constrained by geographical borders. This bodes well for Iskandar Malaysia which is the closest significant land mass to Singapore and has a large, culturally compatible work force and lower labour, space, utilities cost, and is also a relatively easy place to do business. As the re-structuring of Singapore businesses continue, Iskandar Malaysia will continue to receive interest as a business destination, as shown by the 2013 to 2015 record levels of manufacturing investments coming into Johor.
While some Singapore businesses have raised concerns on the availability and cost of skilled labour in Iskandar Malaysia, it is important to note that Malaysia has a fairly open policy to hiring foreign skilled labour. This is an option for Singapore based companies who are struggling with foreign worker quotas in the city state. An employment pass to hire foreigners for technical, non-management positions requires a minimum of as low as RM3,500 per month. Iskandar Malaysia’s population has also been rising at an estimated 7% per year, faster than Kuala Lumpur or Singapore and reflecting the high inter-state migration from other parts of Malaysia to Johor Bahru.
Second is the aging Singapore population. Singapore’s median age is crossing 40 and the number of residents aged 65 and above will hit 900,000 by the year 2030. This is about a fifth of Singapore’s current population and is a big, almost irreversible macro trend for the city state. Demand for cheaper and quality healthcare services, secondary/ retirement homes, lower living expenses for retirement living, retirement income alternatives are all opportunities Iskandar Malaysia can tap. Your CPF nest egg for retirement will stretch many times more if you live and spend in Iskandar Malaysia, and you will still be close to Singapore where friends, family and other social ties are.
Third is the improved connectivity brought about by the High Speed Rail (HSR) and Rapid Transit System (RTS). Many have criticized the delays of both projects. They now seem to be ready only after 2020 but the Singapore and Malaysian governments have repeatedly re-affirmed their commitments to the projects. Substantial work has been done, even if it is only still in the planning stage.
Both the Jurong Country Club and the Sungai Besi military airbase, the station sites for the Singapore and Kuala Lumpur ends of the HSR, will be handed over in November 2016. Physical works are likely to start in 2017 at the earliest. The HSR and RTS will resolve the biggest challenge facing Iskandar Malaysia today, that is increased connectivity into Singapore. Judging by the uproar by Malaysian and Singaporean citizens whenever the current links jam up during the holidays and peak periods, the HSR and RTS will do quite well. They will also open up myriad business and living opportunities for Singaporeans and Malaysians that were once constrained by poor connectivity, cementing the future of Iskandar Malaysia.
Iskandar Malaysia is Still Maturing
Iskandar Malaysia is a still-maturing city in Malaysia, a still developing nation. It is unrealistic to expect that its growth will be smooth and that all problems will be resolved immediately. The property market is a good example of a sector that grew too fast and overheated, and will need time to re-adjust. But growth in Iskandar Malaysia is not just limited to the housing sector, the record manufacturing investment figures in 2013 till 2015 is a sign that the economy is not a one trick pony or a “has been”. There is still potential ahead as these investments translate into more jobs and new capacities, and savvy investors should still keep close tabs on this upcoming city which is ultimately a play off Singapore’s economic successes.