G
Property markets in both Malaysia and Singapore (some would say globally) have suffered challenging times recently. New sales and number of transactions have been sluggish and rental yields have fallen. The outlook remains uncertain at best. Iskandar Malaysia’s property market especially has been written off by many. The state of Johor records the highest number of unsold completed residential properties in Malaysia as of Q3 2018 and this paints a gloomy picture.
However there is a silver lining in every cloud and 2019 will be remembered as the beginning of the turning point for Iskandar Malaysia. These 10 trends will influence Iskandar Malaysia for 2019 and its immediate future.
No 1 – Supply Still Outstrips Demand
Since mid 2013, property supply has grown faster than demand in Iskandar Malaysia. This has resulted in a drop in rental yields and price weaknesses across the board. For the high end luxury segment that most Singaporeans are invested in, rental yields have dropped to as low as 2% p.a. and that is dismal since mortgage rates are about 4.4% or higher. Property supply will remain elevated for years and unsold inventory by developers are still high.
No 2 – New Supply Will Fall from 2019 Onwards
The good news for owners and investors is that new supply will fall from 2019 onwards. Most property projects throughout Johor Bahru City Center, Danga Bay, Medini, and Puteri Harbour will have completed by mid 2019. The majority of these were completed in 2017-2018 and this supply is still in the process of absorption today. Is there enough demand?
Iskandar Malaysia’s population growth and job creation activities remain strong. New manufacturing investments in Johor are the highest in Malaysia for the 6th year running and Johor’s GDP growth per capita is the highest in Malaysia. Population growth and job creation is strong. There is good reason to believe that supply-demand dynamics will turn in the owner’s favour some time down the road by 2021 or 2022.
No 3 – Expat Population from China, South Korea and Japan is Driving Growth
Something that has been less written about is the growing communities of expatriate populations from China, South Korea and Japan in Iskandar Malaysia. Key suburbs such as Mount Austin, Taman Molek, Bukit Indah, Nusa Bestari, and Puteri Harbour are seeing strong expatriate population growth from these Asian countries.
These expatriates are here to capitalize on the lower cost of living, clean environment, close proximity to Singapore and quality education choices through international schools for their children. Smart landlords and entrepreneurs will find ways to work with these communities and find win-win collaborations in both real estate and business.
No 4 – Value Add Your Properties to Get Better Results
In a competitive market, owners have to make their properties stand out to win the attention of tenants and buyers. For rentals, owners will have to fully furnish and do so creatively. And contrary to popular belief, furnishing a property with designer looking results can be done at an affordable cost. There are packages and solutions provided by interior designers that are both time and money saving to owners and will yield the rental results desired.
No 5 – Airbnb and Short Term Leasing Remains a Competitive Option
Short term rental operators have mushroomed across Iskandar Malaysia as per the growing popularity of Airbnb. Many owners chasing higher yields have turned to short term rentals as an option. Malaysia is the no 1 growth market in Asia for Airbnb in 2017 and 2018 and in fact Johor Bahru was the 6th fastest growing city globally for increase in Airbnb listings in 2017. The short term rental business is competitive but demand is no doubt strong especially with the growth in tourism in Iskandar Malaysia.
No 6 – Property Prices in Singapore Remain High and Price Differences to Iskandar Still Huge
Despite the Singapore government introducing new property cooling measures in July 2018, property prices in Singapore remain elevated in comparison to Iskandar Malaysia. Whether Singapore property prices will move higher or lower in 2019 remains to be seen but the price gap is still wide enough where Iskandar property prices will continue to look attractive. Due to the cooling measures and these uncertainties, Singaporean investors will continue exploring options overseas including Iskandar.
No 7 – Border Traffic is Ridiculously Bad which means the Iskandar Economy remains Good
The Malaysian and Singapore governments had one of their usual political spats in late 2018. This time it was about sea and air borders. Tempers flared and there was the usual threats to boycott Iskandar or Singapore by Singaporeans and Malaysians respectively. Despite this, border traffic during the year end holidays was ridiculously bad. Over one weekend, it took some cars over 6 hours to cross the border on a given day.
We can conclude that news and politics are usually louder than the actual realities on the ground. And the actual realities are that many people on both sides of the border do business with each other and travel between both countries and that keeps the Iskandar economy growing.
No 8 – Rapid Transit System (RTS) is a Go and We Await Good News in 2019
The new Malaysian government has agreed to continue the Rapid Transit System (RTS) project between Johor Bahru City Center and Woodlands in Singapore. We await good news in 2019 when the 2 governments continue their meetings. While other issues such as border control and water supply may take priority in government discussions, it is also likely we will see some progress on this project in 2019 as a bilateral agreement has been signed and this will be a confidence booster for Iskandar.
No 9 – There are Good Buys in the Property Market
As with any weak property market, value buys have appeared. Good deals can now be found in both the auction and resale markets across various categories of real estate. Relative to the construction cost of equivalent properties and considering the effects of inflation, there are many buys out there worth looking at. Given that new launches in the market have slowed considerably since 2014, such investments today may be worth a lot more in the future. Good investors buy when there is fear in the street.
No 10 – Politics is a Pain but Anwar Ibrahim as the Future PM is Good News for Iskandar
When Pakatan Harapan won the Malaysian general election in May 2018, much of Malaysia was in joy and relief. The mood down south in Singapore however was perhaps not as jubilant. The new Prime Minister Tun Dr Mahathir Mohamad has had a long difficult history with Singapore and by end 2018, relations between both countries have not improved.
For Singapore, it is perhaps important to note that Tun Mahathir indicated he will only helm the Prime Minister’s seat for 2 years and no longer. He may even give way in 2019 to his anointed successor Anwar Ibrahim, who is known to have a more conciliatory approach with Singapore and to the Johor state. This may mark a potential upturn in Malaysia – Singapore relations in 2019 onwards.
Iskandar’s Potential Upside Remains Huge and in Motion We must remember that end of the day, Iskandar is neighbours to Singapore with its 5.5mil population and a buying power 3 times more the average Malaysian. Any improvements in relations or connectivity to Singapore is a big plus for Iskandar Malaysia. Property prices in Iskandar remain a fraction of Singapore’s and oversupply concerns can be easily resolved once links are opened up and a new generation of leaders improve government to government relations. Add in a growing expatriate population and a strong local economy, there are many bright spots in Iskandar Malaysia for those who pay attention. As an investor with a 5 year investment timeframe, there is only one way property prices in Iskandar can go and that it up.
