Hi everyone
I am writing this post after a long time. Whew!!! My last post was in 2019 and it goes to say that 2020 was a big unconventional year that nobody expected to happen in the way that it did. 2020 was also the year my firstborn son came into my life so it was eventful for me personally as well and so I guess this website and my mailing list was somewhat neglected in 2020.
Ok so let me get into the gist of the matter – how is Iskandar Malaysia and specifically its property market doing during the Covid-19 pandemic?
Border closures and length of the pandemic so far has had a significant impact to the Iskandar economy. There are no official statistics on this for Johor and almost every country in the world saw a GDP contraction in 2020 but my gut feel is that Iskandar was hit harder than most. Why do I say this? Well Iskandar (Johor Bahru) is a border city that derives a significant part of its economy from foreign spending, be it Singaporeans, Koreans or Malaysians working in Singapore. Once you close the borders, this flow of money basically trickles down and that has a big negative impact. Tourism related industries are the hardest hit like hotels, tour companies, theme parks like Legoland, shopping malls that cater to tourists like City Square, and Airbnb operators. This also hits F&B, recreational businesses like KTV, massage centers, beauty services – all of which are very popular with the weekend Singapore tourist.
Second – a high number of businesses in Iskandar are SMEs, unlike Singapore or KL that has more multinationals (being regional hubs/ capital cities). So in an economic downturn, SMEs especially smaller ones have less cash reserves to survive and are more likely to die out, especially since this pandemic has now dragged into the 2nd year. Big multinationals have bigger balances sheets, access to capital markets and are more able to survive during this period. So you will see SMEs lay off workers and close down (permanently or temporarily) and Iskandar is an SME heavy economy.
So how does this affect the property market? The first casualty is rentals. Rental rates have dropped alot since the number of long term foreign tenants have fallen significantly. Many foreign professional workers will hesitate to move to another country when there is a global pandemic going on. Some will not go because they dont want to endanger their families. Border restrictions and quarantine requirements means very few people are willing to relocate during this period. And the situation is further compounded by the units that previously were running on Airbnb/short-term rentals also return into the long-term rental market since they can’t get short term stays, further increasing supply. Some offers are from local tenants, who are bargaining to lower already very low rates. Currently a poor quality studio apartment in Tebrau rents for the same rate as a high end studio in upscale Puteri Harbour. There is no premium.
So how about selling prices? So if we just look at the high end condominium market, a number of developers are still holding on to unsold stock. Most of these developers are sitting on between 10-30% unsold stock, which means they already break even on construction, but their profit is still sitting in these unsold real estate. So some of them have slashed prices some 20%-40% and you can get good stuff now between RM600-900psf depending on project. This is a historical low. This is also the reason why many individuals who bought high end high-rise in Iskandar are not able to sell because the developer still has unsold stock and is under-cutting them. So people ask me, will it drop further? Well if you wait for lelong (auction) units, you may get as low as RM4xxpsf or RM5xxpsf in but you will be limited in choice and auction units always come with hidden costs so they may not be as cheap as you think in the end. There are some auctions going on and it should increase in 2021, and we see buying activity now at RM4xx-5xx psf on auctions because below that is below construction cost. You can’t build the same building for below RM4xx-5xx psf nowadays. So its quite logical to see auction units selling at this rate right now. But my general advice is it is a buyer’s market, and if you are interested to buy this category, it is pretty rock bottom now and deals aplenty.
For landed property, its a different picture somewhat. After some years of observation, I can safely say that local Johoreans are more comfortable to buy landed property and very less inclined on high rise, especially for own stay. This is unlike Singapore/KL/Penang where buying high rise is more acceptable, I guess due to a combination of some or all of these factors – lack of land, MRT, traffic jams, need to reduce travel time to work in these other cities. Many Singapore owners who bought landed property in Iskandar have been able to sell (maybe at a loss sometimes), and thus exit such investments. Also entry level landed properties which are basically double storey terraces (now selling from RM400k-800k depending on size and location) have still been selling well and you can see the trend of property developers moving back to these bread and butter properties that locals buy.
So is there any good news? The first good news is that there is very little new construction going on. Most of the new builds are in the double storey terrace category for local buyers. For the high end high rise market, almost zero new launches. Even Forest City has stopped launching any new phases of apartments. So at least we know there is no new supply, we just have to absorb the existing ones which is doable. We saw good steady uptake prior to Covid-19 and the upcoming RTS (MRT to Singapore) will help further which is the next piece of good news.
The long-awaited RTS (Rapid Transit System) linking Singapore’s Woodlands and JB City Center has started construction on both sides. Tenders have been awarded and if you can visit both locations, you can see construction works have started. Completion is by 2026 but I believe once the border opens and people can see the actual works in place, confidence will return. RTS will add alot of visitorship and travel between Singapore and Johor Bahru and that can only help the property market. So what is my opinion on the cancellation of the HSR (high speed rail)? It is a lost opportunity, and something I blame squarely on the current Perikatan Nasional (PN) government. Extremely short sighted to cancel it. It may come back after a new general elections happens, but too early to speculate on it now. But the RTS will help Iskandar Putri regardless since it is only a 30min travel time from Iskandar Putri to JB city center.
The final piece of good news is that entering Q2 2021, I think we can see the light at the end of the horizon of this Covid-19 pandemic. With vaccines being rolled out across the world including Singapore and Malaysia, it is realistic to expect end 2021/ early 2022 to see some cross border travel again. I believe there is alot of pent up demand for tourism, and Malaysia is likely one of the early countries that Singapore will open travel to.
So my final message is to be cautiously optimistic, Iskandar Malaysia has had a challenging period since end 2014. The years 2020 and 2021 will be its most challenging 2 years to date. Few would have predicted a global pandemic and a property downcycle this long but its hard to see further downside from here. With vaccine and border reopening in 2022, it can only recover. Interest rates in Malaysia are also at an all time low and with so much liquidity in the global markets, it is only a matter of time before some of it comes back into real estate. The life-saver for Iskandar property may in the end be the most unlikely reason – inflation due to global liquidity.
In fact one of the biggest mantras in real estate investment is to buy during the downcycle. I know many people will not listen to me for saying this, but there are really some good deals out here or will be appearing soon. It is time to start looking and if you are interested, you should contact me privately and we can see what is suitable. I did talk about it in my Youtube videos about how people tend to buy on the upcycle when prices are going up and not buy on a downcycle when prices are low. But… thats called herd mentality and its difficult for people to break from that. So anyhow that is my update on Iskandar Malaysia and hope you enjoy reading it.
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Alpha Marketing Youtube https://www.youtube.com/channel/UC1oTKNY5cDOrkWdroPrmexg
