Property prices in Iskandar Malaysia hold steady in a mixed market

Property prices in Iskandar Malaysia are holding steady, according to data from KGV International Property Consultants, a property valuation firm based in Johor Baru. This is in line with data from the Malaysian National Property Information Centre and Valuation and Property Services Department, where the housing price index for Johor has remained flattish for the past year.

For residential property, it is currently operating in a two-tier market. The luxury high-rise segment is struggling and this is the segment that primarily targets Singaporeans and Malaysians working in Singapore. On the other hand, the mass market segment is seeing robust transaction activity with price increases seen in some areas. Young Malaysians are seeking to get onto the property ladder and with a young median age in Malaysia, the demand for mass market homes is strong. Affordability, however, means that many locals can only afford to purchase homes in the RM500,000 ($163,321) to RM600,000 price range. This does not overlap the luxury high-rise segment, which is now suffering and with which the Singapore public and media tend to be more familiar. Transaction data in 1H2014 shows that only 17% of property transactions in Johor were at values above RM500,000, which is significant but not representative of the entire market.

Moving forward, the property market will be encouraged by population growth, driven by continued business investments and job creation. Iskandar Malaysia’s population has grown to an estimated 1.6 million to 1.8 million in 2015 from 1.3 million in 2010. Recently, Johor has seen an influx of multinationals expanding or relocating here, owing to the ease of doing business, weaker ringgit and proximity to Singapore. Many Singapore-based MNCs, unable to expand because of the high cost and lack of options in the city state, are looking at the next best thing, which is an expansion of operations in nearby Iskandar Malaysia. Examples include Microsoft announcing that it will develop a data centre in Sedenak, Coca-Cola relocating from Tuas to Iskandar Malaysia and China’s Alibaba reportedly looking to start a logistics hub in Johor. Fuji Oil Asia announced in September that it will build a food products plant in Iskandar Malaysia to support its long-time client, chocolate maker Hershey’s. The plant will be operational in 2016. Eternal Materials Co, a Taiwanese synthetic polymers manufacturer, will be setting up a new manufacturing facility to be operational by 2017. Italy’s Unigra announced in October that it will open a food oils and fats production facility in Johor. There have also been various announcements by Korean, Chinese, Russian, US and Japanese MNCs to set up their facilities in Johor. We expect 1Q2016 to be a busy period as Ascendas’ Nusajaya Tech Park opens its doors and some 20 manufacturers start their operations there.

The slowdown in property prices in 2015 compared with the boom year of 2013 (transactions in 1H2015 fell 14.6% in volume and 31.5% in value compared with 1H2014) is attributed to the plethora of choices that have now come onto market. Buyers today are spoilt for choice, whether in the primary or secondary market. Property developers have become more creative in their marketing activities and more discounts are on offer. Various activities and events are happening every weekend across Johor Baru, enticing buyers to come over and see what is on offer. Despite the slowdown, it is important to remember that many developers are still flush with cash from the earlier boom years and the risk of non-completion is low, considering that many developers in Malaysia today are in a much better financial position, with relatively low gearing and foreign debt, unlike during the 1997 Asian financial crisis.

With high employment rates in Malaysia and Singapore, large-scale fire sales are not expected at this point. Even in the higher-end segment, many property owners are Singapore dollar earners and have holding power. But with high household debt in Malaysia and Singapore, consumers’ ability to take on more property deals as investments is doubtful. Only demand from genuine homeowners will be constant and that is where you will see the mass market home segment perform in Malaysia. The residential property market will likely remain in this stagnant two-tier environment until there is a significant change in market conditions.

Optimists are looking forward to the upcoming high-speed rail and rapid transit system announcements in 2016 to drive up market sentiment. The sites for HSR in Singapore and Iskandar Malaysia have been identified, with Singapore’s Land Transport Authority and Malaysia’s Land Public Transport Commission showing progress in the construction planning. The start of the physical works by end-2016 will give the Iskandar Malaysia property market a big confidence boost.

Pessimists point to the weak global economy and political uncertainty in Malaysia as reasons to hold back. The high incoming residential supply (until 2018) in Singapore and Iskandar Malaysia also weigh upon any possibility of a quick recovery. Savvy investors may, however, consider the bad environment as the start of a bargain-hunting phase and prepare themselves to take positions.