Renewed interest in Johor Bahru homes reduces residential overhang

/ EdgeProp Singapore |

November 24, 2023 10:00 AM SGT

In 1H2023, unsold residential units in Johor amounted to 4,717 units with a total value of RM4 billion (Photo: Bloomberg)

In Malaysia, Johor continues to hold the title for having the highest overhang, in terms of unsold units, in both the residential and commercial sectors. In 1H2023, unsold residential units in Johor amounted to 4,717 units with a total value of RM4 billion ($1.1 billion). It represents 17.9% and 21.8% of the unsold residential inventory nationwide in unit and value terms respectively, based on figures from Malaysia’s National Property Information Centre.

However, there has been an improvement in Johor’s residential sector, with unsold units decreasing by 10.3% y-o-y in 1H2023 to 5,258 units, notes Zerin Properties in its 1H2023 report. The number of units under the “unsold under construction” and “unsold not constructed” categories also saw reductions of 12.2% and 72.1% y-o-y, resulting in 4,453 units and 202 units, respectively.

Unsold units in the serviced apartment/Soho segment likewise declined in 1H2023. The overhang contracted 8.55% y-o-y to a total of 14,463 units, while the “unsold under construction” and “unsold not constructed” categories shrank 21% and 25.8% y-o-y, to 5,939 units and 1,129 units, respectively.

Previn Singhe, founder and group CEO of Zerin Properties, attributes the decrease in residential overhang in Johor to fewer launches. He says property developers have focused more on clearing their unsold inventory by offering attractive rebates.

Supply and demand

Another factor is the renewed interest in the Johor Bahru residential market with the return of Malaysians working in Singapore, contributing to increased property transactions, notes Singhe.

In 1H2023, a total of 6,363 residential units (excluding serviced apartments) were launched, compared to 8,198 units launched in 2H2022. Of the 6,363 units launched, 3,727 or 58.5% were in the Johor Bahru district.

As of 3Q2023, the future supply of residential properties (excluding serviced apartments) in Johor Bahru district amounted to 19,474 units. Landed properties made up 64.3% of the incoming supply, of which terraced houses accounted for 48%.

Similarly, terraced houses made up a significant proportion of planned and “new planned” supply. They constituted 47% of the 21,046 units in the planned supply segment and 52% of the 2,089 units in the “new planned” supply.

The projected supply of serviced apartments in Johor Bahru, as of 3Q2023, amounted to 20,850 units (in terms of incoming supply segment) and 25,446 units (planned supply segment).

However, Singhe believes the residential overhang could be mitigated as demand improves. Factors that attract Singapore residents to Johor include cost-of-living considerations, especially with the favourable Singapore dollar-Malaysian ringgit exchange rate.

Singapore’s hike in additional buyer’s stamp duty and high residential rental rates could drive more people to consider moving across the causeway, Singhe reckons, especially with the impending Johor Bahru-Singapore Rapid Transit System Link scheduled to commence operations in early 2027.

Singhe anticipates that the Johor-Singapore Special Economic Zone and the designation of Forest City as a Special Financial Zone will “positively impact the residential sector in Johor Bahru”.

The improved transportation connectivity, optimistic economic prospects linked to the two special economic zones, and the escalating rents and prices in Singapore position Johor Bahru as an attractive destination for investors and home buyers, says Singhe.

Forest City and Country Garden

However, over at the 1,370-ha mega project, Forest City, in the Iskandar Special Economic Zone in South Johor, many homeowners remain worried about the financing troubles faced by the Hong Kong-listed Chinese developer, Country Garden Holdings. Country Garden is also the developer of the completed 8,500-unit Country Garden Danga Bay and the 53.7-acre (around 21.7ha) Central Park integrated project in Johor Bahru, which is still under construction.

“Property owners of these developments and agents in Johor are worried that Country Garden’s financial challenges may impact the completion of its ongoing projects,” says Singhe.

The uncertainty surrounding Country Garden has resulted in a significant decline in interest in its developments. “The more cautious market sentiment is affecting demand and property values,” he observes.

Country Garden’s financial challenges “necessitate vital support from the Malaysian government for the success of its projects”, adds Singhe.

The designation of Forest City as a Special Financial Zone and the creation of the Johor-Singapore Special Economic Zone offer incentives such as favourable tax breaks and streamlined visa access, he says. “These measures aim to attract expatriates from across the causeway seeking refuge from high living costs and property prices in other regions.”

On Nov 22, Bloomberg reported that the debt-laden Country Garden has been included on a Chinese government draft list of 50 developers eligible for a range of financing support. Two days earlier, Chinese regulators said they would support the financing activities of property developers. This should inject some optimism into the property market.

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Johor