Issues Facing Properties in Iskandar Malaysia
As Singapore property prices rise, Iskandar Malaysia offers Singapore’s property hunters a cheaper alternative to their dream homes. Despite the hype of developments such as the Legoland amusement park, Johor Premium Outlets and the upcoming Motorsports City, there have been an increasing undercurrent of security issues and concerns regarding the long term prospects of investing in Iskandar properties.
The key cause for concern stems from a lack of comprehensive data on Iskandar. The absence of information from a central and reliable source prevents investors, from accurately assessing the investment potential and health of Iskandar’s property market.
Furthermore, a disproportionate amount of investments have been directed towards property, rather than business development. A quarter of the 131.6 billion RM (approximately 49.89 billion SGD) of committed investments, which Iskandar attracted between 2006 and December 2013 went to residential development, surpassing the combined total of all the other sectors aside from manufacturing and government-linked projects. The question remains as to whether there will be an adequate rental demand, from incoming workers to fill up the tens of thousands of homes being built in Iskandar.
While specific property data may be unavailable, hints of a supply glut can be gleaned from other sources. Malaysia’s National Property Information Centre reported that in the fourth quarter of 2013, there were 118,191 homes under construction in Johor and another 168,371 being planned. Those figures will result in an astounding 40% increase in the number of properties on top of the current 702,101 homes currently in the State. It is quite a stretch to accept that Johor’s population will skyrocket by another 40% in the next few years.
The arrival of property developers from China has played a major role in exacerbating the oversupply problem. In 2013, property developers from Country Garden Holdings launched 9,000 units simultaneously in Danga Bay. R&F Properties’ Princess Cover project will include 3,000 apartments in 15 blocks in Phase 1 of its 2017 launch. Malaysia’s The Star reported that the developer could eventually launch as many as 30,000 units – leading to a growing concern that the overzealous development of properties in Iskandar, could result in a similar “ghost town” fate – evident in Ordos, China.
As if oversupply and a dearth of information were not sufficient to give investors the jitters, changing government policies in recent months have been increasingly unfavourable for those seeking to invest in properties.
Malaysia’s Budget 2014 significantly curbed property speculation by implementing a 2% tax on foreign property purchases, introducing a Real Property Gains Tax for properties sold within three to five years, scrapping the Developers Interest Bearing Scheme and permitting foreign investors to only purchase properties priced at least RM 1 million (approx. S$379000). Unfortunately that may not be the end, as there have been calls by the Home Buyers Association of Malaysia and Sultan of Johor, to further impose a price floor of RM 2 million on foreign landed property purchases in the future.
In 2015, the cost of having a property in Malaysia will continue to rise as the implementation of a 6 percent Goods and Services Tax will be in effect next April. Just last week, Malaysia confirmed that it will be imposing an addditional RM20 Vehicle Entry Permit (VEP) fee on foreign-registered vehicles entering the country around the middle of 2015. Malaysia’s new VEP fees along with the current charges, would see Singaporean drivers having to pay more than S$20 for a round trip to Johor. In addition, the overall end costs are expected to climb even higher if Singapore decides to match the VEP imposed by the Malaysian authorities.
Proponents for Iskandar are hopeful that the High Speed Rail (HSR) set to be completed in 2020, will be a major incentive for investors, but they may be only partially right. It is debatable that while traffic to Iskandar may indeed increase, the ease of commute from Singapore will likewise reduce the need and interest to have a home there. Additionally, the HSR will offer greater accessibility to Kuala Lumpur, allowing the city which is viewed as a rival to Iskandar – to retain its appeal of being Malaysia’s preeminent financial and business hub.
Back in Singapore, the prohibitive prices of properties have been a primary driver for the interest in Iskandar’s properties. However, the recent slew of government initiatives (ABSD, TDSR etc…) have led to a significant cooling of the local property market. The subsequent news of gradual falling prices have resulted in a lessening demand for Iskandar properties as investors adopt a wait-and-see approach. Meanwhile, investment in Singapore properties becomes a more attractive option.
There is an argument that given the gargantuan scale of Iskandar Malaysia and the vast investments poured into it, will it be a case of too big to fail? However, past track records have shown that it is not necessarily true. Previous mega projects such as Putrajaya and Cyberjaya may have been completed, but both fell far short of their initial ambitions. Putrajaya, a planned administrative city that was once meant to eclipse Kuala Lumpur, is today: an empty city filled with barely 70,000 government workers. Likewise, Cyberjaya once touted to be the “Silicon Valley of the East” is now just a modest tech hub, without most of the key tech giants that were once on its planning board.
While Iskandar Malaysia may eventually become a desirable site for businesses simply due to space constraints in Singapore, the same cannot be said for property investment. Investors need to be very mindful of the myriad risks and challenges present in Iskandar properties. Like any investment, caveat emptor is the golden rule.