Johor market turns cautious


Data from The Edge/KGV-Lambert Smith Hampton Johor Baru Housing Property Monitor for 3Q2011 shows that the price of most homes sampled registered little or no growth from the previous quarter.

KGV-Lambert director Samuel Tan,  when presenting The Edge/KGV-Lambert Smith Hampton Johor Baru Housing Property Monitor for 3Q2011, attributes the lack of growth to the market adopting a cautious stance. That followed the US government’s decision to raise the debt ceiling and cut future spending caused a bloodbath around the world.

“Investors will be monitoring the global economy. They will adopt a wait-and-see attitude and look for signs of the markets stabilising,” he says.

Housing prices remained unchanged from 2Q with notable exceptions being 2-storey terraced houses in Nusa Idaman (up 8.5% to RM380,000 q-o-q), 2-storey semi-detached homes/cluster homes in Taman Molek (up 10% to RM550,000), Taman Bukit Indah (up 7.7% to RM700,000) and Horizon Hills (up 9.3% to RM750,000 q-o-q).

The gross yields of some homes continued their downward trajectory as rents remain depressed across all the areas sampled in the monitor, despite some growth of values mentioned above.

Tan notes that the primary market was not hit hard by the negative news plaguing the global economy, with developers telling him that sales recovered in October.

He also points out that there have been examples of real estate price surges, such as a parcel that was auctioned off in 3Q at over four times its reserve price.

“It was reserved at RM906,048 based on a valuation done in Dec 2009 but was sold at an auction for RM4.06 million on July 26. It did not have any development order but due to the Southern Link, the development potential was realised,” he says.

He did not disclose the tenure or size of the parcel.

Tan, however, believes that housing prices will see further growth in the next two to three years, based on five factors.

“There’s the Iskandar factor and the Singapore factor, where Singaporeans or Malaysians working there will want to buy properties in Johor.

“Then there is the cost factor, where higher construction costs will drive up prices. The fourth factor is the fear factor — that is, fear of higher prices in the future and missing out. This will compel people to buy and drive prices up.

“Lastly, there is the lifestyle factor. Five or six years ago, a 2-storey semidee in Johor Baru carrying a price tag of RM400,000 to RM500,000 was considered luxurious. Now, to qualify as luxurious, the home has to be priced at RM1.3 million to RM1.5 million. They [the homes] have improved in terms of design and quality, getting closer to what you can find in Kuala Lumpur and the big cities. Features imported by the big players from Kuala Lumpur are gated and guarded homes, landscaped townships and thematic housing. We have seen homes with these qualities coming up in the past few years,” he says.

Cooling measures not helping market
The Budget 2012 announcement to set the real property gains tax (RPGT) at 10% on disposal for the first two years and 5% for the following period up to five years does not bode well for the market as it will only cool an already tepid secondary residential market in Johor, says Tan.

“We need some specu-investments — a combination of speculative buying and actual investments — to drive the market because we have been in a lull for the past 10 to 15 years. We are not a mature market yet,” he says.

This comes on the back of the 70% cap on the loan-to-value ratio for purchases of third homes and above announced earlier this year that has also affected market sentiment, says Tan.

However, the RPGT and use of net income as a yardstick is not the only cause for concern. Tan notes that the decision to raise the loan limits for first-time homebuyers to RM400,000 from RM220,000 may cause developers to jack up their prices.

Courting more investments from North Asia
Investments in Iskandar Malaysia reportedly reached RM77.82 billion in September 2011, with 60% or RM46.63 billion of that from domestic investments. To further support that growth, Tan opines that it is time to pursue investors from North Asia, aside from the Middle East and Europe, given the robust economies of the countries in the region.

“North Asia was neglected. In the past global financial crisis, it was one area that was least affected by the crisis. There is an instant opportunity there,” he says.

“We are in the first leg of discovery by them. Surprisingly, investors there don’t know much about Iskandar Malaysia.”

While KGV-Lambert is not involved in transactions involving Chinese nationals and data tracking their transactions is unavailable, Tan observes that there is a small but slowly growing number of Chinese nationals enquiring about the properties here.

“In China, property is so expensive. They are currently looking at holiday homes as they have kids studying in Singapore. It would help if the connectivity between both our countries is improved.”

Getting a boost from newly-opened highway links
The southern state’s Iskandar Coastal Highway linking Danga Bay to Nusajaya was recently completed, and access to the highway has been improved. “Travelling will now be a breeze,” says Tan.

He expects a number of areas to pick up, namely Bukit Indah, Taman Perling, Sutra Utama and Skudai.

Other areas that are poised to grow include the eastern part of Iskandar’s fringes along the Senai-Desaru Highway as well as the western part of the economic corridor’s outskirts, especially along the Skudai-Pontian Highway.

“Unlike other economic corridors, Iskandar has an element of hope because of the infrastructure developments coming up,” Tan points out.

Some noteworthy developments include the highly anticipated high-speed rail that will link Singapore to Johor Baru and Kuala Lumpur.

“If these three places come together, they will integrate our economy. Imagine the combined population of the three economies that can be tapped into — Singapore’s nine million people, Johor’s three million and Greater KL’s seven million all combined.

“It will be also finally viable to stay in Johor and work in Singapore or Kuala Lumpur,” he adds.

On Johor’s outlook, Tan says there are expectations of moderate GDP growth — the government expects 5% whereas most economists and observers expect 4% — will prompt the market to take a more cautious stance.

This will see developers going into middle-cost homes that are naturally further away from the city centre, in areas that fall under what Tan calls the “Greater Tebrau” area.

“As a developer, you cannot ride on the boom and the music must go on. Socially, it is also a healthy thing, and the needs of first-time home owners must be considered,” he says.

Future trends
There will be more launches of serviced apartments and studio apartments in the Johor Baru city centre within the next 12 months, he adds.

Some examples include Dijaya’s Tropicana Danga Bay development, which will feature almost 800 serviced apartments, and the group’s Tropicana Danga Cove mixed-use development, which will feature SoHos.

But, is the market there ready for such products? “Developers will want to capitalise on the concept of city living. They [the units] are priced at around RM500 to RM600 psf, but they are still affordable at about RM300,000 for 500 sq ft per unit. These will be good for dinkies (double-income, no kids).

“Some of the developers are targeting foreigners to take up these units as they can live here while working in Singapore, but there is a limit to how much they can buy [as foreigners can only buy properties that are priced at RM500,000 and above],” Tan explains.

For this concept to work, the high-speed rail is a necessary development, he adds.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 883, Nov 7-13, 2011