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More business needed around Malaysia-Singapore rapid transit line

Job creation will reinvigorate property scene Permas Jaya in Johor Malaysia. Yusoff Jalil/Shutterstock
Permas Jaya in Johor Malaysia. Yusoff Jalil/Shutterstock



While Singapore and Malaysia are set to be closer than ever through the construction of the Rapid Transit System (RTS), the areas around the line still lack new economic activity to foster a fast-growing real estate market.

“The RTS is very close to Bukit Chagar. Just within a kilometre of it we have got some malls, we have got some low density residential," Ku Swee Yong, CEO of International Property Advisor, told Channel News Asia. "We haven't heard of many business investments announcements, such as let’s say, manufacturers within 30 kilometres who are hiring many staff."

The new line will stretch from Bukit Chagar in Johor Bahru, Malaysia to the Woodlands North station on the Thomson-East Coast Line in Singapore. The RTS will cross the Straits of Johor via a bridge elevated 25 metres high above water level, the prime ministers of Singapore and Malaysia revealed in a joint news conference last week.

More: Iskandar Malaysia is not oversupplied, says Johor prince

"We've settled on a high-bridge," said Singapore Prime Minister Lee Hsien Loong. "This was a major point — how are we going to cross the Straits of Johor — high bridge, low bridge (or) tunnel."

The two leaders hoped to sign a bilateral agreement on the RTS toward the end of 2017.

Despite widespread excitement over the project, analysts have exhorted investors to buy Johor properties with added forethought. "They need to do a lot of due diligence checks,” Chris Koh, director of estate agency Chris International, told Channel News Asia.

“We're talking about ensuring that they're buying a property there — whether the developer is a sound developer, one with a reputation to complete their projects. One has to be also familiar with Malaysia law - the property laws behind buying a property there," he said.

Read next: This USD100 billion city near Singapore ‘scares the hell out of everybody’

 

This USD100 billion city near Singapore 'scares the hell out of everybody'

Chinese developers are swamping the market

[caption id="attachment_58398" align="alignright" width="740"]Johor Bahru, Malaysia. Hamdi Bin Zainal/Shutterstock Johor Bahru, Malaysia. Hamdi Bin Zainal/Shutterstock[/caption]

Rather than join the fierce, oft-expensive competition for land in Singapore, Chinese property developers are on a building spree outside the city-state.

Companies such as Country Garden, Greenland Group, and Guangzhou R&F Properties Co have set their sights on Iskandar Malaysia in the hopes that the economic growth corridor close to the Singapore border would be the next Shenzhen, the city near Hong Kong that experienced zippy growth over the past decade.

Although the take-up has been decent for Iskandar developments — 8,000 apartments have been sold in Country Garden's massive, USD100-billion Forest City project in Johor state so far — the concerns of a glut are all too valid to some experts.

"These Chinese players build by the thousands at one go, and they scare the hell out of everybody," Siva Shanker, head of investments at Axis-REIT Managers, told Bloomberg. "God only knows who is going to buy all these units, and when it's completed, the bigger question is, who is going to stay in them?"

More: Iskandar Malaysia’s new multi-billion dollar eco-city is pretty ambitious

Investment growth in Malaysia stood at 2 percent year-on-year in the third quarter, compared with 6 percent in the previous quarter, Bloomberg reported. Residential sales values in the country dwindled by almost 11 percent last year, with the drop in the city of Johor Bahru alone recorded at 32 percent, government data showed.

"I am very concerned because the market is joined at the hip, if Johor goes down, the rest of Malaysia would follow," said Shanker. "If the developers stop building today, I think it would take 10 years for the condos to fill up the current supply. But they won't stop."

There are now more than 350,000 private homes in the pipeline for Johor state, according to Bloomberg, citing data from the National Property Information Centre.

"Land is plentiful and cheap," said Alan Cheong, senior director of research & consultancy at Savills Singapore. "But buyers don't understand how real estate values play out when there is no shortage of land."

Read next: 10 reasons why you should invest in Iskandar Malaysia

Malaysian developers turn to foreign investors

The big woo-athon for overseas buyers begins

malaysia

A weak ringgit, growing oversupply and slow local sales saw developers courting foreign buyers, sending their agents to road shows abroad to promote their projects.

And with China as their biggest market, some agents travel to different Chinese cities on a monthly basis.

To reduce staff count, developers outsource the marketing aspects to agents. Most of them even use the services of multiple real estate agencies.

Metro Homes Sdn Bhd director K.L. See, who has been promoting a number of Malaysian properties abroad in the last three to four years, said the market has changed over the last couple of years.

“Malaysians are not actively buying. But developers have a holding cost. They have already delayed launching their projects and they see the weak ringgit as an opportunity to offer their projects abroad. So instead of waiting around, they proactively use multiple channels to sell to foreigners,” said See.

He noted, however, that marketing abroad can be costly.

“To run an event in Hong Kong for the weekend in a five-star hotel costs between RM500,000 and RM1 million. Developers may have three or four core local agents who work with overseas agents.”

He revealed that Malaysian agents’ commission range from three to five percent of the unit price while Chinese agents’ commission stands at seven to 10 percent. The company usually sells 10 to 15 units on a successful weekend against two to three units on slow days.

Read next: For sale - Malaysian history

“Foreigners buy in order to earn on the foreign exchange. They also hope to profit from capital appreciation from their property investment,” he added.

Meanwhile, a marketing personnel of a developer with a project in KLCC said the huge investments by Chinese developers in the country, particularly in Iskandar Johor, will benefit Malaysian developers.

“Who do you think developers like Country Garden and R&F Group are selling to? They are targeting the Chinese back home. So they have huge advertising campaigns in different Chinese cities and this is a huge endorsement for Malaysia,” she said.

According to her, Chinese buyers in KLCC are average people, who are amazed by the price competitiveness here given that an average apartment in China costs RM5,000 psf.

A prime landmark in Shanghai or Beijing could go as high as RM20,000 psf, said See. A typical two-bedroom apartment could go for around RM8,000 psf, said Savills.

“So to these Chinese buyers, a non-branded but new unit priced at RM1,500 psf-RM2,000 psf is very attractive and they get a landmark project,” said the source.

This article originally appeared on PropertyGuru.com.my on November 23 2016.

Read next: These secondary Malaysian markets buck the property slump

For sale: Malaysian history

Restoring heritage properties isn't worth it to some Malaysians

[caption id="attachment_58009" align="alignright" width="740"]A mural in the old quarter of George Town in Malaysia. Lev Levin / Shutterstock.com A mural in the old quarter of George Town in Malaysia. Lev Levin / Shutterstock.com[/caption]

More heritage home owners are selling their properties in Penang, and it's not just because of beguiling offers from foreign buyers.

Layers of bureaucracy, combined with growing costs, have discouraged many from paying for the upkeep, let alone the restoration, of historic houses in the Malaysian state. Some owners report waiting for two years to obtain government approval for restoration works, according to the Property Development, Construction and Management Committee of the Penang Chinese Chamber of Commerce.

The chamber’s heritage and tourism spokesperson Michael Geh Thuan Peng chalked up the mass selloffs to heavy conservation red tape. “This is just one of the factors that caused some of these heritage building owners to sell off their inheritance,” he said.

The buyouts, involving mostly Singaporean companies, are occurring despite prohibitive selling values of pre-war properties in Penang, reported Free Malaysia Today. Prices for antique properties in the state start at MYR2 million (USD457,000).

More: What’s next for HCMC’s vanishing cultural heritage?

The chamber announced yesterday that it would conduct a study on issues that impact the preservation of heritage buildings in the state, especially in George Town, a former British colonial trading post. Findings of the study will be finalised by January.

A UNESCO world heritage site, George Town is slated to pass new regulation laws that will cap rental rate increases at 200 percent. Commercial tenants have been skipping the city in the past few years due to skyrocketing rents.

George Town World Heritage Inc (GTWHI) launched this week a pilot case study of the proposed rent regulation laws. The study "will involve going from house to house to get stakeholders' response to the proposed rent regulation act," GTWHI general manager Ang Ming Chee said.

Read next: How a dilapidated Penang shophouse became a dream second home

These secondary Malaysian markets buck the property slump

More transactions than the primary market

malaysia-secondary

Despite a dip in overall transactions, the secondary market in Penang and Johor remained strong this year with a steady number of transactions, reported The Star.

During the first six months of 2016, the secondary market registered 5,658 transactions valued at RM2.17 billion compared with only 1,040 transactions valued at RM478 million in the primary market, said Raine & Horne Malaysia senior partner Michael Geh.

“This means the secondary market makes up 84 percent of the total transacted units for the first half of this year. When compared to the same period last year, the secondary market saw a drop of about 13 percent in transactions and 15 percent drop in value transacted,” said Geh.

He underscored that the secondary market sold more than four times in transaction over the primary market.

In the first six months of 2015, the secondary market registered 6,325 transactions worth RM2.55 billion.

“The primary market recorded 1,418 transactions valued at RM590 million in the first half of 2015, meaning it also saw a 20 percent drop in transactions and value transacted.”

Geh revealed that Penang recorded 15,291 residential property transactions worth RM6.17 billion last year.

“Interestingly, out of the overall transactions recorded last year, 77 percent are for properties priced below RM500,000. Only 16 percent are for properties priced above RM500,000 and seven percent for properties priced above RM1 million,” he said.

“This shows that Penang still has properties transacted at below RM500,000. Secondly, I would also like to point out that the secondary market has remained bullish despite the dip in overall property transactions.”

In 1H 2016, Penang’s residential property market fell by around 14 percent to 6,698 transactions valued at RM2.65 billion from 7,743 transactions valued at RM3.14 billion in 1H 2015.

More: Malaysian property prices to improve from 2018

Looking ahead, Goh expects the local property market to remain flat next year.

One market observer, however, expressed hope that things may start to pick up in the last quarter of this year.

“It tends to be a little quiet in the third quarter. Generally things usually pick up in the final quarter, especially the retail sector, given the festive holidays and year-end sales during the period; but it will also depend on other variables such as sentiment, or if the central bank announced something that could affect the local property sector.”

Notably, Retail Group Malaysia (RGM) in August said the fourth-quarter growth rate of the Malaysian retail industry will remain at 5.5 percent, given the 1.3 percent growth registered over the same period last year.

Another market observer expects Penang’s rental market to remain competitive over the rest of the year.

“The investors or so-called speculators that bought properties some four to five years ago, who’s only aim was to flip it (for profit), might have problems selling the properties that are now coming into the market because of the weaker sentiment,” he said.

“Therefore, they will be eager to at least rent it out – so it’s certainly a rental market at the moment.”

Meanwhile, with a few exceptions, the property market in Johor has been subdued this year, said Samuel Tan Wee Cheng director at Johor-based KGV International Property Consultants (M) Sdn Bhd.

“Except for outstanding sales in the primary market like UEM Sunrise Bhd’s Melia Residences and the multi-billion mega development Forest City, other developers have been reporting slower sales within the state.”

Tan said transactions for projects in good locations remains steady. On the secondary market, he noted that most buyers are taking a ‘wait-and-see’ stance due to the weak economic climate.

“I think it’s a good time and opportunity for buyers and investors to come into the market. It’s not when to buy – it’s where and what to buy. That’s the maxim to follow. The good news will come,” he said.

Moving forward, Tan expects the Johor property market to remain flat next year.

“I think transaction volume and value will go down. Generally, the market has still yet to recover and is likely to remain flat next year.”

This article originally appeared on PropertyGuru.com.my on 7 November 2016

Read next: Chinese interest in Malaysian property increased five-fold this year

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