Sunday, December 21, 2014

The Iskandar Prophecy

Less than 6 months into my rant about Iskandar, the property market there seems to be heading that way...

Properties in Iskandar Malaysia ‘facing oversupply’

Iskandar Malaysia, the main southern development corridor in Johor, is seeing the formation of a housing bubble as a result of Chinese developers that have been flooding the property market with masses of projects.
Kenanga Research property analyst, who refused to be named, said things are moving very slow at the corridor especially with houses which are selling above RM600,000.
“Things are moving rather slow, especially with those that are launched at higher prices. There is still demand for landed property and those priced within the range of RM400,000 to RM600,000.
However, the concern of oversupply involves at the area covered by the Chinese developers such as in Danga Bay which do not price the properties at a cheap rate and go about building around 10,000 units of condominiums in a small plot of land, said the analyst.
The analyst said the supply from the Chinese developers will keep coming in, looking at the way the land is sold to them, and if these developers could no longer hold on to the properties, they could end up selling them at a cheaper price.
Nonetheless, the analyst has some optimism on the upcoming infrastructures such as the rail transit system that could lead to a growth in demand depending on how it is planned.
RHB property analyst Loong Kok Wen said the formation of a bubble could be seen in Iskandar Malaysia, yet it could not be ascertained if prices will fall, which is dependent on the financial position of the Chinese developers.
“We could see a formation of a bubble as property agents are offered 5% to 8% of commission from the usual 2% to sell the property. The ones that are not doing so well are the high-rise properties in which there is oversupply by the Chinese developers, which has led to a supply glut.
“The increase in the toll rates and the increase in the minimum threshold for foreigners to purchase property in Malaysia are contrary to the initial objective, which is to attract demand from Singapore,” said Loong.
Loong, however, cautioned that it is not necessary property prices will fall as the ability of the Chinese developers to hold on to the property will be dependent on their financial strength.
Raine & Horne International Zaki & Partners Sdn Bhd associate director James Tan said the latest policies by the government and the cooling measures are restricting demand when supply is coming on-stream.
“The supply is coming onstream but who is going to occupy them? The situation is worrying. There is a high possibility of a housing bubble coming soon, but not within this year,” he said.
Malaysian Rating Corp Bhd’s property analyst Yap Lai Ken said despite seeing the slowdown in Iskandar Malaysia, there is no necessity for developers to lower prices as other incentives could be given, such as rebates and freebies, to attract demand.
The concern of Iskandar Malaysia developing a bubble could be seen by major property developer UEM Sunrise Bhd’s recent plan to restrategise in terms of product offering and location, to reduce dependency on its projects in Iskandar Malaysia and spread out risks.
UEM has more than 60% of its landbank in Iskandar Malaysia.
A local property developer who refused to be named said the decision by UEM to put on hold its projects in Iskandar Malaysia clearly reflects the negative sentiments that developers have on the corridor.
Meanwhile, analysts from research house said they see a slowdown in Iskandar Malaysia if there is an oversupply, coupled with the slew of government measures being implemented, interest rate hikes, low income growth, affordability and capital gain tax.
“For example, to curb property speculation, the Singapore government implemented measures such as increasing the buyer’s stamp duty, sales tax and initial down-payment. Prices actually moderated and then fell, as the Singapore URA Residential Prices Index fell 3.2% from September 2013 to June 2014.
“We could see the same trend happening in Malaysia. Therefore, in the mid to near term, we see limited upside potential and a lack of diversification for property investments,” the research house said.
The formation of a bubble in Iskandar Malaysia did not come unannounced as Kenanga Research did release a report in July this year warning that Iskandar Malaysia is losing its steam.
The report revealed that there were signs of oversupply in the property market with weaker absorption rate of 1.1 times in the first-quarter of 2014.

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