Horizon Hills

THE Goods and Services Tax (GST), the weak domestic and global economy, and the uncertain local political situation worsened sentiment in Johor’s property market in the second quarter of the year.

“Discussions with agents revealed that among the main causes of the stagnation in the secondary market from the early part of 2Q were the uncertainties due to the implementation of GST,” says Samuel Tan, director of KGV International Property Consultants (Johor) Sdn Bhd, when presenting digitaledge/KGV International Property Consultants Johor Bahru Housing Property Monitor for 2Q2015.

He believes that difficulty in obtaining loans by buyers was another major cause of the slowdown.

In 1Q2015, the average selling prices of Johor high-rises and landed properties sampled remained flat. In fact, the prices of all landed properties sampled have not changed since 4Q2014. For instance, 2-storey cluster houses such as those at Austin Heights, which used to enjoy healthy capital appreciation in the past few years, saw prices staying at RM800 psf.

High-rise homes fared no better. For example, the prices of units at SuriaMas Suites (RM420 psf), Petrie Condominium (RM800 psf) and Lagenda Tasek Condominium (RM420 psf) have not appreciated since 2Q2014.

“The high-rise subsector will face tough times due to the oversupply situation. The fact that many of the projects, which are in different stages of construction, will be completed by 2017/18 is not too comforting,” says Tan.

Several high-rise developments were launched in 2Q2015, with some of them slated for completion between 2017 and 2019 — The Straits in Jalan Abdul Samad, Centara Residences @ Nasa City and ARC @ Austin Hills, to name a few.

The Straits is a 25-storey block of luxury serviced apartments developed by South East Asia Landmark Sdn Bhd. Launched in end-May and slated for completion in end-2018, it comprises 128 suites overlooking the sea or Singapore. With built-ups of between 868 and 3,680 sq ft, the units are priced at RM697,000 upwards.

According to KGV International, 40% of the units have been taken up and most of the buyers are in the process of obtaining bank financing.

Centara Residences @ Nasa City, developed by IJM Land Bhd and JKG Land (JB) Sdn Bhd, is also a serviced apartment project. Consisting of 232 units with built-ups of between 786 and 2,002 sq ft, the selling price starts at RM518,336. The development is expected to be completed by end-2017.

About 50 units have been booked since the preview in January, KGV International’s research shows.

ARC @ Austin Hills by Andaman Group is another a serviced apartment project. Comprising 587 units with built-ups of between 650 and 900 sq ft, the selling price starts at RM265,000 or RM450 psf. The project is expected to be completed by 1Q2019. According to KGV International, 20% of the units have been sold since the launch in early July.

Notable issues for the future

There is no doubt that the oversupply of high-rise homes has hit Johor’s primary property market, but Tan thinks that the high rejection rate for loan applications is the bigger reason for the slowdown.

“Being pragmatic in lending is a good thing. However, if good applicants cannot get the desired loans, the market will certainly be adversely affected. This will, in turn, become a self-fulfilling prophecy that will further slow the market down,” notes Tan.

Apart from the domestic issues, external uncertainties such as China’s devaluation of the renminbi have become a concern for Johor’s property market, given that a number of major developments coming up along the state’s shoreline and off its coast are by China developers such as Country Gardens Holdings Ltd, Guangzhou R & F Co Ltd and Greenland Holdings Group Ltd.

Tan says if the China developers, are financing their project in US dollars, they will be badly hit by the significant depreciation of the renminbi against the greenback. Therefore, there is a possibility that some of the launches will have to be rescheduled unless the developers have deep pockets to ride out the storm.

As for China homebuyers, their purchasing power will be affected. Tan believes they will probably wait for the dust to settle before looking at properties in Iskandar Malaysia.

“There are several considerations [for China buyers]. They will evaluate the performance of the ringgit — whether it will stabilise or depreciate further. Even if the properties are good investments, they will likely avoid them if there is a foreign exchange risk, unless they are buying for own use,” he says.

In other words, with many currencies in the region facing depreciation, China investors will probably explore other options.

However, in terms of affordability and liveability, Tan believes Malaysia will remain attractive, but only if the economic climate stabilises, especially the value of the ringgit vis-à-vis the renminbi. “Our political climate must also be stable to attract investors here.”

Nevertheless, he says the impact of the renminbi devaluation on the property market is still not clear.

Apart from the Chinese, Singaporeans and Malaysians who are working in the city state are the main property buyers in Johor.

“With the stronger Singapore dollar, I believe many people will start looking for buying opportunities, especially in the landed subsector. This is provided the political situation is favourable. Malaysians working in Singapore constitute a large proportion of the buyers. They are often the forerunners in many projects,” says Tan.

The confirmation of the high-speed rail project linking Singapore and Malaysia will encourage more Singaporeans to buy properties in Johor, especially in Nusajaya, where the last station will be located, for future capital appreciation, he adds.

However, Tan is worried that the proposed Vehicle Entry Permit (VEP) agreement between Singapore and Malaysia may discourage some Singaporeans from coming to Johor.

Malaysia’s Customs Department will start charging RM20 per entry for all foreign cars entering the country when the VEP is implemented in October.

“While the RM20 is not a big issue to many, it will affect those who travel daily. And this group actually comprises Malaysians working in Singapore. For the Singaporeans at large, we seem to be sending mixed signals as to whether we welcome them to spend their money here,” says Tan.

He hopes the authorities will take another look at the proposed policy for the greater good of Iskandar Malaysia. “There should be a win-win policy for both countries.”

Tough times expected to continue

Tan believes that Johor’s property market conditions will continue to be tough in 3Q2015 because of uncertainties in the financial and equity markets and weak crude oil and commodity prices.

“The third quarter will remain challenging, although there will be a few star performers (developers) because of their concept, pricing, location and so on. I believe those who have revised their layout plans should be able to launch their landed properties in 3Q. Their projects could originally be high-rises,” he says.

He also foresees continued demand for properties but that it will be a buyers’ market.

He says landed properties should be more resilient, but loans must be more easily available.

High-rises will be a challenge as purchasers would most likely buy them for their own use, Tan adds.

“The third quarter will see more owner-occupiers than investors, and like before, the concentration will be in locations where the locals like. However, new affordable landed properties like those launched by Eco World Development Group Bhd and Mah Sing Group Bhd in Pasir Gudang will attract buyers,” he says, adding that developers are likely to go back to the drawing board to make their products more marketable.

He reckons if the current weak sentiment persists, developers will have to start considering no-frills homes with smaller built-ups and bare finishes.

Tan also urges the state government to reconsider the blanket ban on serviced apartment developments, especially in areas where demand for affordable homes outstrips supply. In those areas, serviced apartments priced at about RM500,000 should be allowed as they are still within the reach of many households.

He says there are a few notable developments coming up in Johor. Among them are The Elysia Park Residence by BCB Bhd, Estuari Gardens @ Puteri Harbour by UEM Sunrise Bhd and Twin Danga Residence by MB Group.

The Elysia Park Residence is a high-rise development that will sit on 7.82 acres in Medini, Nusajaya. It will comprise 961 units (eight types of layouts) with built-ups of between 515 and 1,251 sq ft.

Estuari Gardens will feature 2-storey terraced houses, with Phase One offering 350 units with built-ups of between 2,708 and 3,550 sq ft and priced at RM1.39 million to RM2.82 million.

Twin Danga Residence is a mid to high-end serviced apartment development. It will comprise 712 units with built-ups of between 749 and 1,097 sq ft and priced at RM482,300 to RM764,400.

This article first appeared in property, a section of the digitaledge WEEKLY, on Sept 14, 2015. Subscribe here.

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