City & Country: Cooling measures cause uncertainty

JOHOR BARU’S residential market continued to grow in 3Q2013. The area where most homes experienced appreciation was Nusajaya/Skudai. Values of all of the 2-storey houses there, except in Nusa Idaman, grew by 4% (The Gateway at Horizon Hills, to RM780,000) to 11% (Taman Impian Emas, to RM500,000) on a quarterly basis. Meanwhile, 2-storey semi-detached houses in Taman Impian Emas and Horizon Hills appreciated by 2.9% (to RM700,000) and 9.1% (to RM1.2 million).

Tan: To increase the rate by too much is a sure way to kill the market, which has been hibernating for the last 20 years

In Tebrau/Kempas, all 2-storey houses in the areas sampled appreciated in value. Homes that appreciated the most were those in Taman Setia Tropika (by 7.7% to RM420,000) while those that rose the least were in Austin Perdana (by 2.8% to RM360,000). “One of the possible reasons could be that 2-storey houses are affordable while semidees are now beyond the reach of average people,” KGV International Property Consultants (Johor) Sdn Bhd director Samuel Tan tells City & Country.

Over at Plentong/Pasir Gudang, 2-storey terraced houses in Bandar Seri Alam grew by 3.8% to RM270,000 while similar homes in Taman Molek appreciated by 6.6% to RM800,000. Meanwhile, 2-storey semidees there rose by 6.3% to RM850,000.

As for apartments and condominums, units in Suria Mas, Lagenda Tasek and Molek Pine Tower 2 increased by 9.3% (to RM350,000),  2.8% (to RM360,000) and 7.1% (to RM750,000) respectively.

“Suria Mas and Lagenda Tasek appreciated because of their proximity to the city and the price increase in nearby projects. The same applies to Molek Pine except that it was ‘pulled up’ by the prices of the subsequent phases,” Tan explains.

The most significant event in the past five months was Budget 2014, which included a number of measures that many expect will dampen the property market in Iskandar Malaysia.

“It is still too early to tell, although many may take a wait-and-see attitude. Iskandar has reached a point where it is ‘airborne’. In the long run, I believe prices will still increase, but sales may be more difficult.”

Investment issues
More investments have poured into Iskandar in the past five months. For instance, in 3Q, Tropicana Bhd’s group executive vice-chairman and major shareholder Tan Sri Danny Tan made the headlines when he injected 762 acres of land in Gelang Patah worth RM3 billion into Singapore Exchange-listed Albedo Ltd.

In October, Mah Sing Group Bhd announced that it would develop a RM5 billion, 1,351.9-acre township in Pasir Gudang. The company had acquired the tract at RM429.87 million, which translates into RM7.30 psf. “It’s seen as a good deal because of the price and the large size of the land,” says Tan.

UM Land Bhd also announced that it would build its first township in Iskandar on a 358-acre tract in Cahaya Baru in Masai. The RM425 million township will be its third in Johor. The components include 335 serviced apartments priced from RM650 psf to RM1,200 psf, a 200-room four-star hotel and a mall.

Meanwhile, Scientex Bhd has acquired two parcels measuring a total of 48.4 acres for RM28.5 million, increasing its landbank in Johor to 921.7 acres. The company plans to develop affordable homes on the land.

“These are healthy signs of investors coming into Iskandar,” says Tan.

Some notable launches this year include Eco World Development Sdn Bhd’s EcoBotanic project in Iskandar. About 500 non-bumiputera units of the 626 semidees and cluster homes were taken up on the day of the launch. The built-ups of the cluster homes range from 2,400 to 3,100 sq ft while the semidees measure 3,400 sq ft. The prices of the cluster homes range from RM900,000 to RM1.3 million while those of the semidees are from RM1.8 million to RM2 million.

“EcoBotanic achieved an encouraging take-up. To be able to sell at that rate at such a high price shows the popularity of Eco World,” says Tan.

Prices of apartments and condominiums in Johor Baru have risen

In 4Q, the federal government introduced a number of measures to cool the market. These include revising the Real Property Gains Tax, abolishing the developer interest bearing scheme and doubling the floor price of properties that foreigners can buy to RM1 million. In addition, the state will impose a 2% levy or “consent fee” on properties transacted by foreigners.

Tan deems these moves as harsh because they may dampen the growth of Johor’s real estate market, which, until recently, had been “hibernating”. The impact of the tighter restrictions on foreign property ownership appears to be marginal on paper, but it may be big on market perception.

“The revised RGPT will effectively curb speculative activities in the primary and secondary markets. To be tied down for five years with a 30% tax on profit will make speculation unattractive. The exception is if they are allowed to flip before signing the sale and purchase agreements,” he says.

He notes that the RPGT will have a greater impact on the secondary rather than the primary market because most properties cannot be flipped before completion. In the primary market, however, the RPGT is more likely to curb speculation on landed homes compared with high-rises because the former takes three to four years to complete compared with two years for the latter.

Under the new rates, disposals by Malaysians and permanent residents made within the first three years are subject to a 30% tax, followed by 20% in the fourth year and 15% in the fifth year. Disposals after that are exempted. Foreign investors are subject to a 30% tax on disposals made within the first five years and 5% thereafter.

“As a general comment, I think it takes the ‘overheated-ness’ out of the market but the rates imposed are a little too high. A more reasonable rate would be 15% for the first three years followed by 10% for the fourth year and 5% for the fifth year.

“Hasn’t it occurred to some that the price hikes we have seen in Iskandar could be due to reasons other than  speculation? For instance, land cost has increased tremendously, there is the construction cost, development is by plot ratio [at least 1:8] and gross floor area, and developers must comply with more rules and regulations,” he observes.

“In addition, there is the pricing mechanism, marketing campaigns and even the cost of Iskandar’s success to consider. Hence, it is not entirely right to say price hikes are due to speculation. To increase the rate by too much is a sure way to kill the market, which has been hibernating for the last 20 years.”

Tan is also against the RM1 million floor price on properties for foreigners. “I have never advocated price caps to control demand. Price is a function of supply and demand. If the demand is high and there is insufficient supply, the price will shoot up. The best way is to increase supply until there is no requirement for prices to move northwards,” he opines.

“By capping prices at RM1 million, we are managing the free market and this will not work. In the past, when the price was capped at RM250,000 and later at RM500,000, prices of other properties also increased accordingly. In trying to protect local interest, we are unwittingly harming them because there is an overall increase in prices. The RM1 million cap applies to both the primary and secondary markets but the impact will be felt more in the primary market.”

He notes that Johor has quotas for residential properties for foreigners and they have always been subject to a consent fee of RM10,000.

“The only problem is the message  we are sending the investors. Are they welcome to invest or not? We cannot afford regular changes in such policies because they cause uncertainty and no investor likes uncertainty,” he says.

Transactions involving foreigners in Medini Iskandar will, however, be exempted from the RPGT, a daily newspaper quoted government officials as saying.

Meanwhile, the abolition of DIBS will likely only affect sales in the short term as developers will find legitimate ways to overcome this problem, such as paying their buyers cash so that they can take care of the interest on their loans during the construction period. Tan stresses that DIBS in itself is not a bad thing.

“I recommend that DIBS be retained for qualified investors who are buying houses for the first time. This will enable them to own a house, which, otherwise, will be a pipe dream,” he says.

This article first appeared in The Edge Malaysia Weekly, on December 16, 2013.

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