City & Country: Market feeling impact of cooling measures

THE Johor Baru property market is poised for a slowdown this year as cooling measures start to bite, says KGV International Property Consultants (Johor) Sdn Bhd director Samuel Tan.

Price hikes and inflationary pressures due to the easing of subsidies will lead to lower disposable income and weakened sentiments, he points out in The Edge/KGV International Property Consultants Johor Baru housing monitor for 4Q2013.

“The fourth quarter of 2013 saw a rush for properties to avoid the increase in the Real Property Gains Tax (RPGT) that took effect on Jan 1 this year and, more importantly, to take advantage of the developer interest bearing scheme (DIBS) before it was abolished,” Tan tells City & Country.

Apart from the hike in RPGT and abolition of DIBS, the other cooling measures introduced in Budget 2014 were a lower loan-to-value ratio, the Goods and Services Tax effective April 2015, a consent fee of 2% on a transaction that is payable to the state government, a RM1 million floor price for foreign investors, pricing transparency and a 7.5% increase in prices for released bumiputera units.

“These measures have effectively curbed speculative activity in the property market,” remarks Tan.

According to him, strata properties in the primary market in the Skudai and Bukit Indah areas are around RM500 to RM600 psf while in Medini, they are priced at RM700 to RM900 psf. In Puteri Harbour, prices have jumped to RM1,200 to RM1,500 psf while in other parts of Nusajaya, prices range from RM750 to RM850 psf. In Kempas and Austin, meanwhile, prices average RM600 psf.

As for landed properties, the prices of terraced houses are between RM400,000 and RM600,000, although the prices of deluxe versions are as high as RM787,000. Semi-detached houses, meanwhile, are priced from RM648,000 to RM1.99 million, depending on location and built-up. Cluster homes, on the other hand, cost RM416,000 to RM1.01 million while bungalows are priced from RM3.2 million to RM5.2 million.

“With the primary market affected by higher land, labour and material costs, buyers may have to source houses in the secondary market,” Tan says.

According to him, the market “killers” are the abolition of DIBS and lower loan margins. “These have cut off a lot of people from buying properties. DIBS should be allowed for qualified first-time homebuyers,” he opines.

Tan is also critical about the proposed floor price of RM1 million for foreign property buyers as he believes that it will lead to developers and vendors in the secondary market raising prices to match the minimum price that has doubled. “There may be a reconfiguration of design to reach RM1 million. As in the past, other property prices will be pushed closer to RM1 million. This will not be good for the locals,” he explains.

Elaborating on the cooling measure, he says, “Developers will say the buyers are taking a wait-and-see attitude while the people will want to see how the market responds.”

Although Johor Menteri Besar Datuk Seri Mohamed Khaled Nordin has said the new floor price will only be applied to projects approved after May 1 this year, Tan argues that the move will have a detrimental effect as prices in the primary and secondary markets will be raised to match the new threshold. This means developers will have to reconfigure their products, including building larger units, he says.

One way to make the bigger homes more palatable is to turn them into dual-key units — two units under one title. Each unit will have its own facilities and entrance. One unit is typically smaller than the other and owners may rent out one or both units for recurring income. This is seen as a way to help end-users pay off their instalments.

“You will have to increase the built-up, but then the units will not be as popular because of the higher absolute value. So, you have no choice [but to sell them as dual-key units] if you want to push up prices to RM1 million,” says Tan.  

New highways continue to boost values

In 4Q2013, home values continued to rise, underpinned by the benefits of highways opened during the year, such as the Eastern Dispersal Link and the Johor Baru-Pasir Gudang Elevated Highway.

“Tebrau remains a favourite among locals because it is close to their workplace in Johor Baru and there are various amenities, so it is very convenient. You can be assured that prices will go up. Recall that prices did not drop in the 2008 recession,” Tan remarks.

He cites Bandar Sri Alam, a township of over 3,000 acres developed by UM Land Bhd, where values have jumped on the back of a rebranding exercise by the developer from a low-middle-class area to one that is more contemporary and upper class. “UM Land has rebranded Bandar Sri Alam into a City of Knowledge now with several universities and schools … That’s a catchment of over 20,000 students.” There are around 15 schools and institutions of higher learning in the township.

“A lot of unsold stock is now being taken up. Expect to pay RM700,000 for new semidees and RM500,000 for terraced houses compared with those in previous launches. But while the township has become more upscale, prices are still lower than in other townships where semidees can command up to RM1 million.”

Meanwhile in Bandar Baru Permas Jaya, property values continue to rise because of the new Coastal Highway. “The township is now close to JB, like Petaling Jaya is to Kuala Lumpur. There is always a spillover from the city centre.”

Tan says the market ‘killers’ are the abolition of DIBS and lower loan margins

On Bukit Indah, Tan says the place is perceived as a mature part of Nusajaya with a lot of amenities. Homes in the secondary market there are also cheaper than in the new launches with the subsale price for 1-storey terraced houses at RM300,000 and that for 2-storey terraced houses at RM380,000. “The overall perception of Nusajaya is that it is almost purely residential. However, a portion of the township will comprise commercial properties, such as serviced apartments and shoplots that house fast-food outlets, a hotel and an AEON shopping mall. “Now, it will be very comprehensive, making Nusajaya even more attractive,” Tan says.

Interestingly, while rents for landed homes stagnated, those for most of the condominiums and apartments sampled by the monitor grew between 11.1% and 20%. The rent for Suria Mas apartments with built-ups of 850 sq ft rose 12.5% to RM1,800 per month while the 1,600 sq ft units of Petri Condominium fetched an average RM4,000 per month — up 11.1% from 3Q2013. At Molek Pine Tower 2, the rent for mid-level 1,469 sq ft units rose 16.6% to RM3,500 while Lagenda Tasek’s 1,040 sq ft units commanded RM1,800 per month, a 20% jump from 3Q2013.

Tan attributes the growth in rents to higher demand from an influx of professionals, such as consultants, from other parts of Malaysia and other countries coming to Johor for work. “They prefer established areas with security and many amenities, and these condos fit the bill. Some of the condos have also traditionally been popular with the expatriates,” he explains.

Over in Taman Molek, aka “Little Japan”, new launches and the opening of the EDL in 2012 boosted rents at Molek Pine 2. “The area is just five minutes from the EDL while JB is a 10 to 15-minute drive away,” Tan explains.

However, he notes, higher rents come at a higher cost as investors spend on furnishings to entice potential tenants in an increasingly competitive market. “These yields cannot be sustained because there will be an adjustment in the condo market. More of them will be completed this year.”

Milestones

In 4Q2013, there were a number of significant land acquisitions by foreign investors. In late December, Iskandar Waterfront Holdings Sdn Bhd (IWH) sold a 37-acre parcel along the ocean in Danga Bay to Singaporean developer Hao Yuan Investment Pte Ltd for RM1.6 billion or RM998 psf. IWH and Hao Yuan will set up a 40:60 joint-venture company called Pristine Sun Properties Sdn Bhd to develop an RM8 billion project that will notably include Peninsular Malaysia’s tallest tower.

This transaction took place three weeks after the Sultan of Johor sold 116 acres in Johor Baru for RM4.5 billion or RM891 psf to Hong Kong-listed Guangzhou R&F Properties Co Ltd.

In comparison, a year ago, Country Garden Holdings Bhd bought 55 acres in Danga Bay from IWH for RM900 million or RM397 psf. The group is currently building 9,000 apartments there, sparking fears of an oversupply.

“It’s good to attract foreign developers to rejuvenate the local economy and property market, but the projects must be adapted to local culture, especially in terms of sales strategy, where the local developers usually launch their projects in phases.

“With the current and future high land cost, tight labour market, high loan approval rates by banks and the upcoming GST, most people are turning cautious,” Tan points out.

On affordable housing, he says the state and federal governments have taken steps to ensure that the state meets its affordable housing numbers via Budget 2014 and Johor’s housing policy. Under the latter, 28,000 affordable houses will be built.

Some notable launches in 4Q2013 included Southkey, a RM6 billion joint venture between Distinctive Group and IGB Corp Bhd. The project will come up on a 36-acre site in Jalan Bakar Batu, which will be widened into six lanes from two now to handle the expected surge in traffic. The widening of the 1.8km road will be undertaken by project developer Selia Pantai Sdn Bhd and is scheduled to be completed in June.

The project, which is expected to take 12 years to complete, will comprise eight 30-storey blocks which will include three hotels — Cititel Johor Baru (675 rooms), Boulevard Hotel (450 rooms) and The Gardens Hotel (450 rooms). There will also be four blocks of offices, 180 serviced apartments and 8,923 parking bays.

Another major project that is coming up is Tropicana City Centre, a RM5 billion mixed-use development along the EDL.

Meanwhile, the opening of Pinewood Studios Iskandar and Legoland Malaysia’s water theme park is expected to draw even more tourists, says Tan. This article first appeared in The Edge Malaysia Weekly, on April 7, 2014.

This article first appeared in The Edge Malaysia Weekly, on April 7, 2014.