Time to cherry-pick JB properties?

As the Malaysian economy lurches inexorably towards an economic contraction, the prospects for the property sector do not look encouraging. In Johor, the recessionary pressures afflicting the region, especially neighbouring Singapore, may mean that the southern state’s property market could experience greater stress.

However, in the middle of every difficulty lies opportunity. “We must be prepared for spring when winter is gone and in my opinion, the preparations have to start now,” says KGV-Lambert Smith Hampton Johor’s director Samuel Tan.

“The global financial meltdown has created uncertainty in almost every sector of our economy. This inevitably poses a challenging period for property developers as new launches were down to a few in 4Q2008. We do not expect many launches early this year,” says Tan when presenting The Edge/KGV-Lambert Smith Hampton Johor Baru housing property monitor for 4Q2008.

However, cash-rich homebuyers are in a “strategic” position to cherry-pick properties with high returns in Johor, he says. “This is the time to scout around for good buys, especially for those who intend to buy for occupation as they can now pay below the market price for a house in a good location... houses which may not be available normally,” Tan says.

On the other hand, purchasers who are not cash-rich will adopt a cautious approach as affordability will become the main issue. Besides that, says Tan, those looking at long-term investments to hedge against inflation will prefer houses in popular locations where the rents are high and where current declining prices will provide higher returns on investment in the future.

As a major trading nation, Tan says there is no doubt that the Malaysian economy will be affected by the global recession. “This may give rise to further unemployment, resulting in declining household disposable income,” he tells City & Country.

“The market is price-sensitive. That is why many developers may revert to building compact houses (smaller land sizes and built-ups; priced below RM200,000) for the next two to three years,” he adds.

“It is also during a crisis that we see more developers thinking out of the box. They come up with creative designs and concepts, new marketing schemes and attractive financing packages to win over investors.”
The bright spot is that the country’s banking sector, which is less exposed to complex financial instruments, is in a position to lend, Tan notes. The property market also got a boost from Bank Negara Malaysia cutting its benchmark overnight policy rate by 50 basis points to 2% on Feb 24, which translates to cheaper borrowing costs.

Tan also has positive views on the RM60 billion stimulus package announced this month, of which RM1.7 billion will be invested in Iskandar Malaysia this year. “It was stated that the RM1.7 billion will be used for infrastructure and proposed developments like hotels, a theme park and universities. This is a positive development and hopefully, it will create a spin-off effect on other related industries. Jobs can be created. This will avert any liquidity problem due to the current crisis,” says Tan.

If there is demand for these proposed developments, Iskandar Malaysia will become more attractive, not only to the foreigners but also to the locals, he adds.

However, what is more important is the speedy and efficient use of the fund, he notes.

Primary market

Despite the prevailing poor market conditions, Tan says several established developers have been confident enough to launch new products in Johor Baru, targeted at the upmarket segment. This segment, he says, seems to be more resilient than the low and medium-end markets.

In Taman Ponderosa, within the Ponderosa Villa Precinct, some forty-seven 2-storey semi-detached houses were opened for sale in 4Q2008. Type A of Phase 1-3B (land area of 3,200 sq ft and built-up of 2,704 sq ft) comes with an indicative price starting from RM648,000. The larger units (land area: 9,534 sq ft; built-up: 2,903 sq ft) are priced at RM1,154,440. Type B units, which are of a different design, are priced from RM498,000 onwards.

Meanwhile, the 250 units in Tower A of the upmarket D’Esplanade Residence serviced apartment (built-up: 775 to 7,227 sq ft), forming part of an integrated project comprising a retail mall and a hotel tower, were officially launched by the Khoo Soon Lee Group in 4Q2008. The indicative price of each unit was RM460 psf onwards.

Tan says Tower B of D’Esplanade Residence was launched early this year, along with some units specially designed to incorporate a private pool and garden.

At Taman Molek, Berinda Group launched thirty-six 2-storey terraced houses (land area: 1,920 sq ft; built-up: 2,500 sq ft). Priced from RM488,000 onwards, some 30% of these units have been sold since the launch in October last year.

Last December, S P Setia Group launched thirty-four 2-storey terraced houses known as Aviero (land area: 20ft by 65ft; built-up: 1,500 sq ft). Prices start from RM298,000. In Taman Pulai Indah, one-hundred and seventy 2-storey terraced houses (type Begonia with built-up of 1,824 sq ft) have been opened for sale. The houses are priced from RM223,800.

Secondary market

From the data sampled, Tan notes that the secondary market in certain parts of the city and the suburbs experienced a downturn in 4Q2008. There was also a 3% to 10% difference in the asking and transacted prices.

“This is expected as some vendors who were affected by the economy decided to cash out to avoid future uncertainties,” Tan adds.

The type of properties most affected are those located in areas that are prone to auctions and which  consist mainly of low-cost (landed) properties that are tenanted and thus, most vulnerable to market changes.

 Tan says apart from those areas mentioned above, the drop in prices in other areas will not be drastic as most vendors are still trying to maintain their targeted price levels.

Whether property prices will drop further in the next three to four quarters will depend on both the global and domestic economic conditions, he adds. “There could be some slight downward adjustments. However, we have to bear in mind that since the 1997/98 Asian financial crisis, prices in Johor Baru, unlike other places, have remained relatively flat. Even if there is a decline, it will not be drastic,” he says.

An upgrader’s market

In view of this, the upgrader’s market could be more resilient and concentrated in Tebrau Corridor, Kempas Corridor, Nusajaya and Skudai Corridor.

There seems to be pent-up demand after a lack of supply of houses with innovative designs, security features and attractive financing schemes for many years. It is therefore wise for developers to position themselves by having products ready to be launched when the market recovers,” Tan notes.

As part of the national stimulus measures, the government must make an effort to keep the cost of doing business low, he continues. “Small and medium enterprises provide jobs to many and help to reduce unemployment, especially for those Malaysians who are working in Singapore, which is technically already in recession,” says Tan. When people’s job security is assured, they are more likely to consider property investment.

Tan says the government has taken proactive steps to assist retrenched workers with employment opportunities in ongoing projects within Iskandar Malaysia.

He also points out that the government plays an important role in stimulating the market. He suggests that grants be given to first-time homebuyers in various forms. Incentives such as tax relief for house purchases would also be positive measures to encourage those in the high-income group to invest in the property market.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 747, March 23-29, 2009.