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Is Iskandar Property Still Worth Investing In 2016?

Ever since end of 2013, Iskandar property market peaked from a period of super high growth to a gradual slow decline. To add to the problem, Iskandar Redevelopment Authority (IRDA) announced partnerships with 3 major Chinese developers to develop more than 107,000 high-rise units in Iskandar.

Shocked by this news, panicking investors and homeowners stopped looking into real estate. Crowds in developer showrooms dried up virtually overnight, and the market dropped from white hot to stone cold.

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Property speculators who blindly bought property with no interest and low upfront cash started to panick about selling when prices went down, and some desperate sellers appeared willing to sell at seemingly any losses just to recoup some of their cash.

Media and experts are saying it’s the end of the Iskandar dream of being a world class Metropolis by 2020. Iskandar would become a ghost town with gleaming new structures and nobody staying, they predicted.

 

Is that how the story ends?

 

 

To understand what is happening in Iskandar, we need to look back 10 years ago to the creation of Iskandar Comprehensive Development Plan (CDP) in 2006.

johor_skyline_3Under the CDP, Iskandar aims to develop the region’s 2 main economic strengths in Manufacturing and Services, with 60% of value-added manufacturing from electrical, chemical, and food processing sectors to support its economy.

Why is this important? Because with strong economy comes jobs, and with jobs come people, and with people comes opportunities and rapid population growth.

Fast forward to 2015. The property prices have been dropping for more than 8 quarters, which is cause for worry. However, looking at the other city growth statistics shows a very different story.

  1. Manufacturing & Services are main growth drivers in Iskandar

First of all, Iskandar’s main economic growth is in services and manufacturing, not property. As you can see from the chart, since 2012, the total committed investment for property in Iskandar has remained consistent at around RM 40 billion (33%).

Why did property prices grow rapidly first? Because before big services businesses will come in, you need working highways, infrastructure, and a minimum number of workers and consumers. So first wave of iskandar growth is property and manufacturing.

Manufacturing had a big jump in 2013 when the Singaporean government started giving incentives for Singaporean factories to relocate across the causeway, and since then has been growing at a slow but significant pace of a few billion ringgit every year.

Services, on the other hand, has been jumping up by leaps and bounds by around RM20 billion year on year, with new theme parks, shopping malls and office buildings being announced every year.

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Major players like Microsoft, Capitaland, Mid-Valley Megamall, Paradigm Group, and even Hatten (Capital 21) have confirmed their presence in Iskandar, with 3 mega malls projected to complete by 2018.

 

  1. International businesses are investing more in Iskandar

As of 2015, the total committed investments in Iskandar is RM 156.51 billion, with only about 50% realized and the rest still pending.

art_3This is 41% of the overall total investment which Iskandar seeks to achieve by 2025. In 2015 alone, despite the challenging economic conditions, IRDA still succeeded in achieving its RM30 Billion foreign investment target, even with the target goal growing higher every year.

This means interest in Iskandar potential as an international market is actually growing among MNCs and SMEs, even as investors and even johorians remain pessimistic about its long term prospects.

In 2015 alone, we have seen billion dollar investments announced by Microsoft, Japan Food Co, Healthcare City, Forest City, Johor Halal Park and more.

 

  1. Industrial property demand is booming in Iskandar

Residential demand may be down, but one sector that continues to outperform the market in this bad economy is industrial investments.

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Looking at the statistics for 2014, johor manufacturing investments far outpace other states in Malaysia by more than 100%.

These record figures mean there are more jobs being created and more demand for industrial sector services and properties.

With Singapore introducing the RM1000 foreign worker levy for every worker in Singapore, businesses are now under a lot of pressure to relocate to areas with lower manpower costs and similar infrastructure, and even close proximity to Singapore. Iskandar just so happens to be the perfect location for them.

The supply of industrial properties in Johor is also remarkably limited compared to other property types. Completed industrial properties have been practically cleared across Iskandar, showing businesses are hungry for immediately available space for rent or sale.

 

  1. China developers can still sell to PRC Chinese & Singaporeans

Wcountry_gardenhy is this important? Because chinese developers account for a significant portion of the overall new high rise units in Iskandar (> 15,000), and their price ranges are beyond the upper limit of most Malaysian’s salaries, it will be a big negative impact financially and psychologically to the market if they cannot sell.

Instead, as we are seeing now that despite the poor market, some projects like Forest City, Country Garden and even R&F Princess Cove still have units being sold every month to chinese nationals and singaporeans.

Though I cannot recommend these properties for investment purposes now, as the majority of locals cannot afford them, foreigners buying them for own stay or holiday homes can still drive market growth and assure us the China developers have a sound strategy to offload the remaining units to foreign investors.

 

  1. Affordable & super luxury properties prices are going up

Don’t take my word for it, look at the statistics.

“In 2013, there were 74,153 transactions for residential properties ranging from RM200,000 to RM500,000. Last year, this (number) increased to 102,082 transactions. Clearly the demand for affordable housing surpasses [that for high-end housing] with a price tag exceeding RM1 million,” Deputy Finance Minister Datuk Chua Tee Yong told a news conference after launching the Property Market Report 2014 by the National Property Information Centre (Napic).

art_5The Johor government is also committed to building 28,000 low cost homes for the lower income segment families, with the Johor affordable housing scheme starting in 2016. These houses are expected to be at least 20% below market price and only eligible for families with household income below RM10,000

With over 50% of loans expected to be rejected in 2016, the market is expected to have pent up demand and I forsee many home buyers looking for lower cost units when their applications are rejected for the mid-range one. Indeed, according to the latest data from NAPIC, properties between 400,000 and 500,000 experienced a 17% jump in their transaction value.

Surprisingly properties valued above RM 1 million also experienced a jump between Q2 and Q3 of 2015, with a 48% increase in value of transactions. This may be due to foreigners coming into the market and snapping up deals with the lower ringgit foreign exchange rate.

However I do have a concern with the recent government ruling that properties value RM 300,000 and below be only available to first-time home buyers. I feel that this rule may end up with developers deliberately marking up properties to just beyond RM300,000 to appeal to more buyers in this difficult market, which is never good for either first time or repeat buyers.

 

 

So in Conclusion… 

Iskandar may look like it is in an oversupply situation right now with new projects scheduled to launch up to 2018, however we need to consider that

  1. Iskandar is starting a new phase of rapid economic growth from services and manufacturing including multiple billion dollar projects projected to drastically increase population growth in 2016 by at least 40,000
  1. China developers who are projected to contribute the most to the housing glut are in fact targeting mostly foreigners and won’t make a big impact on the sales of local market, and foreigners are buying
  1. Industrial growth is still going strong and demand for industrial property continues to rise in this economy
  1. Despite our own Johorians and property experts having negative view about iskandar future, more international businesses are investing more into Iskandar every year and we are on track in terms of foreign investment
  1. Affordable housing is in short supply and developers are shifting their focus to building more of these to meet market demands instead of luxury condos. Foreigners also are slowly coming back to the market in the high end property segment (over RM 1 million)

… And we are not even talking about the 3 mega-malls being completed in 2018, the MRT line with Singapore projected to complete by 2019, and the High Speed Rail by 2020.

So is Iskandar growth merely an illusion? I invite you, kind reader, to make your own judgement based on these information.

 

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Warm Regards,

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Rachel Lim

Director, CORE Investors

 

Rachel will be speaking in her upcoming workshop “Property GO” in KL / JB.

Come meet her and get to ask her questions personally about how she sees the property market, what’s her strategy that made her millions, and how you can still make use of 2016 property market to make Millions!

Sometimes all it takes is reaching out for the right opportunity. Let this be yours.

 

Sign up through the link below:

 

16 replies
  1. Adrian Chan
    Adrian Chan says:

    Dear Rachel,

    Thank you for your good write up on Iskandar.

    I bought an Iskandar condo in Medini. To be honest, I did not consider carefully all the risks and pitfalls back in 2013.

    Now, I realize there will be a lot of supply coming up and it is not going to be easy renting out my unit or selling it away next time.

    As an investor who paid RM760psf for my condo, many people have told me it is impossible to sell it to other Malaysians as the price is too high.

    My concern now is, even if there is business growth in Iskandar in the coming years, how will investors like me benefit? There is still a lot of land in Iskandar. Developers will continue building properties and tenants/buyers have many options to choose from.

    I hope to hear your views on this.

    Thank you very much.

    Reply
    • CORE Investors
      CORE Investors says:

      Hi Adrian,

      Nice to hear from you. I will not comment on how good or bad your investment is since you already bought it and I will like you to sleep at night, but here are some points for you to consider.

      First of all, properties in the same location can have different prices. Why so? It all comes down to what kind of people want to stay there and why. Imagine a property near a hospital and one near a theme park. The first may attract hospital staff or even medical students. The second may attract more investors and families. It is important to do research to find out who is suitable for your property and who is willing and able to rent or buy it at this price.

      Secondly, developers will definitely continue to build properties in Medini, but what kind of properties depend on the demand. Right now there is very little demand for more residential properties in Medini, but when most of the properties are taken over by owners, there will start to be traffic flow and demand for amenities, so maybe commercial properties will be more suitable, and so on. Developers also want to make money, they won’t build what they can’t sell now.

      Lastly, Medini as an investment destination actually quite makes sense. This is because they are selling you future CBD properties at a fraction of CBD prices. The keyword is future, and that takes time. However, as a CBD with Medini authorities working hard to bring in new business, the property there has quite a high chance of going up during the next 10 years, once more MNCs start to be based there, compared to other areas with no such benefit.

      So in a sense, you are buying certainty and reassurance for capital appreciation as a premium for investing there now. The only thing is, how long you’ll wait to cash out your profits may not be as fast as you’ll like. So key is having holding power.

      Reply
  2. lawrence
    lawrence says:

    Hi Rachel,
    Beginning of this year, I bought a condo in Permas Jaya. I would like to hear from your knowledge on this location. Would this properties appreciate in time as Permas Jaya is not as hot as Nusajaya, Medini etc.

    Reply
    • CORE Investors
      CORE Investors says:

      Permas Jaya is a different demographic from Nusajaya.

      First of all Permas is the link between JB and Pasir Gudang, there’s a lot of traffic flowing through there, and it’s traditionally a local chinese majority area.

      Whether an area is ‘hot’ or not to me doesn’t depend so much on the price as it does on the demand. A better gauge of ‘hotness’ is, how much demand is there for rental and transaction volume now?

      If demand exceeds supply, prices go up. This is Economics 101. For Permas generally i see demand is there. Over long term prices should rise steadily.

      However, if you want a big jump in your property prices in Permas, then you should be looking at what’s nearby that will cause the property value to jump up when completed e.g. Shopping mall, or train station and so on.

      The tricky part is deciding what price and package is good to enter, when you should sell, and to whom.

      This is part of the strategy that I teach in my 3 day “Buy & Sell” program that teaches investors to find, negotiate and buy high capital appreciation properties at below-market prices.

      If you are keen to learn more, I recommend you come for one of my property workshops. You can find my upcoming events in the calendar link below:
      http://www.coreinvestors.asia/events/month/

      Reply
  3. Kok Ping
    Kok Ping says:

    Hi Rachel,

    Thank you for the nice write up. I recently came across Forest City in Johor with impressive masterplan but the first phase of the condominium is selling at about RM1300 per sqf. Would this property appreciate in price given oversupply of residential units in Johor and is it a good location for investment as the current price is already on the high side?

    Thank you very much

    Reply
    • CORE Investors
      CORE Investors says:

      Hi Kok Ping,

      RM1300 psf is way beyond what locals will pay for even luxury condo prices in Johor. Even developments like Astaka and Sky88 by Setia made news when they were selling for above RM1000 psf because this was the first time ANYONE had seen this kind of price in JB market. You can ask around at their showrooms privately if they are still selling at that price today.

      Right now for Forest City, the main buyers I see are PRCs from China who want a foreign investment / holiday home. Over time, if this trend continues and there is a large enough number of wealthy PRCs staying at Forest City, sometimes this can create its own demand and make new buyers willing to pay for premium price to get access to this community.

      That said, given the large number of units Country Garden plans to release over phases and this early stage, if you want to buy forest city, you should be aware:
      1. It is very very unlikely locals will rent or stay at this location with these prices
      2. It is not meant to be short-term investment property, you are looking at minimum 5-10 years holding period

      Reply
      • Kok Ping
        Kok Ping says:

        Thanks for the reply.

        Just drop by Forest City showroom today, with discount and rebate the price is around RM1100 per sqf. The island will be duty free with own custom. The project seen to have receive quite a bit of incentive from the government. I agreed that most buyers are from oversea. Will it be possible that Forest City might appeal to foreigner or expatriate to rent the place in the future?

        Thank you.

        Reply
  4. Joegoh
    Joegoh says:

    Hi Rachel,
    In 2013 , I bought a double storey terrace house called nusa sentral for about 600k. I would like to hear from your knowledge on this location. Is this a good buy as it is 10mins drive to bukit indah.

    Reply
    • CORE Investors
      CORE Investors says:

      Hi Joe,

      RM600K for a gated guarded landed terrace is quite ok price around bukit indah. What I heard about Nusa Sentral is the residential rental demand is there but the commercial demand is still very bad, so not much amenities around the area. But it’s quite close to Educity which is a good market for students and education staff there.

      Just don’t expect the prices there to jump up very fast as I don’t see much booming factors around.

      Reply
  5. chun
    chun says:

    HI Rachel
    Interesting read on your article as i chanced upon an investment roadshow about the new upcoming THE STRAITS as well. I am a foreigner and the sales team were trying to sell me a unit there. I would like to kindly hear your views on the investment opportunity in THE STRAITS; which is also selling for slightly above RM 1000+ per sqf.

    With all the upcoming supplies that you are talking about and seems growth has slowly declined, is it still a good time to commit to this investment? There is a 5+5 year lock in period with guaranteed rental income.

    As this will be my first investment abroad (if i do commit), I would like to hear your views on this one.

    Many thanks.

    regards.
    chun

    Reply
    • CORE Investors
      CORE Investors says:

      Hi Chun,

      The Straits is a low-density condo targeting foreigner investors, located at Jalan Abdul Samad. Actually there’s a couple of concerns I have about this property:

      1. The developer, Southeast Asia Landmark Sdn Bhd, is new and The Straits is its maiden project. There’s no track record and i don’t see any strong property credentials among its directors
      2. The development is managed by Ramada, which is not the same as being owned by Ramada. While the partnership with Ramada can provide world class hospitality services and the marketing network to tie up with travel groups, it doesn’t mean Ramada or Wyndham Group is very invested in the project.
      3. GRR is nice, but actual price after 5 years will still depend on the real rental returns, which depends on the Hotel occupancy. At this price, I feel the developer has basically added in the renovation costs and additional buffer for paying out the GRR cash.

      I will advise doing some research on the surrounding hotel occupancy rates and tourism demand in Johor Bahru after next 5 years. After 5 years, the MRT line to Singapore should be completed according to current schedule, so might see an uptake on the demand for hotels.

      Also, it will be good if you can track down who are the major shareholders in Southeast Asia Landmark and what are their plans for the future.

      Reply
      • chun
        chun says:

        Hi Rachel
        Thanks for the very useful and educational insights!

        The keywords you mentioned are indeed very clear and useful – managed vs owned, and the fact that it’s a new developer.

        Really appreciate your time to respond. I will do my further research as per your recommendations.

        Reply
  6. Jessy Tan
    Jessy Tan says:

    Hi Rachel,
    I plan to invest but I’m not so sure about capital appreciation on industrial & commercial properties in Johor.

    I have 2 locations in mind both by EcoWorld; factory lot known as Eco Business Park at Kempas and comnercial lot kniwn as Ecobotanic at Nusajaya.

    Between Factory lot & commercial lot, which type will have more demand? Which will be easy to let go in future ?

    I would like to hear your view on these 2 types of properties at different location.

    Thank you

    Reply
  7. Kent Chong
    Kent Chong says:

    Hello Rachel,

    Nice to read your conversation with others and here would like to ask some opinion from you.

    1. I plan to purchase a shop lot in CI Medini which cost over 2Mil. With this SPA, developer committed to rent back the shop lot with few years tenancy contract which give me 5% annual return.
    – Do you think this is good investment for a 3 storey shop lot at his price in Medini area?
    – What is your thought about this developer? Stable? It is formally named as Sunsuria Medini but now change their name to CI Medini and join venture with Creed Group.
    – Do you think the price in Medini will continue raise up for the next 5 years?

    2. I also visited Forest City last weekend and I notice below items which make me regret that I did not buy one unit when I was there in Jan 2016.
    – When I was there in Jan 2016, they started sell first three blocks apartment which near to Hotel. That time was selling about RM1,000 psf and still can select those unit face to sea side. But because I am more keen on the Hotel single condo unit which is smaller size and hotel will rent back from buyer and manage by Hotel. (But not able to get one)
    – Last week I went back to see whether price will drop or not due to bad economic now. Surprisingly all three block are completely SOLD and it is not just three blocks but 30 blocks of condo all GONE and now they are selling for phase 3 which much much far away from targeting Custom Building.
    – This situation reminded me the same situation I did not purchase a Condo in Shanghai when I was there in 2004.

    Do you think Forest City will be really like second Shenzhen situation? Pricing is keep going up and not coming down. Too many Rich people from China and holding power is too strong.
    Singapore property price is not coming down and do you think this will be an BIG IMPACT for Forest City price remain and keep going up IF JOHOR Government really can keep their commitment to give all these buyer PR status in JOHOR?

    Because CHINA Financial power really give me many unexpected surprises for the past 10 years…………

    Appreciate you will share your thought too.

    Thanks!

    KY

    Reply
  8. Jeff Ong
    Jeff Ong says:

    Hi Rachel,

    Good day to you. Am thinking seriously to buy a unit in either R&F Princess Cove or Greenland Jade Palace. But what’s bothering me is on the projected supply coming on board. Do you have any good advise on this subject matter? And I believe this is not an unique concern on my side only. Many thanks in advance.

    Reply
  9. Wong
    Wong says:

    I am looking at Sunway Iskandar Citrine Serviced Apartment for investment on the 1Bedroom ~RM500K.
    My plan is to make it as Homestay and target market is local and oversea tourist,
    if there is opportunity to rent to expatriate is even better but I doubt so.
    Short term the Homestay should cover my interest and part of loan installment,
    then plan to sell it after 3-5 years hopefully there are demands and appreciation.

    Do you think this plan will workout?

    Reply

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