Waning Singaporean interest in Johor property market

Prospective buyers looking at a model of a township development in Iskandar Malaysia, Johor. Jho Low helped draw Mubadala Development Co from Abu Dhabi to Malaysia to make its first overseas real estate ventur e in Iskandar in 2007. However, the global crisis had thrown the Arab property world into disarray and that slowed down the development of the Medini parcel.

SINGAPOREAN Marcus bought a house in Johor several years ago because of the price-space proposition.

He was getting a lot more space and value for his money.

But there was one factor he wished he thought about more seriously – the daily crawl to Singapore to get into office in time and the return journey home.

“It is possible to time your journey to Singapore and back if you have flexi hours but not when you have to be at the office by 9am Monday to Friday,” he says.

Marcus is not alone. There are many like him.

A check with three industry sources, all of them working and based in Singapore, said the Johor property market has been a bit muted of late, unlike the period around 2010.

The numbers have been dropping over the last couple of years.

There are many push-pull factors why interest has waned among Singaporeans.

An industry source who declined to be named says accessibility is one factor while the travel time is the most critical especially for occupiers.

“Otherwise foreign buyers would not be active in the residential markets of most global cities,” he says.

Then there are big picture factors like political stability, market transparency and liquidity/ease of exit.

The stringent government policies in Singapore regarding the amount of debt an individual can raise, also known as total debt servicing ratio, is also a factor. The policy also takes into account an individual’s foreign assets when it comes to the calculation of the threshold level.

In July, the government raised the tax further for Singaporean buyers, making the cost of investment higher. While this could “potentially encourage outflow of capital to nearby regions,” he does not reckon it would be a major problem.

“Investing in an overseas market is riddled with challenges – asset management, forex, taxation, familiarity of environment,” the source says.

Despite Johor offering a value proposition, he does not think there will be a huge outflow from Singapore to Johor.

His views are somewhat similar to another source based in Singapore who also declined to be named.

Singaporeans’ interest in Johor housing started in 2010 and peaked in 2013. It was S$1 to RM2.30-RM2.40 in 2010. Interest-bearing schemes, or deferred payment schemes, were banned in Malaysia in 2014 although they were discontinued much earlier in Singapore.

Such schemes attract speculators with a view to flip the property for a profit, says a Singapore industry source.

While this is well and good in an appreciating property market, speculators bolt in a declining one. The Johor market was so hot that it prompted a Singapore Cabinet minister to caution Singaporeans against investing too aggressively in Johor in 2015. By early 2015, the ringgit had weakened to RM3 to S$1.

Interest has been muted and limited since, with buyers buying mainly for their own occupation, the source says.

This lacklustre scenario is expected to continue as oversupply, lack of rental support and ringgit depreciation affect interest.

“The worsening traffic congestion at the two land crossings in Woodlands and Tuas has also put off many Singaporeans from buying and living in Johor,” the source opines.

“Despite waning interest, approvals and construction of new projects continue, resulting in inventory to build up while prices and confidence decline. This has been the trend with the Iskandar Malaysia property market since 2014. Outlook moving ahead remains uncertain,” the Singapore source says.

The Johor situation is not aided by what is happening in the Lion City.

Says Cushman & Wakefield Singapore’s senior director and head of research Christine Li: “A better Singapore housing market has put the investment spotlight back to the home market. Johor Baru properties are also competing with those in Bangkok and Cambodia.”

In the larger Malaysia context which includes the central region like the Klang Valley and the northern region of Penang, native Singaporeans would buy into Johor because it is nearer and easier to access as a weekend home.

For Singaporean permanent residents, they tend to buy in their hometown.

“As a retirement area, Johor is more attractive in terms of proximity to their families for Singaporeans who are buying in this respect,” he says.

On the recent Pakatan Harapan victory and uncertainty over the high speed rail (HSR) link, two sources say it is too early to conclude its impact but a third source says there will be no big impact.

“No major impact. (The change in government) only reflects the underlying conditions – the shift in political mindset.

“It could have affected those Singaporeans with familial ties in the HSR route, but fundamentally, real estate is still a very local play. Singaporeans will buy into the market if there is a long term value proposition... assuming there is no major political risks on the downside.”

Cushman’s Li says the economic growth momentum should continue but foreign buyers may take a wait-and-see attitude as property investment is a big-ticket item.

A source who declined to be named is more bullish. He likens Malaysia to a jet plane flying with one of four engines for years.

“It was flying lopsided,” he says.

“With all four engines working now as a result of the change in government that advocates transparency and a higher degree of accountability, Malaysia can only soar higher,” the source says.

Says a source: “The ‘feel good’ factor and potential of further growth and benefits on both sides of the causeway are overwhelming.

“A strong and stable Malaysia is good for Singapore, as we ride on and benefit from each other’s strength. Its the same argument for a strong and stable China. Big countries are like the tides. When the tide goes up Singapore moves up and when the tide comes down, we come down. This is the reality of today’s social and economic dynamics. Countries big or small are interconnected.

“Property may be a subset of the big economic and political picture but at the end of the day, it’s sentiment driven. Certainty and confidence are key to investors and the (smooth transition) to the new regime has renewed confidence,” he says.

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