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Iskandar Malaysia is Only Going One Way – Down

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Sentiments in Iskandar Malaysia seem to be going only one way - down

Just like the California Gold Rush of 1849, investors in Singapore have been flocking in droves in the past three years to the region of Iskandar Malaysia to purchase property. Now, the party is over and the fat lady is clearing her throat.

Last updated: 26 May 2015

In the past four years, it seemed like nothing could stop the Iskandar train. Malaysia’s richest man Robert Kuok, Australian billionaire Lang Walker, Valencia’s adopted son Peter Lim, and a host of other big players had invested huge sums of money in the region.

Kuok had purchased S$74 million worth of land in 2013 for a mixed-development project. Walker had bet more than a billion dollars on Iskandar Malaysia becoming a boomtown, constructing the “largest master-planned urban project ever undertaken in Southeast Asia”. As for Lim, his considerable influence can be felt everywhere in the area that’s roughly three times the size of Singapore. The businessman and friend of the Sultan of Johor has his fingers in many Iskandar Malaysia-baked pies, including a premium security business, a medical hub, and the motorsports city.

It’s no wonder that many Singaporean investors have made a play in the region in the past half a decade, snapping up properties the moment they become available, eagerly anticipating the welcome flood of talents looking for a job and a place to stay. Unfortunately though, the supposed flood is turning out to be a trickle and the weather forecast is only promising more doom and gloom in the near future.

Too Many Investors, Too Little Inhabitants

When you drive around Iskandar Malaysia, it’s not uncommon to see swathes of empty apartments with no one living inside. Therein lies perhaps the main issue with the region – the lack of a critical mass of people, especially locals, staying in the area.

In the beginning, the majority of property purchases were made by foreigners, particularly Singaporeans, who were seduced by the attractive price tags. After all, we are used to paying princely six-figure sums for a shoebox, so owning a house a few times bigger than our HDB flats for a cheaper price is incredibly enticing.

Unfortunately, the property cooling measures announced in Malaysia’s 2014 Budget have thrown a spanner in the plans of many of these potential investors. Since the beginning of the year, foreigners can only purchase property worth at least RM1 million, have to pay more in Real Property Gains Tax, and must contend with a 2 percent property levy. These moves have whittled the number of potential property investors in Iskandar.

Couple this with the glut of housing development projects being launched by big Chinese developers such as Country Garden and Guangzhou R&F and you’re looking at the classic problem of unchecked growth – supply outrunning demand.

It’s a problem occurring not just in Iskandar but all across Malaysia. A 2014 Property Industry Survey conducted in the first half of the year by the Real Estate and Housing Developers’ Association Malaysia makes for depressing reading.

  • Less than half of the 10,189 units launched in the first half of 2014 were sold
  • 90 percent of developers in Malaysia experienced a slowdown in property sales
  • More than half of local buyers had problems getting financing for property purchases

If Malaysians already have issues trying to buy homes that cost below RM1 million, it’s even less likely that they would be able to afford the high-end properties in Iskandar. At the moment, the resale market is practically non-existent.

In Iskandar, purchase bookings have been reportedly down at least 20 percent and the outlook for 2015 is just as pessimistic.

Too Many Empty Houses, Too Little Businesses

A thriving business and social hub requires a careful mix of houses and businesses. The equation seems simple on paper – investments create jobs, jobs attract workers, workers need a place to stay. Reality, however, is far more complicated and the master planners and authorities in Iskandar are only starting to realise how difficult it can be.

Iskandar Malaysia doesn't have a good mix of houses and businesses, unlike thriving cities

A disproportionate amount of investments has been poured into housing while forays into businesses have been lagging behind. The only industry keeping pace so far is manufacturing. With many housing projects set to be complete in the next few years, analysts are wondering whether there will be enough rental demand from incoming workers to fill up these completed homes. If there aren’t, current property owners will be fighting over scraps and it’s a race to the bottom of the barrel.

What makes the situation difficult to read is the lack of transparency from the Iskandar Regional Development Authority (IRDA), who only releases quarterly figures on monetary investment but not job creation or population growth. The only projection is that Iskandar Malaysia is estimated to have 3.17 million people by 2025, of which 66 percent is of working age.

The rest is anyone’s guess.

Too Little Information, Too Many Possible Vagaries

Former Minister Mentor Lee Kuan Yew once said in his book One Man’s View of the World: “Let’s wait and see how Iskandar develops. This is an economic field of cooperation in which, you must remember, we are putting investments on Malaysian soil. And at the stroke of a pen, they can take it over.”

His words are beginning to ring true, with the new property measures instituted this year. Previously, property developers were rolling out the red carpet for buyers – Country Garden even chartered several buses to bring hundreds of interested investors to the carnival launch of their new properties. Today, the party atmosphere is gone.

The business dealings by the Sultan of Johor in the Iskandar region, notably the sale of 116 acres of prime land to Chinese developers Guangzhou R&F for RM4.5 billion, have ruffled a few feathers. Smaller local developers are being squeezed out of the market thanks to a new bill that gave the monarch sweeping executive powers and sentiments on the ground have been unfavourable of late.

The suspension of Forest City, a mixed-use development on four reclaimed lands, since the middle of 2014 has also been a big blow.

In a move that stunned property experts, one of the biggest developers in Malaysia, UEM Sunrise, has suddenly stopped plans to build the huge Asian Trade Centre development in Iskandar, despite announcing just last December that it was in the midst of getting approvals from the relevant authorities for the project. The first phase of the development — a mall “even larger than Pavilion in Kuala Lumpur” — was supposed to have been a catalyst to attract foreign investors. Clearly, those plans have bitten the dust.

Rocky politics, lack of comprehensive information, and more pull-outs from big players will only further shake investor confidence, evidenced by the slowdown of growth in the Iskandar region.

Is Iskandar Too Big to Fail?

Is Iskandar Malaysia too big to fail?

There is one thing going for Iskandar –the personal involvement of the Sultan of Johor. If the wheels on the Iskandar Malaysia train does fall of, it reflects badly on the king, who has already put so much time and money into the project. There is also close to RM150 billion worth of investments from influential people in the region, which is a huge sum of money to just go to waste.

The Kuala Lumpur-Singapore High Speed Rail project, slated to be completed by 2020, might also be a catalyst for growth in Iskandar since one of the proposed stops is in Nusajaya, which is within the Iskandar Malaysia region. That, however, is still far off into the future.

If you’re thinking about buying a house in Iskandar to stay in during the weekends and the holidays, you have a wealth of places to choose from right now. However, if you’re considering investing in Iskandar Malaysia, do so with caution, due diligence, and with an exit strategy, if any, that is at least two decades down the road. The train is definitely slowing down. Whether it’s permanently stopping remains to be seen.

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  • 1) Grass is not always greener across the causeway. The grass can be greener if one does his homework to find out what the locals call “OVERPRICED” properties one is buying and mostly shunned by locals. We in Singapore tend to think properties are good investments all the time which can be true in a rising market and compounded by the fact land is scarce in Singapore with over 5 mil population competing for a piece of roof over our heads. However, Iskandar is over 3 times larger than Spore with a population of less than 2 million. Put this in perspective, compare with Spore’s popupation density, if we divide 2 mil with 3, you get roughly less than 670,000 people living in an area the size of Spore compared with 5.2 mil people in Spore. The benefit is you get to purchase much larger or nicer properties in Iskandar on average 4 times times or more cheaper than you can ever dream of buying in Spore. For example, a bungalow in Farrer Rd ranges from S$7 mil to S$30 mil depending on location & land area ( equivalent to RM$17mil to RM$75 mil ). A similar bungalow in Iskandar probably range from RM$5 mil ( S$2 mil ) to RM$12mil ( S$4.8 mil );
    2) Conclusion, Iskandar is value for your money for some people who not speculate in properties like we used to have here in Spore. Infrastructure has improved substatially in the last 5 years with many industrial estates already built and easily connected by well built highways to connect to other commercial & residential hubs or township. All Iskandar now needed are catalyst attractions now already built to hatch completely viz. new jobs created, attractive lifestyles or recreation hubs, commercial shopping areas, manufacturing zones & well planned new residential townships for people to move in from Spore and other countries with lesser benefits in terms of costs of living and built infrastructure. Finally, it would definitely help Iskandar tremendously if the Malaysian Government will have consistent and stable land policies.

    • Thank you for reading the article, Lee. I definitely agree with both your points. There are far too many investors in Iskandar and too little buyers who are emotionally, physically and financially dependent on the area. There’s still hope for the place but the authorities need to plan for the right mix of businesses and housing.

  • A lesson in UMNO/Local Royalty politics dabbling into business, especially high-end businesses. Too much greed brings about a fall sooner or later ! With scarcity being the next scenario in Malaysian government projects, Iskandar will have to lie dormant for years to come !

  • unless the both government come out to talk about the transport fees imposed by both side and maybe if the Sultan of Johor or the UMNO is not greedy. then maybe the grass will be greener.

  • Lee

    Thanks , your explanation well received and I agree.

    Bith side the government’s are into battle for money , who collect more.

    if they dud little thinking for their people , they wint do what they had been

    doing lately. Current Johore Sultan seems more interested in business of

    building than caring for the people. UMNO is as usual and PAP does what

    it is best for , make e more money

  • I see another few issues here too. Firstly, you have a lot of people moving into the region that have done so for the lower cost of living here, yet still work in Singapore. This has not generated much employment on this side of the causeway which is not helping toward the critical mass mentioned. If big companies start moving their business over for the same reasons their employees did it would help. Secondly, many of the property investors from Singapore react with ‘knee jerk’ reactions. While the party was on, it was all great and prices sky-rocketed in a very short space of time. Some over-stretched themselves and got into trouble. Others just got cold feet and decided to jump, dumping a huge amount of property on the already saturated market in a very short space of time, giving further reason for people not to invest. I’m not talking about the big wigs mentioned in the article here either. I’m talking about the average guy or gal on the street looking for a place to put his money. Let’s also consider the Chinese investment here too. As their units were valued at below the then threshold for foreign investment of RM500k, they were offering a buy one, get one free scheme in China to enable buyers to complete the purchase. How this works on the title documents is something I don’t know but would be interested to find out. This cannot be good for a market.

    Time will tell in the area. It takes time for people to see what good things are in the region before making the upheaval to move here. It takes time for the notion that as soon as you leave Singapore you will get robbed. It takes time for businesses to find their feet and get themselves to their critical mass. It takes time!

    I’ve always considered 2 important rules in property investment. 1. It’s not for overnight gains. It’s the long haul. 2. You never want to be in a position where you have to sell.

    Fingers crossed for the future. I think the rail service will help enormously. More stable border crossing would too. Look at the comparison with Hong Kong and Shenzen and you can see that it can work.

    • Hi Ivor,

      That’s an interesting point you brought up regarding China buyers enjoying a buy, get one free scheme. Do you have a link that I can check this out?

      Also, your two property investment rules are great. You highlighted a lot of valid points here and I’m also hoping that Iskandar will take off soon enough. Fingers crossed.

  • I think you are all missing the point. The critical point has always been the economic capability of income earners in Johor to afford such properties. No one from Singapore is going to live in Johor Bahru regardless of the perceived 'greener pastures'. Rental has to come from a critical mass of middle income earners and there isn't one in JB. There is no economic fundamentals in the state that would spur economic growth and downstream activities that can support the population at large. It's all in bits and pieces. IDR has to be known for something that is world class and they haven't yet figured that out. Until they find a way to resolve this, IDR will always been perceived as the border getaway for those living in Singapore.

    • Hi GameXentral,

      You’re absolutely right. For any town or city to succeed, you need a good mix of investments that will generate good-paying jobs to attract a critical mass of people. Right now, they seem to be putting the cart before the horse.

  • "No one from Singapore is going to live in Johor Bahru regardless of the perceived 'greener pastures". Obviously you rarely come to Nusajaya.

  • Farhan Shah Thanks for the article. Its something I've been saying for the past 2 years. The lesson to be learnt is – property has a value because of the people and businesses that resides there, not the bricks, furnitures and fittings, not the land nor location.

  • I think the lesson here is – property has a value because of the businesses and people that utilizes it, not because of the bricks, furniture and fittings, not the land nor location.

  • In 2012 i understand the congestion at the CIQ custom was a breeze to clear but now it is taking 2 hours or so to clear as many expats are moving into Iskandar. If Malaysia and Singapore implement a set of automated systems that allow ease of CIQ clearance, i would think residential properties in Iskandar Malaysia is a steal! Personally, the residential properties in Horizon Hills are really attractive and beautiful to stay in – imagine the spaciousness both horizontally and vertically in front of you – even RM1M is really worth it.

  • Afia Brook Nusajaya? You got to be joking right? What sort of industry are you working in to live there? Do you seriously think Singaporeans who live in a HDB would unsettle themselves to live in Nusajaya? Where is your economic fundamentals to show that Malaysians can afford to buy 600K condos and live in them? Every single one of those buyers are thinking that it should pay for itself in rental income. Now where is that coming from? Iskandar is not taking off in a big way and the only thing going for it that is world class is political corruption. Iskandar is selling a dream that locals don't buy into. What makes you think that foreigners will buy that? If you are super rich, why buy Nusajaya when you can buy in Klang Valley? Better returns too. Dreams that are sold only to the super rich will fail, just like Sentosa Cove in Singapore.

  • In Year 2007 There was A Flood of Foreign Investors into Singapore Orchard Road & Sentosa Cove – pushing up Real Estate Prices into the stratosphere. However, prices of HDB & Suburban Condos were overlooked. Then HDB Apartments took off in a great way but High End Condos & Those In Sentosa Cove fell for 8 years subsequently.

    Right now There Is A Condo Glut in Iskandar due to China Developers carpet bombing the Market.
    While this is true regarding High End Condos The Secondary Market of Landed Properties like Single & Double Storey Houses Are Still In Great Demand

    See http://www.jbhouseforsale.com

  • Hmm The Iskander project remain me of the water front city the Malaysian tries to off load in the 1990s .Chances are its gong to be a BIG white elephant. Almost guarantee for at least 20 years.JOHORE ..nothing there DONT WASTE time.
    DONT get con!
    SIngapore already too much land and offices in TUAS un occupied.

  • "Too Many Investors, Too Little Inhabitants"
    "These moves have whittled the number of potential property investors in Iskandar."
    That's one of the reasons (problems) why SIngaporeans get caught… many think they are investors… but actually are not… many are speculators looking to flip, make a quick buck.

    U say the cooling measures were unfortunate… then let it run unrestrained further? I personally think the cooling measures were too little too late. Should have mirrored Singapore's measures when SG did it.

    Whether it fails or not would depend largely on the investors… like u say "pull-outs from big players" this to me would be the most telling. Big players coming in (or staying) bodes well generally I think. Also isnt the SG govt's involvement be a good thing? I always say I have no faith in Malaysian govt doing shit but it SG govt is doing that shit… shouldnt be that bad? no?

  • RM2.4b transaction in Iskandar Malaysia between Greenland and Iskandar Waterfront City – 22 Jan 2015.

    Shanghai state government-owned Greenland Group has signed a RM2.4 billion deal with Iskandar Waterfront City Bhd (IWC) to develop the Tebrau Bay Waterfront City.

    Greenland will acquire a 128-acre land from IWC, a value that underscores highest land transactions in the Eastern Corridor of Iskandar region to-date which features a snow world theme park, an opera house, a hospital specialising in Chinese traditional medicine and a school.

    This is Greenland’s second deal in Iskandar Malaysia, the Special Economic Zone SEZ corridor in the southern Johor state. The first was in April last year, when Greenland invested MYR600 million for the joint-development Johor land of 13.6 acres in Danga Bay with Iskandar Waterfront Holdings Sdn Bhd, as part of the RM2.2 billion mix integrated Iskandar project.

    The RM2.4bil deal works out to about RM430 per sq ft, which property consultants said set the benchmark for property prices in that area as there had not been any transaction of that size in that area previously. Most previous transactions with China developers like Country Garden, R&F Properties, Zuoda, Greenland were at Danga Bay, which is at the Causeway and near the Second Link…

    https://iskandardevelopment.wordpress.com/2015/01/22/rm2-4b-transaction-in-iskandar-malaysia-between-greenland-and-iskandar-waterfront-city/

  • Hi farhan.. If bought for quick money.. Flippin.. Not really a good move..but.. If you have a lot of stashed cash like peter Lim.. Divesting it into tangible property like land is a really good move.. Those Chinese developer with lots of USD reserves are practically doing the same thing.. Tangible assets.. Who knows what fed reserves would do in the next 1-2 years.. I know your article is more focused on end buyers.. Im just seeing it in another way.. with new property development deals inked with the local state govt, it shows that these developers see value in their investment.. But like you said, only time will tell… But I’m a bit optimistic on iskandar’s future

  • There will always be risk in real estate investment. It is high risk and high return. One needs to do their own due dilligence before making any investment.

  • I am more worry about the Chinese developers creating million dollars condo that’s left empty for years just like lot of empty Chinese cities. I hope the Sultan will not involve too much in real estate… Hope he will do the right thing for the Johorian. Will he do it?


  • Boomtowns along the railway tracks
    Spanning 2,400 kilometres (km) and snaking its way through Japan, the Shinkansen line has irreversibly transformed the island nation since it was rolled out, adding 17 major cities with over 500,000 population each, to the map in just five decades.

    For the Kuala Lumpur-Singapore HSR project that will stretch over 300 km, there will be eight stops — Putrajaya; Kuala Lumpur; Negri Sembilan’s Seremban; Malacca’s Ayer Keroh; Johor’s Muar, Batu Pahat, Nusajaya; and then Singapore itself.

    Japan believes that the Kuala Lumpur-Singapore HSR is an ideal project with its distance of below 350 km, as 2010 statistics show over 90 per cent of passengers opting for the Shinkansen over flying and travelling by road for the Tokyo-Nagoya (342km) and Tokyo-Sendai routes (325km).

    Once the distance stretches too far — typically beyond 900km — the ridership and market share for Shinkansen trains drop as flying becomes the more time-effective way to travel.

    http://www.themalaymailonline.com/malaysia/article/bullet-trains-japans-shinkansen-experience-and-malaysias-future

  • People tend to swing opinions to extremes, from Euphoria to Doom. In 2013 it was Euphoria with SG & MY PM visiting the area Temasek committing investments. People talking about Singapore is Manhatten and Iskandar is New Jersey. It is clean and green area offers good developing infrastructure. To start with it can be great place for a Singapore parents to retire and live in the area and is next door. This place can put more money in average retiree living king size. The crossing, metro, HSE are catalysts that will their role for next generation (2018 to 2030 period). If both governments play it right it will give breather to vertical rising Singapore and Malaysia looking for alternate revenue generator outside Klang Valley. Short time investors are doomed while long play astute players with holding power may do alright. This is one of those places where next generation will wish that their parents had foresight to invest like our generation does today.

    • Hi Average Joe, I agree somewhat that if your holding power is long enough, the investment should work out. Physical property is the strongest form of wealth transfer. However, for investors who have shorter horizons like less than 10 years, the Iskandar story is somewhat a gamble. A lot of it depends on the willingness of Malaysia to transform as a better government and for the right rail infrastructure to kick in.

      If the investors are able to find tenants for their properties, it may actually be ok cashflow wise and there are certain pockets of properties within Johor itself that are quite popular with tenant.

  • Hi Yang Peng, actually I disagree. I have made good money investing in Malaysia. It all comes down understanding your market well enough and of course having a sound investment strategy.

  • Land is scare, houses are rare and people from all over the world will come. WHY??? Johore's Iskander is next to Singapore… The best dwelling place after a day of bizness is naturally JB's home. Every down, the next is up…the game is competition among the stronger players that last… Don't be afraid, unless there is a potential war to be sparked out, then doom is for real. Good bye is still good buy…in JB!

  • Everyone has their rights to air their views and there is no issue with people quoting and truncating paragraphs, but if it makes the whole meaning different, it simply negates the author's credibility. The author happened to truncate just at the wrong place, intentionally or not, you have to ask him. The full text is located on page 172 of the book, in the last Q&A. It is reproduced as follows:

    Q: On Singapore-Malaysia relations, do you see potential to cooperate economically? One example would be Iskandar Malaysia – both sides are pragmatic and there is a basis on which we can do business.
    A: "Let us wait and see how Iskandar develops. This is an economic field of cooperation in which, you must remember, we are putting investments on Malaysian soil. And at the stroke of a pen, they can take it over. They are not likely to because they want more investments. But when we go there, we must understand that any real estate or building that you plant on the ground belongs to the owner of the ground."

  • I am in Singapore and was looking at Iskandar property as investor to rent out my property if I buy. My property agent usually link property in Iskandar to Singapore in some way. I think through and just wish to shared some of my view/thought.

    This is my layman view on the rental market perspective. Please read with a pinch of salt, and go find out more info and reality yourself.

    There will be good property. But.. which one???

    Rental for residential has to match the salary of people working there . First there must be a job and the salary must be sufficient to pay the rental. Tenant will usually look for cheapest possible rental place at a acceptable location, for himself/herself or for family.

    My view on the rental market in Singapore.
    For residential – the business has employed and pay people a salary that enable them to pay the rental price here. Believe most landlord able to rent out and close to desired price.
    For business – there is enough people around most corners, so easier to attract someone to setup business and rent the commercial units.

    My view on the rental market in JB.
    Mainly questions and observation:

    For residential –
    I would like to think the existing working people in JB already has a place to stay.
    Is there sufficient NEW working people in JB to fill up most of the NEW rental property.
    Is most of the NEW working people there earning a salary that can afford to rent at that price, as claim by property agent? Is it most property able to be rented out?
    What is the average salary that enable them to pay the rent desired by landlord?

    For business – I have observed many times that at many places, despite the place is popular, some units just several 10 meters walking distance away (especially those in the back row) seems empty and not rented out for very long time. Such is seldom seen in Singapore.

    If I buy, when can I rent out at desired price, with rental covers installment safely?
    At minimum, I should be able to sell fast and can break even… (I wish…)

    Cheers!

  • Dear Farhan and / or anyone else reading this- I need some advice

    I am a Malaysian female, been in Singapore for 20 years. As a single PR cannot buy HDB.

    I would like to get a condo in Iskandar area so that i finally can have a home of my own and travel to spore to work (have to work, am in my 50s and savings Nil due to bills some surgeries)

    So I am looking for a basic condo, i dont mind low rise, but needs to have a shuttle bus or some kind of bus service nearby so i can travel to spore for work and back. ( i dont drive and intend to take lessons )

    I am not an investor, i am just looking for a decent roof over my head so that i dont have to keep giving tons of money away to landlords!

    Please help with suggestions /recommendations/ thoughts

    Thank you

    Lien

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