THE EDGE. 11TH APRIL: The Johor Baru property market has stabilised and is steadily moving on an upward trajectory following the country’s transition to the endemic phase of Covid-19, the reopening of its borders and the new unity government, according to KGV International Property Consultants (Johor) Sdn Bhd executive director Samuel Tan when presenting The Edge | KGV International Property Consultants Johor Baru Housing Property Monitor 4Q2022.
“We believe it is a relief for the rakyat and business community to have a stable government that is pro-business and liberal. A stable, pro-business and liberal administration is especially crucial for long-term national policies and development projects — for instance, taxation and incentive policies, national policies on housing development and major infrastructures, as well as various initiatives to entice investments,” says Tan.
“The prerequisite for a successful economy is the certainty that government policy can be implemented. Only then will investors consider Malaysia — investor confidence is of utmost importance.
“A favourable political and macroeconomic environment will benefit the property market. The next 12 months will be especially crucial as the ‘feel-good’ sentiment will cascade down to the property market and translate into more transaction activities.”
Retabled Budget 2023
There were several measures announced in the recently retabled Budget 2023 that are related to the property sector. For one, together with the Tun Razak Exchange (TRX) in Kuala Lumpur, Iskandar Malaysia in Johor will serve as a financial zone to attract high-quality foreign direct investment into the country.
“There is also the continuation of the stamp duty exemption for first-time home ownership, with full exemption on properties below RM500,000 and 75% of the stamp duty on sales and purchase agreements of properties priced between RM500,001 and RM1 million,” says Tan.
“As for lowering the stamp duty for the transfer of property through love and affection between parents and children, grandparents and grandchildren, it was proposed that the stamp duty on instruments of transfer of property be fully exempted, with the exemption limited to the first RM1 million of the property’s value. The balance of the property’s value would be subject to ad valorem duty and receive a 50% reduction in stamp duty. This stamp duty treatment is to be applicable to only Malaysian citizens.
According to Tan, another encouraging measure is that Syarikat Jaminan Kredit Perumahan Bhd (SJKP) will guarantee up to RM5 billion in loans for the benefit of 20,000 qualified borrowers.
“Pending more details on the location of the financial zone in Iskandar Malaysia and other associated incentives/measures to promote the said initiative, it is premature to assess its impact on the economy and property markets. We certainly hope to see more concrete actions in the form of policy to promote the financial sector so that more jobs can be created in Iskandar Malaysia. This bodes well for the office submarket directly and benefits residential and hospitality properties as well.”
On the stamp duty exemption for first-time homebuyers, he says, “The measure lightens the need for cash upfront and is especially helpful for the mass market and first-timers who are cash-tight.”
As for the stamp duty exemption on instruments of transfer of property, Tan notes, “This is a long-awaited measure that helps the rakyat when inheriting real property from their loved ones. Though not exactly stimulating in nature, the full stamp duty waiver for properties less than RM1 million and 50% waiver for properties more than RM1 million are indeed a goodwill gesture for the people.”
On the loan guarantee, he says, “This measure will make homeownership more accessible to first-time buyers and individuals without a steady income, such as gig and freelance workers, independent business owners, small traders and entrepreneurs.”
Macroeconomic factors
“Gross domestic product hit a high of 8.7% in 2022 due to the improvement in economic performance across sectors and the small base factor. Nevertheless, 2023’s GDP is expected to slow to about 4% to 4.5%. This is in line with the expected slowdown in the world economy this year, with some countries likely to plunge into recession in 2023,” says Tan.
“Malaysia’s overnight policy rate (OPR) is expected to increase from 2.75% to 3.25% in 2023 in line with the US Federal Reserve’s rate escalation from the 4.25-4.5% band to a terminal rate of 5-5.25% this year. The inflation rate is likely to remain high due to supply chain disruptions as a result of the Russia-Ukraine war, prolonged China lockdown and pivoting from broad-based subsidies for fuel and some consumer items to more targeted ones.”
Tan opines, “From the statistics above, 2023 appears to be another ‘tough’ year. Nevertheless, we are cautiously optimistic that our economy will start to ‘normalise’, although it will be an uneven recovery across sectors. Barring any unexpected external shocks, most bad news should have already been priced in. We stand by our earlier view that the property market should recover gradually, especially entry-level housing and landed properties for upgraders.
“For the property sector in Johor Baru, entry-level housing for first-time house buyers in the region of RM300,000 to RM500,000 will be in high demand. Many would have to decide on the trade-off between location and space. For a more centralised location, first-timers may have to consider a smaller serviced apartment/apartment. Should one prefer a larger space, he would have to live on the outskirts of the city.”
Landed homes that are priced at RM600,000 to RM700,000 will be popular among upgraders. “We note that many developers are deliberating on new concepts and designs with smart home and green features in their new project planning to justify the higher launch prices going forward. We observe that some developers are toying with the idea of positioning their new terraced houses as an ‘affordable luxury’ product. Pricing-wise, the developers are trying to price it at the RM850,000 to RM900,000 level,” says Tan.
“Our prime minister Datuk Seri Anwar Ibrahim commented that the cancellation of the high-speed rail (HSR) between KL and Singapore was ‘a mistake both from the current economic standpoint and in terms of future benefits’. This raises the possibility that the HSR could be revived under the current administration. There has been talk that the revived HSR route alignment could be tweaked and might even be extended to Thailand and China,” he adds.
“While the HSR is definitely beneficial to our economy in the long term, we must nevertheless be mindful of the overall cost and benefit, as well as the timing of implementation. The government would have to consider quite a few pertinent issues before deciding to embark on this mega infrastructure project. We have highlighted some issues and they are by no means exhaustive.
“The stretch of KTM Electric Train Service (ETS) between Gemas and Johor Baru, a medium-speed electrified double-track railway, is expected to be completed in mid-2023 and will connect Johor Baru to Kuala Lumpur in about 3½ hours. This brings up the crucial question of whether there is an urgent need to have another HSR in the near future. Will the HSR be underutilised in the initial years, especially if the ticket pricing is likely to be high in view of the high cost incurred?
“We must reiterate that we are not against the HSR project. What we are saying is we must be extremely careful and assess all grounds before any decision is made. Even if the final decision is to revive the HSR, it is pertinent to consider the following: What business models to adopt in terms of control/maintenance and servicing, especially for inter-country rail lines? What is the source of financing and model to adopt? What is the timing to kickstart the project? Will it be a phased project since it might be an inter-nation rail line that entails different considerations in various sovereignties? Also, the alignment and the final destinations.”
Moving forward, Malaysia’s property market will be affected by several “wild cards”, including China’s reopening, says Tan. “After an extremely stringent three-year lockdown, China’s reopening is being closely watched by the world. So far, there appears to be no overly serious virus mutations and transmissions across nations.
“Many countries have further opened up their borders and lifted travel safety measures. Barring any further surprises, it appears that we have successfully transitioned from the Covid-19 pandemic to the endemic. The economy is recovering and the property market is no exception, even though not all subsectors are recovering at the same rate.
“The geopolitical conflicts continue to be a ‘clear and present danger’ that could potentially derail the global economic recovery. To name a few, any escalation of the Russia-Ukraine, China-US-Taiwan or North-South Korea conflicts will have serious consequences on the global supply chain, international trade and foreign direct investment. Nevertheless, we can probably take comfort that no country appears to be serious enough to up the ante in the geopolitical conflicts, at least in the near future. Nevertheless, the uncertainty remains extremely high.”
According to Tan, as a result of the prolonged conflict between China and the US on trade and other national strategic issues, it is increasingly risky and costly for multinational corporations to solely operate in China. To diversify their risk, many MNCs have started to relocate or are contemplating relocating to Southeast Asian countries. Malaysia stands to benefit from this relocation wave. As it is, Johor has already attracted approved investments of about RM70 billion partly because of this diversification drive. This is a “wild card” that has brought positive spillover effects on our economy.
He also highlights the current government’s stability. “Despite the initial uncertainty when PH won the general election, the government appears to have settled down and got the administration moving, finally. It is hoped that the whole administration machinery can finally move on and implement policies that are long-term, sustainable and beneficial to the country.
“Taking into consideration the key developments, we opine that both our economy and property market are on a firmer footing and poised for a gradual recovery, even though there will be intermittent road bumps along the way.”
Launches in 4Q2022
All property launches during the period in review were for terraced houses. In Phase Iconia Garden Residence in Taman Impian Emas, 118 single-storey terraced houses were launched. They have achieved a take-up rate of 55% to date. The typical land and built-up areas are 1,900 and 1,370 sq ft respectively, with prices ranging from RM528,000 to RM576,000.
Some 100 out of a total of 238 double-storey terraced houses in Laman Citra, Gelang Patah, were launched in November 2022. The project achieved a commendable sales rate of more than 90% for the 100 units launched. There are two unit types offered, with land and built-up areas of 1,539 and 1,646 sq ft and 2,063 and 2,183 sq ft respectively. Prices start from RM744,000 and RM795,000 respectively.
In Taman Mutiara Maju, 222 double-storey terraced houses were launched during the quarter in review. All the intermediate non-bumiputera units were sold out immediately. With a land area of 1,400 sq ft and a built-up area of 1,680 sq ft, a typical unit is priced from RM812,000.
The landed homes, especially entry-level terraced houses, continue to be the most saleable, says Tan. “We have noticed that the price has been creeping up, even for the supposedly ‘entry level’ landed housing. The double-storey terraced houses are priced from RM700,000 to RM800,000.”
Price and rental trends
Tan says, “The yield of high-rise properties (such as serviced apartments and condominiums) has increased almost across the board. This is attributed to increased rents with stabilised prices. This was expected as the demand for high-rise properties has increased since the reopening of borders last year as a lot of Malaysian workers opted to rent in Malaysia rather than in Singapore in view of the escalating accommodation cost in the island republic.”
According to the monitor, the yields for cluster and terraced houses in the portfolio were also higher in general, he says. “We reckon that the main reason for the high rents is due to the increasing demand for rental housing from Malaysians working in Singapore. Another reason could be due to some landlords taking the opportunity to revise rents upwards as the economy starts to recover post-pandemic.
“For the semi-detached houses that are larger, the yield has been largely stable, with those located in East Ledang and Taman Molek registering a marginal increase in rents and, hence, yields. Prices have been largely stable, except for Taman Bukit Indah, which saw a marginal increase from RM950,000 to RM1 million.
“From the above statistics, we could sense a gradual increase in rents across housing types. Post-pandemic, the pent-up demand built up over the past three years should support house prices. Coupled with the fact that the development cost has been increasing due to the record inflation rate, there is cost pressure for developers to increase prices for new developments. All these factors are affecting the resale property market.”