Commentary: The rise in Johor property prices and the
myth that Singapore buyers are responsible
Are foreigners pushing up property prices in
Johor? Political economist Khor Yu Leng says the data shows domestic factors
are also at play.
20 Mar 2018
06:28AM (Updated: 20 Mar 2018 11:51AM)
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KUALA
LUMPUR: We know that about a quarter million Singaporeans visit Johor each
week, thanks to newly available data about cross-border traffic. No doubt
many make the trip to visit a favourite restaurant, shop or stay over a weekend
vacation.
Yet
more Singaporeans are said to be also buying up Johor property.
No
surprise seeing that Johor’s residential property market has seen an uptick in
demand in recent years, fuelled by strong demand, and amid strong Malaysian
economic growth.
A
list of giant residential complexes are set to dot the Johor landscape –
including the iconic Forest City, Suasana Iskandar Malaysia and Shama Medini in
Nusajaya.
Despite
a general climate of positive exuberance, to most Malaysians, a perennial
reason for pushing up Johor property values and the cost of everyday goods and
services remains Singaporeans who venture across the Second Link and Causeway
frequently - and have found Johor to be a suitable second home.
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An
annual survey by the ISEAS-Yusof Ishak Institute of Johor residents since 2013
reports that over 40 per cent blame Singaporeans for a higher cost of living.
More than 70 per cent think that Singaporeans make property unaffordable for
locals, and about 80 per cent agree that limiting the sales of properties is a
good move.
Yet
a simplistic blame-the-Singaporean game is over-stated. The data and a wider
reading of the issue suggests strong domestic forces at play.
HIGHLY SEGMENTED
PROPERTY MARKET
Bank
Negara Malaysia reports that average Malaysia house prices have increased
faster than average incomes since the Global Financial Crisis.
Since
2014, affordable housing has become a prominent issue in Malaysia. There has
been a push to build affordable homes and tighten measures against property
purchases by foreigners. Among measures imposed include a real property gains
tax and a nationwide minimum threshold on residential properties available for
purchase by foreigners of RM1 million (S$338,000).
However,
Johor has exempted Medini and Forest City properties - and it would be prudent
to use a lower threshold such as RM500,000 to analyse changes in the property
market, as a proxy to how many properties may have been purchased by
foreigners.
Johor
has seen a property boom with per square foot prices in some enclaves reaching
Kuala Lumpur city centre levels. Yet, it has also witnessed a major slowdown
with a marked drop in transaction volume and property value since 2017.
In
3Q2017, there were 6,129 residential property transactions, with only 17 per
cent above RM500,000 (slightly down from 18.4 per cent in 3Q2016).
If
we combine residential and commercial properties, including small office, home
officer and serviced apartments, there were 6,920 transactions but only 20 per
cent above RM500,000.
In
terms of affordability, Johor Bahru’s figures look somewhat comparable to the
rest of Malaysia with the median house price to the median annual income ratio
stands at 5.1x, although this is higher than Bank Negara Malaysia’s reported
2014 median house prices in Malaysia which were 4.4x the median annual income.
In
comparison, Selangor stands at 4.0x, Johor at 4.2x, and Penang at 5.2x.
Kuala
Lumpur City and urban Selangor (Shah Alam, Subang Jaya, Petaling Jaya) are
higher at 6.0x plus. Georgetown in Penang was the worst with prices at 10.4x.
WHO’S BUYING?
Singaporeans
are not the foreigners that buy up most of Malaysia’s properties.
The
Malaysia My Second Home (MM2H) programme, an international residency scheme
that permits foreigners to reside in Malaysia on a long-stay visa of up to 10
years, reports about 3,200 successful applicants each year Malaysia-wide.
Assuming
each buys their own place, only around 1.1 per cent of new housing and
commercial units across Malaysia each year are sold to foreigners seeking a
residency permit.
Most
who have signed onto the programme come mostly from China (28 per cent), Japan
(12 per cent), Bangladesh (11 per cent), United Kingdom (7 per cent), and Korea
(4 per cent).
Singapore
buyers only make up 3.8 per cent of the total over a 15-year period leading to
August 2017.
Of
course there would be Singapore and other foreign buyers who invest in Malaysian
property while not seeking to apply for MM2H status. So it is surprising to
find that the Inland Revenue Board’s (IRB) stamp duties system reports a ratio
of 0.3 to 0.7 per cent sold to foreigners each year in recent years.
While
Johor seems to have drawn disproportionate foreign buyer interest with 10.8 per
cent of Johor properties sold to foreigners in recent years, Penang Institute
concludes that “Chinese investments in Southern Johor have split the property
development into a high-end market with excess supply targeted at foreigners as
buyers, and a lower-tier market driven by local developers targeting mostly
local buyers”.
LARGE-SCALE CHINESE
PROJECTS HAVE TRANSFORMED JOHOR’S HIGH-END PROPERTY SEGMENT
Johor
earlier targeted Singapore property buyers via its Iskandar Malaysia project -
especially after the 2010 land swap deals.
Indeed,
Singapore has been the top investor in the so-called economic corridor and
Singaporeans are regarded to have contributed to the investment property price
spike from 2011 to 2013, though in concert with investors from other parts
of Malaysia buying into the Iskandar-Singapore story.
But
the property sector has evolved to feature bigger-than-life projects by China
developers, largely marketing properties to China buyers in anticipation of
improved transport links with Singapore.
Indeed,
it was very recently announced that the Johor Bahru-Singapore Rapid Transit
System Link will be launched by December 2024, with the ability to carry
10,000 passengers per hour per direction and only requiring passengers to clear
customs only once.
Many
eyes have been on Forest City, probably the most ambitious property project in
all Malaysia. Built on recently reclaimed islands, this is in a special status
zone in Johor without a minimum threshold for foreign buyers.
It
is widely reported that its units were marketed with a residency permit, but
its sales have yet to affect the MM2H data trend – which has stayed largely
flat for the last five years since 2012.
By
mid-2017, Forest City (with units starting at just over RM200,000) reported
that 99 per cent of its over 5,000 units sold went to foreigners, most likely
from China. Yet, demand has been tempered since 2017 when capital controls on
outflows imposed by Chinese authorities gave Chinese investors less liquidity
to spend on Malaysian property.
STRESS EASING
While
Malaysian news coverage tend to focus on foreign purchases in the property
market, prices and gluts in key property enclaves, there has been less
attention on housing affordability across the rest of Johor.
Examining
mean household incomes and average residential property transactions prices, a
review of district-level data gives some insights into areas where
Johor voters may be feeling more or less angst in the run up to the 14th
General Election due this year.
The
most unaffordable properties are in Johor Bahru and Kota Tinggi (4.3x and
almost 4.0x although more distant from the big foreign property projects).
Mersing and Segamat present more affordable housing (2.9x and 2.6x).
Rising
incomes and a drop in residential unit transacted values have improved
affordability indicators in Batu Pahat, Kota Tinggi and Pontian, but increased
transaction prices in Mersing and Muar point to eroding affordability.
No
surprise, there is also a loose negative relationship between unaffordable
house prices and the rate of home ownership. Some 70 per cent of Johor Bahru
households own their place compared to 87 per cent in Segamat.
DON’T LAY BLAME ON
SINGAPOREANS
In
summary, it is surprisingly hard to lay the blame on Singapore visitors. First
of all, the data is surprisingly scant and inconsistent.
Significantly,
there are various forces at play, including the arrival of other groups of
well-heeled investors. Singapore’s prominence as Johor property buyers seems to
be eclipsed by those from China.
In
addition, Johor residents seem reasonably insulated from the property enclave
boom-glut dynamics targeted at foreigners but they are not immune to
domestic-driven affordability problems.
Since
the Global Financial Crisis, residential prices have outpaced incomes, but the
property slowdown and recent falling residential transaction values suggest
improvements in some Johor districts.
Overall,
the data suggests that the impact of foreign buyers is somewhat contained.
Johor residents worried about property prices should also be concerned about
domestic income growth, long-term planning, housing policy and interest rates –
as should Johor politicians campaigning in the 14th General Elections.
Khor Yu Leng is
political economist at Segi Enam Advisors.
Source: CNA/sl
