This article first appeared in The Edge Malaysia Weekly on September 2, 2019 - September 8, 2019

DURING a visit by The Edge to one of UEM Sunrise Bhd’s show units in Estuari Gardens in Puteri Harbour, Iskandar Malaysia, a representative of the property developer said the unit had been purchased by someone from China.

“The buyer decided to buy the unit lock, stock and barrel, including all the furniture and decorations you see here,” said the sales and marketing executive. “Of course, we charged for the extra items.”

As this writer and a photographer were leaving, the representative greeted the owner of the unit next door, a South Korean doctor, who has made the unit his holiday home.

The listing price of the units starts from RM1.99 million, which translates into RM524 per sq ft.

Later, during a lunch meeting with one of the main state actors in Johor, The Edge was informed that a unit at Estuari Gardens had been put up for auction for about a year.

From the listing price of RM1.78 million, the unit is now being auctioned off with a reserve price of around RM780,000.

“Nobody wants to buy the unit, even after its starting price had been slashed by RM1 million. The situation is really that bad,” says an executive with a Johor government-linked companies.

It is telling that the units with contrasting fates are within the same development.

Many of the high-end property developments in Iskandar Malaysia were planned and launched between 2012 and 2016, when the region’s property market was at its peak. Many of the launches had been targeted at foreign buyers, especially those from Singapore and China.

However, the market came to a screeching halt in 2017 when China imposed restrictions on the amount of money its citizens could convert into a foreign currency — to a maximum of US$50,000 per person per year.

As at end-June, RM14.4 billion worth of properties had been left unsold in Johor, the highest in the country. This situation has prompted the state’s branch of the Real Estate and Housing Developers’ Association (Rehda) to call for the government to intervene to revive the market.

“The building and development industry is the fourth largest economic driver in Malaysia. The industry is stimulating around 120 other trades. What we are concerned about is that the authorities and the stakeholders are not holding hands to come up with a solution to the problem,” branch chairman Datuk Steve Chong Yoon On told the media early last month.

Quoting data from the Construction Industry Development Board (CIDB), he said construction contracts awarded by the private sector have dropped to an estimated RM62.6 billion this year from RM206 billion in 2016. Most of the construction jobs involved property development.

“If this figure drops further, the next thing you will see is a lot of unemployment, the economy will slow down and foreign investments will drop. Our rates will drop, so this is something that we don’t want to see,” said Chong at the press conference on Aug 6 at Rehda Johor’s office in Johor Baru.

While the property industry is not a promoted industry in Iskandar Malaysia, Iskandar Regional Development Authority CEO Datuk Ismail Ibrahim says he is concerned about the situation. The developments in the property market will have an impact on the growth of Iskandar Malaysia, he says.

Ismail says he has been talking with all stakeholders, including the state government and the property developers on how to revive the property market. One of the ways he suggests is for some properties to be subdivided into two, so that cheaper units can be sold.

“For now, we are actually working with specific groups of developers to perhaps revisit the units that have been built, with the possibility of breaking them down. Let’s say, a unit of say 1,000 sq ft, they are selling at RM600,000. It is beyond the affordability of most people. What if the unit is broken into two units of 500 sq ft each? It might not meet the policy [requirement] of the day because the policy says it (a house) has to be no less than 700 sq ft, for instance.

“But these are modern types of units. At 500 sq ft, you have all the facilities and the younger generation does not need big houses,” he says, adding that in cities such as Hong Kong, Singapore and Macau, 500 sq ft units are the norm.

Nevertheless, Ismail says at the end of the day, the most sustainable way to address the property overhang is increase the people’s average income and developers must ensure that what they are selling meets the demands of the market.

At Rehda Johor, members are asking the state government to relax the bumiputera release mechanism and quota system. Johor has some of the most stringent bumiputera quota policies when it comes to properties. All property developments have to set aside 40% of the units available for bumiputera buyers.

According to Chong, a property developer can only apply for unsold bumiputera units to be released when no bumiputera buyer is registered after a certain period. As long as there are prospective bumiputera buyers registered for the project, the developer cannot release the units into the market.

He said that a study done by Universiti Teknologi Malaysia finds that only 20% of the bumiputera units in Johor have been taken up.

“The release mechanism is very rigid. The units cannot be released within at least 12 months, and then there are also requirements as to how many advertisements can be made during the period. I think the government can do away with these trivial things.

“We are not questioning the bumiputera privilege, but we are saying that there is room for improvement in the release mechanism. If developers get to sell more properties and earn more profits, we pay more taxes to the government, so everyone is happy,” he said at the press conference.

Rehda Johor has also asked for the price threshold of RM1 million for foreign buyers to be reduced to rejuvenate foreign buyers’ interest in the state’s property market. The association also said banks should be more “open-minded” when it comes to financing property purchases in Johor.

When asked whether the Johor property market, with its large overhang situation, has passed the point of no return, Chong said there is still demand for properties in the state but the state government needs to do something soon.

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