This article first appeared in City & Country, The Edge Malaysia Weekly on February 21, 2022 - February 27, 2022

Although the economy is picking up, the mutating of the Covid-19 virus may hinder the recovery of the real estate market in Johor in 2022. Having said that, the country is more equipped to tackle un­expected variants, allowing developers in the state to cater for pent-up demand and plan future launches.

In presenting The Edge | KGV International Property Consultants Johor Baru Property Monitor 4Q2021, KGV International Property Consultants (Johor) Sdn Bhd executive director Samuel Tan says, “Most developers are still more confident with landed properties, especially terraced houses. With the Covid-19 pandemic gradually pivoting to endemic, we should be seeing more launches. Developers will be gearing up to capture the pent-up demand.

“With the administration of the booster jabs sped up, the vaccination drive for those aged below 12 this year, the arrival of new oral antiviral medication and more experienced medical teams, Malaysia is better prepared in the battle. We therefore believe the economy and property market will recover slowly, with some unexpected road bumps along the way.”

Among the current disruptors in the Johor real estate market is the Vaccinated Travel Lane (VTL) between Malaysia and Singapore.

“The quarantine-free VTL between Malaysia and Singapore commenced on Nov 29, 2021. In the initial stage, only citizens of the respective countries were allowed to return to their home countries. In view of the close ties between the two countries, citizens of both countries were allowed to cross the border via VTL on Dec 20, 2021. The VTL by land started with about 1,440 people during the first week,” says Tan.

“Nevertheless, with growing fears over the global spread of the Omicron Covid-19 variant and Singapore detecting its first such cluster in December 2021, the VTL was suspended for a month, from Dec 23,

2021, to Jan 20, 2022.” On Jan 21, both countries allowed the resumption of ticket sales for VTL by land and air, but with a 50% reduction in the quota.

According to Tan, the VTL was a crucial step towards a full border reopening with Singapore. “The VTL was suspended barely one month after launch, however, in view of the potential risk posed by the highly infectious Omicron Covid-19 variant. Moving forward, our border reopening is likely to be subjected to such disruptions as the Covid-19 virus mutates.”

The governments of both countries are controlling the number of travellers crossing the Causeway in the initial phase, says Tan. “Both ends remained vigilant and the abrupt one-month suspension showed the implicit challenges in opening up the border. It is unlikely for the authorities to allow for the ‘free flow’ travel of a couple of hundred thousand people both ways in the short term.”

Even with the existence of the VTL by land, day-trippers from Singapore are not visiting Johor Baru just yet.

“The cost and hassle of testing, buying insurance and other SOPs are big deterrents. In addition, it will also take time for the Johor Baru retail sector to recover and return to its glory days, as many operators have closed shop in the past two years. As a result of uncertainty in the reopening of borders, market sentiment in the property market will remain volatile,” says Tan.

“To overcome the problems in the VTL by land, many who need to commute between these two countries have resorted to the VTL by air, which is a lot easier, albeit more expensive if the final destinations are outside Kuala Lumpur.”

Another factor is the proposal to revive the High Speed Rail (HSR) project by the Malaysian government at the end of November 2021.

Tan says: “The proposal is likely to be a contentious one, given that Malaysia had paid a RM320 million penalty to cancel it on the basis that we did not have the fiscal means to proceed with the project at that time.

“The proposal to restart the HSR will not only be economically challenging but also politically hard to justify in view of our high national debt.

“To justify the resumption of the HSR, the authorities will need to conduct a robust cost-benefit ­analysis, taking into account factors such as economy, social, spin-off to property development, trade and logistics, environmental impact and international connectivity. We should revive the high-impact project only when we are absolutely convinced that the overall benefit of the HSR far outweighs the cost.

“On a longer time horizon, the HSR should be connected to Thailand and beyond to enjoy a seamless transportation system into Greater Asia.”

The increase in the cost of building materials is another factor. The building and construction industry has urged the government to take immediate measures to address the skyrocketing building material costs to prevent a greater negative impact on the sector and the country’s economic growth.  The hike in building material prices has resulted in a 13% to 20% increase in construction costs.

Tan says: “Similar to other commodities, high building material costs are an issue caused mainly by the pandemic-inflicted supply chain disruption and supply constrictions.

“This problem is further aggravated by the border restrictions imposed by all countries. Restrictions in the movement of raw materials and labour add to overall construction costs. This is a global phenomenon that is not easily resolved.

“After two years of the pandemic, the pressure of inflation has started to kick in and the property sector is no exception. In the interim, our government could provide assistance in the form of tax incentives and reduce miscellaneous compliance costs. However, the construction industry will have to pivot towards new construction methods and automation to control the overall cost increase in the long term.

“With the likely hike of rates in the US, there is the question of whether the strength of the ringgit will be affected. Tied to all this is whether there will be a possibility of imported inflation, as we still import a lot of goods from abroad. This, in turn, may affect our purchasing power and, inadvertently, the demand for properties.”

After almost two years of stagnation in the market, there were five new launches in Johor Baru in 4Q2021, says Tan.

There are four landed property projects — Crest @ Austin in Bandar Putra Jaya; Kaze Hills in Bandar Tiram; Aster Heights and Laman Citra in Gelang Patah — and a serviced apartment, Meldrum Heights, in the Jalan Bukit Meldrum locality.

Of the four landed projects, only Crest @ Austin in Bandar Putra Jaya offers larger properties — cluster and semi-detached — whereas the rest comprise terraced houses.

Tan says: “The double-storey cluster at Crest @ Austin, with a land area of 2,240 sq ft each, was priced from slightly more than RM1 million to RM1.4 million; the double-storey semi-detached homes were priced from RM1.09 million to about RM2 million. We were told the sale rate is about 40% for the non-bumiputera units.

“At Kaze Hills in Bandar Tiram, a double-storey terraced house with a land area of 1,500 sq ft was launched from RM598,000. We were given to understand that 10% of the non-bumiputera lots were sold and a booking rate of 80% for the 85 units was achieved.

In Aster Heights, 144 double-storey terraced houses with a land area of 1,170 sq ft each were launched from RM489,000 and the sale rate is said to be about 50%.

Tan says: “In Laman Citra, there is a relaunch of double-storey terraced houses with a land area of 1,540 and 1,650 sq ft at prices starting from RM707,000 and RM735,000 respectively. The homes registered a sale rate of more than 80%.”

The only serviced apartment project, Meldrum Heights, is located near the Causeway and overlooks the Straits of Johor. “The 251 units measure 337 to 1,022 sq ft. One-bedroom units are priced from RM270,000, or about RM800 psf. We were given to understand that the small units are popular and have since been sold out. The overall sale rate is about 20%,” Tan says.

“Many are watching the sales performance of Meldrum Heights, as there have been no new launches in the centralised location for a while. From the sale, there appears to still be demand for small apartments there. This could be attributed to its relatively affordable absolute amount and good location.”

In terms of the price and rental trends, the resale prices and rents remained stable in 4Q2021, adds Tan.

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