This article first appeared in City & Country, The Edge Malaysia Weekly on December 13, 2021 - December 19, 2021

Malaysia’s economy is gradually recovering with the high inoculation rate in the country. Providing an additional boost are booster jabs, which are being given to frontline medical personnel as well as those in the vulnerable groups, such as the elderly and people with comorbidities. Similarly, the Johor market is poised to capitalise on these factors.

A further stimulus for the southern state is the Malaysia-Singapore vaccinated travel lane by land and air, which was launched on Nov 29. It allows travellers who have completed their Covid-19 vaccinations to enter both countries without having to undergo quarantine upon arrival. 

“Our economy should start showing signs of recovery by 4Q2021 to 1Q2022. The property sector will benefit from the spillover effect of the resumption of businesses across sectors. There will be pent-up demand for property as many are waiting for an assuring sign of market upturn before committing to big-ticket items,” says KGV International Property Consultants (Johor) Sdn Bhd executive director Samuel Tan in presenting The Edge | KGV International Property Consultants Johor Baru Property Monitor 3Q2021.

Whether the recovery will be sustainable or short-lived will depend on the efficacy of the vaccines and the emergence of new variants, if any, he adds.

“The silver lining amid the pandemic is our high vaccination rate, with close to 90% of adults already inoculated. The government is targeting to reopen all economic sectors and borders by the end of the year.

“The lockdown from June until August obviously paralysed the property industry. Developers were not able to open their sales galleries. Prospective buyers could not physically view properties, whether in the primary or secondary markets, while many professional firms and contractors were not allowed to operate. The net effect of these restrictions translated into reduced sales volume.”

Tan says the political infighting in the country is a disruptor to the recovery. “Datuk Seri Ismail Sabri Yaakob replaced Tan Sri Muhyiddin Yassin as the prime minister, albeit with a slim majority, in August. The political situation remains unstable even with the signing of a memorandum of understanding (MoU) for a confidence and supply agreement between the government and the opposition.

“The continual political infighting among all the factions is bad for the economy. All investors, whether foreign or domestic, are watching our political developments very closely. No corporation would invest in a country that is unstable and unable to implement long-term policies that are pro-business. Investors will accord a higher political risk premium to Malaysia if unproductive power tussles continue.

“Hopefully, the MoU between the government and the opposition parties will provide some stability. All stakeholders should channel their focus and energy to rebuilding the economy rather than engaging in unnecessary politicking,” Tan continues.

Meanwhile, the long-awaited revised criteria of the Malaysia My Second Home (MM2H) programme has thrown a spanner in the works for all stakeholders. Among the revised requirements are:

·     Applicants to have a minimum of RM1 million in a Malaysian fixed deposit (FD) account;

·     Applicants to have an offshore income of at least RM40,000 a month, compared with RM10,000 previously;

·     Applicants must show proof of an additional RM1.5 million in liquid assets; and

·     They must spend at least 90 days a year in Malaysia.

“Although the over-stringent criteria were waived for existing participants, they are still applicable to new participants. Despite strong objections from all stakeholders, industry players and the Johor Sultan, the authorities appear adamant that the revised criteria are necessary to ‘ensure only those who are genuine, of high quality and can provide positive contribution to the country’s economic growth are allowed to join the programme’.

“Such draconian requirements are just illogical, high-handed and out of sync with reality. This is a classic example of crafting policies behind closed doors. Foreign retirees earning that type of income or owning that sort of wealth would have a lot more destinations to choose from. Other countries are also hungry for foreign investments and many of them are offering more attractive requirements in an effort to attract the same group of foreigners,” Tan asserts.

“If indeed we are trying to entice those high-net-worth individuals to retire in Malaysia, we should perhaps come up with another scheme, and position that at the new target group with a totally different set of criteria.

“If we are concerned about the quality of the participants, then the screening of their background should be beefed up. Jacking up the requirements in monetary terms does not ensure the decency of the participants. The underlying assumption is wrong,” he stresses.

“Such an overhaul of rules without proper consultation and consideration of the reality on the ground would put off any potential participants. This is another classic case of policy flip-flop that foreign investors are most fearful of. It is bad for our country’s reputation and extremely detrimental to our future endeavours in attracting foreign investors. The damage done will be long-lasting.

“The net effect of many of the existing 50,000 MM2H holders leaving the country is almost unimaginable. If they sell off their properties and withdraw their FD savings from the banks, it will have serious implications for the market,” Tan points out.

On government initiatives, he says, “Despite the government’s ambition to raise the average household income to RM10,065 per month in 2025 from the current estimate of about RM7,089 in the 12th Malaysia Plan, we have noted that the mean monthly household gross income had decreased by 10.3% to RM7,089 in 2020 from RM7,901 in 2019. The decline in household income was contributed by the loss or reduction of income largely due to the Covid-19 pandemic.”

There seems to be a mismatch between house prices and the income of prospective homebuyers in Malaysia, Tan highlights. “It is time for the authorities to seriously consider a total revamp of the way we plan and implement our national affordability housing programme,” he adds.

Factors such as location suitability of such schemes, better alternative financing schemes, and improved coordination between the federal and state governments as well as all agencies involved are all pertinent and worth a second look to ensure better deliverables.

Meanwhile, rising coal and oil prices since end-3Q2021 is one of the key catalysts that could disrupt the global supply chain. Prices of raw materials and end products have increased drastically as a result of the soaring energy costs. “China, being the world’s largest production plant, has been implementing some form of power cuts, mostly targeted at heavy industrial users. The reasons are twofold — record high coal prices are causing power generators to trim output despite soaring demand, and some areas have proactively halted electricity flows to reduce emissions.

“All these factors will inflate cost and lead to a cascading impact on the economy. Real estate is no exception — it will be directly hit as a result of higher cost of materials. The risk of stagnating wages in Malaysia with hyper-inflation is very real and it is going to further impact the discretionary spending power of the general public, in particular,” says Tan.

Eco Botanic has launched its latest terraced houses in two phases, namely The Tate and The Borough. The 441 units in total will have a land area of 1,400 to 1,800 sq ft each, with prices ranging from RM568,000 to RM748,000. The project recorded a sales rate of about 80% as at 3Q2021 despite extremely soft market conditions — an indication that demand for landed houses remains strong.

“In 3Q2021, house prices remained largely unchanged except for 2-storey semi-detached houses in East Ledang and 2-storey cluster homes in Austin Heights,” says Tan, adding that the former saw prices fall about 13% — from RM1.5 million to RM1.3 million — while the latter experienced a 2.6% increase, from RM780,000 to RM800,000.

The rental market for residential properties remained soft, with rates either decreasing or remaining unchanged. Two-storey terraced houses in Taman Molek and Horizon Hills saw a drop of 6.3% and 10% to RM1,500 and RM1,800 per month respectively. For 2-storey semidees, most schemes experienced a decrease of 4.8% to 11.1%, or RM2,500 to RM4,000 per month. Similarly, serviced apartments and condominiums registered a fall of about 5.3% to 14.3%, while rents for 2-storey cluster houses remained unchanged at RM2,300 to RM2,600 per month.

“As a result of the soft rental market, the yield of most residential schemes monitored registered negative growth,” says Tan.

“The continuous effort by the Johor government to reopen borders, especially with Singapore, has borne fruit. We need partial flow, if not free flow of goods, services and people for Johor Baru to pick up its pace of recovery. The property sector, together with the hospitality, food and entertainment sectors, will be the main beneficiaries. The manufacturing and industrial sectors will also see an uptick once borders are opened.”

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