The Edge  |  KGV International Property Consultants Johor Baru housing Property Monitor (4Q2020): Subdued Johor market on the road to recovery

This article first appeared in City & Country, The Edge Malaysia Weekly, on March 1, 2021 - March 07, 2021.
Subdued Johor market on the road to recovery

Subdued Johor market on the road to recovery

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The Johor Baru property market came to a standstill in 4Q2020 as the world raced to contain the Covid-19 pandemic.

“The prices and rents of the properties we track remained largely unchanged in 4Q2020. Only 2-storey semi-detached units in Taman Ponderosa saw a marginal drop from RM1.5 million to RM1.45 million,” says KGV International Property Consultants (Johor) Sdn Bhd executive director Samuel Tan when presenting the KGV International Property Consultants Johor Baru Property Monitor 4Q2020.

Tan observes the latest developments in the rollout of Covid-19 vaccines and how they may impact the property market in the state. “It appears that we are seeing some light at the end of the tunnel. However, the whole vaccination process will take time. Even with the successful testing and certification of vaccines, the production-distribution-vaccination process for 70% of the world population is no easy task,” he points out. 

“All major pharmaceutical companies have been rushing to roll out vaccines to combat Covid-19. So far, Pfizer-BioNTech, Moderna and Sinovac are at the forefront of the race with relatively high effectiveness.”

“For property development, it is important for developers to adapt, innovate and evolve so that future products can cater for the rapid changes and meet the needs of buyers. This will involve the entire work process of design, construction, workers’ accommodation and human resources, technology and IT, pricing, marketing and after-sales services. A major reset is needed for the property industry to adapt to the new norm, to reach the next level.”

Tan stresses the importance of adapting to the situation. “The world is definitely on the path to recovery with the mass inoculation drive. What is crucial for all the countries is the way we respond, how we adapt and how we articulate practical action plans in our war against Covid-19. Investors are watching. Potential buyers are watching. Only those that survive the pandemic, adapt to the disruptions and emerge stronger and nimble will be able to ride out the wave.

“We must brace ourselves for an extremely uneven recovery, with occasional U-turns, even with the rollout of vaccination programmes. What is more critical is the lessons we have learnt; it is the responses and plans that we come up with to future-proof our businesses that count.”

Market disruptors in 4Q2020

During the period under review, there were a few determinants that may have impacted the Johor property market, according to the KGV International Property Consultants Johor Baru Property Monitor 4Q2020.

One of the factors is the proposed reopening of the Malaysia-Singapore border. “The reopening is crucial for Johor Baru. Pent-up demand for the products and services available there has been building up across the Causeway. It has been reported that the place missed most by Singaporeans is actually Johor Baru,” says Tan.

“Many Singaporeans would cross over to Johor Baru to shop, dine, entertain and relax to stretch their dollars. With better connectivity, more efficient customs clearance and hopefully a friendlier government policy, the city is a natural choice for Malaysians and permanent residents working in Singapore, and even Singaporeans, to have a home. Again, we see this border reopening as a ‘one-off’ scenario mirroring the Covid-19 situation in both countries.”

According to the monitor, there was a proposal from Malaysia to initiate a Daily Commuting Arrangement (DCA) to allow 300,000 commuters to cross over to Singapore per day. This would help jumpstart the economy as 250,000 to 300,000 Malaysians travel to Singapore to work daily.

The existing Reciprocal Green Lane (RGL) between the two countries, which enables travel for essential business and work purposes, has been suspended for three months since Feb 1 with the recent spike in Covid-19 cases in Malaysia. The RGL, along with the Periodic Commuting Arrangement (PCA) between Malaysia and Singapore, have been activated since Aug 17 last year.

“Johor Baru’s hospitality, retail and tourism-related sectors have been badly hit since the lockdown last March. Nevertheless, the border reopening would have to be postponed with the emergence of the third wave of Covid-19 infections,” says Tan.

Another disruptor is the Rail Transit System (RTS), which was launched on Nov 22, 2020. “The estimated 10,000 passengers per hour via RTS are about half the usual number of passengers who use the Causeway. This should help ease the longstanding congestion issue. At a frequency of 3.6 minutes per train during peak hours and six minutes during non-peak hours, the traffic bottleneck that choked the Causeway will be significantly lightened,” he says.

According to Tan, the duration of the project is estimated to be six years. “It will take about four years of civil works and two years of system installation and operation testing. The RTS is slated to be ready by 2026. This is a realistic timeline and hopefully, no unforeseen circumstances cause surprises and further delays of this project,” he says.

“Connectivity between the two countries will be enhanced. The effective distance between the two countries will be shortened once the congestion issue is resolved. A few hours’ trip via the Causeway during peak hours will become as short as 3.6 minutes.”

Residential developments in Johor Baru, especially those in close proximity to the city centre, will attract demand from various target groups. “These will be mainly Malaysians working in Singapore, Singaporeans capitalising on the relatively lower cost of living in JB and investors,” says Tan.

“This is expected to be a much awaited game-changer. It is a confidence booster to the property market. We believe the effects will likely be felt once physical works can be seen being carried out. Confidence is the sore missing ingredient in the current doldrums.”

He cites three direct measures from the Budget 2021 announcement that may impact the property market in Johor. “First is the stamp duty exemption for sale and purchase agreements (SPAs) and financing instruments for purchase of properties less than RM500,000. Stamp duty exemption will be for five years, from early 2021 until end-2025.”

“This helps homebuyers to save on transaction costs (for example, a total of RM11,500 — RM9,000 for the SPA and RM2,500 for the loan agreement), especially for first-time homebuyers. This also helps developers to clear stocks and encourages them to build houses that are RM500,000 and below. 

“Some investors may start to scout for good buys below RM500,000 for rental income in the next few years. But we will not see a sudden surge in interest among investors in view of the weak sentiment. This will also see developers pivoting to products in this price range to capture this market.

“The second measure is the stamp duty exemption for ‘white knight’ contractors of abandoned projects to minimise project disruption as a result of cash flow issues. The economic and social costs of abandoned projects, as witnessed during the 1997/98 Asian financial crisis (AFC), are tremendous. This is a far-sighted move to pre-empt the repeats of such a dilemma. Having said that, more measures in the form of incentives such as quit rent and assessment waivers may be needed should the risk of more such cases become rampant. This will entail the jurisdiction of the state governments.

“Third is the RM1.2 billion allocation for various types of affordable housing and RM1 billion for 5,000 PRIMA houses for rent-to-own schemes to help the B40 (bottom 40% income group) and first-time homebuyers. These are good measures, but implementation is the key.

“The schemes are impactful only when fundamentals such as location, quality and unit sizes match buyers’ needs and requirements. The scope should go beyond 5,000 units, which is grossly insufficient. That said, it is pertinent that PRIMA sites chosen must be suitable so that the houses are sellable.”

New launches in 4Q2020

Other market disruptors include the Kuala Lumpur-Singapore high-speed rail (HSR) project cancellation and the US-China trade war. “It was announced that the HSR project will be without the participation of Singapore. Both ends could not agree on the operation model to be jointly managed under an AssetsCo. With the exclusion of Singapore, the whole project is going back to the drawing board for further deliberation,” says Tan.

“Suffice it to say that the spin-off effect, the wow factor of linking up KL and Singapore, is gone with the latest developments. Nevertheless, this could be a blessing in disguise in view of other more immediate priorities of combating Covid-19 and other stimulus measures that could pump-prime the economy speedily.

“We do not foresee any immediate fallout from the termination of the HSR project. The market has not given much weight to it since the change of government in 2018. However, the termination removes a hope element that could potentially be good for the region, particularly Iskandar Puteri.”

He highlights the US-China trade war and how it impacts the domestic market. “After a dramatic US presidential election, former president Donald Trump had to concede defeat albeit reluctantly. Nevertheless, the hardline stance against China is likely to persist even with the new administration. Given the White House’s fear of the threat of China overtaking the US economically and technologically, we are likely to see major disagreement on several fronts, including trade, intellectual property, diplomatic relationship and human rights.

“Moving forward, the competition between the two giants could be more diplomatic and less antagonistic in tone. But for an open economy like Malaysia, it is increasingly challenging to adopt a neutral stance. This will have an impact on the pipeline of foreign direct investments (FDIs) in the future. Consequently, the property sector will also be affected.”

Any flow of manufacturing operations from China to Malaysia will be welcomed, according to Tan. “We already saw various announcements of multinational corporations relocating to Vietnam and Indonesia. This is an opportunity not to be missed. FDIs will create jobs, resulting in effective demand for property,” he points out.

Meanwhile, there was only one official launch in the last quarter of 2020, according to the property monitor — the launch of the 2-storey terraced houses at Senadi Hills Phase 1B. “The launch comprised 120 units of 2-storey terraced houses, with a land area of 1,540 sq ft and built-up area of 2,185 sq ft. Prices started from RM793,000. The project has clocked a 50% sales rate since it was launched in November last year.

“Most of what we saw in the market were mainly relaunches and clearing of old stock. This is the right move as there is little hope of great pickups should there be any new launches,” says Tan.