This article first appeared in City & Country, The Edge Malaysia Weekly on January 23, 2023 - January 29, 2023

The real estate market in Johor Baru appears to be holding steady against the challenges in the third quarter of 2022, and this sentiment is expected to be maintained in the coming quarters, according to The Edge | KGV International Property Consultants Johor Baru Housing Monitor 3Q2022. 

KGV International Property Consultants (Johor) Sdn Bhd exe­cutive director Samuel Tan says: “Property transaction volume and value in Johor Baru increased by 26.1% and 59.6% respectively, according to official data for 3Q2022.

“This is largely expected, as sentiment improved in 2Q2022 when our borders reopened, and transactions surged because of the pent-up demand. For the residential sector specifically, transaction volume increased 26.5% to 6,194 units, from 4,897 units, while transaction value rose 33.6% to RM2.9 billion, from RM2.1 billion.

“We expect overall transaction volume and value to be more moderate in 2H2022, in view of the impending interest rate hike, tension escalation in Russia-Ukraine and China-US/Taiwan. Nevertheless, we remain positive about residential landed properties, owing to supply scarcity, demand preference among most local buyers and the perception of higher future prices due to increasing construction cost.” 

Many developers are gearing up for new projects. “We have been receiving feedback from developers and landowners on the uncertainty and the opaque development charge (DC). In addition, while doing our consultation works, many complained about the high development charges imposed when the subject lands need conversion or entail land intensification,” says Tan. 

The DC is a levy on the enhancement in the land value due to the change of land use, as well as enhancement in the land intensity or increase in floor area. “The DC is typically assessed via a before-and-after valuation on the land, that is, before the betterment in the land value and after the enhancement in land value. The rationale is for the state government to cream off the excessive windfall that the private landowner might benefit from, owing to the change in land use (that is, agricultural to residential or commercial) or an enhancement in the allowable development intensity through the upward revision of the plot ratio (for commercial and industrial land) or density (for residential land),” says Tan. 

The rate for the DC ranges from 5% to 30%, depending on the location of the subject land, whether it is District, Perbandaran, Bandaraya or International Zone. “According to observations and feedback from landowners and developers lately, however, there are weaknesses in the implementation of the mechanism of levying the DC,” notes Tan. 

He highlights the deficiencies of the DC. “First, there is a lack of transparency. Derivation of the DC is not transparent — no calculations are disclosed to the developers/landowners, so one would not know what the values are before and after land enhancement. This is basic information that the owner needs in order to know whether the DC is fair.” 

Tan says the DC appears to be a double charge. “There is already a development premium payable, why is there a need for another levy? It appears to be double charging the lan00000downer on any value enhancement.” 

Further, there is no avenue for appeal or objection, adds Tan. 

“The most inequitable part of the levying of the DC scheme is that there is no avenue for objection or appeal. As stipulated under Sub-section 33(2), Act 172, the amount of DC leviable is final after the approval of the local authority and no appeal or objection is allowed even in the courts. This is an overly draconian rule that might lead to gross injustice. The developer/landowner will need to carry out pre-consultation to determine the DC payable and negotiate prior to the official issuance of DC payable. Nevertheless, we understand that the authorities would request that the developers/landowners engage a valuer to furnish a valuation report, but no basis shall be disclosed by the authorities.”

Tan suggests some solutions to alleviate the issue. “We sincerely implore the authorities to consider the following: to be more transparent in the derivation of the DC by showing the value and basis before and after value enhancement. As valuation is a part-science/part-art profession, there could be potential issues that are complex and warrant further deliberation. This is especially so for land matters.

“There is a need to study and align the justification of charging a development premium and DC. Over-levying these compliance costs will unnecessarily add on to the final product and render property unaffordable by the rakyat. There must be an avenue for the owners to appeal or file objections on the DC chargeable. Similarly, compared to the land acquisition compensation, levy of stamp duty and assessment/quit rent, it is only equitable where proper channels are provided for in assessing the levy.

“Lastly, we must reiterate that an overly stringent way of DC implementation to tax the landowner is inequitable and will deter development. This is counterproductive, unjust and especially detrimental in today’s weak property market,” says Tan. 

In terms of land banking, there has been rising interest. “Throughout 2022, we saw an increase in interest from developers and investors in sourcing for land in anticipation of the recovery of the property market in 2024,” says Tan. 

“Asking prices are more realistic and more desirable land is available for sale. This trend will continue for the next two years as landowners dispose of their non-core properties. Others need better cash flow and the proceeds from such sales will tide them over in the difficult days ahead.”

Developers are mindful of the changing tastes and preferences of buyers, Tan says. “Building ­areas are getting more compact so that prices are more affordable. Inflation has caused the cost of building materials and labour to rise, and this is not too helpful in the property industry.

“Prices will increase, not because they are demand-driven, but because they are cost-driven. All stakeholders must work towards a lower business cost environment. Any unnecessary costs should be eliminated or reduced. The approval period should be shortened.”

Meanwhile, the Johor Baru-Singa­pore Rapid Transit System (RTS) is making good progress. Tan notes: “This game-changing project connecting JB to Singapore is progressing well. Parts of the rail tracks are already constructed. Targeted to be completed by 2024 and operational by 2026, this project will enable easy connectivity between these two destinations.” 

During the period under review, there were several other market disruptors such as the interest rate hike. “Bank Negara Malaysia would have to keep pace with the [overnight policy rate] hike, although not as aggressive, comparatively. The US Federal Reserve has raised the interest rate four times (a 0.5% increase one time and a 0.75% increase three times to between 3.0% and 3.25%) while Bank Negara raised the interest rate three times at a more measured pace of 0.25% every quarter last year to 2.75%.

“The cost of funds for the loan financing will be more expensive and this will increase buyer’s affordability. As a result, more buyers would adopt a wait-and-see attitude before committing on big-ticket items, as many households are already highly geared. The most detrimental factor is the impending interest rate hike has yet to see the ceiling. The Fed appears to be taking a more hawkish stance than expected to tame inflation.”

Meanwhile, Malaysia introduced the Malaysia Premium Visa Programme (PVIP) in September 2022 to attract foreign tycoons to Malaysia. The scheme has a higher requirement than the Malaysia My Second Home (MM2H) programme: The principal applicant must demonstrate a minimum monthly income of RM40,000, or RM480,000 annually; and the principal needs to have a fixed savings account of at least RM1 million, from which withdrawals of 50% for the purpose of purchasing real estate, health and education are allowed after one year of participating in this programme. 

“Participants may bring in dependents such as a spouse, children, parents, parents-in-law and housekeepers. There is a one-off participation fee of RM200,000 and additional dependants will be charged at a rate of RM100,000 each. There is also an annual fee of RM2,000 for the pass, and all participants and dependants must produce a certified Letter of Good Conduct (LOGC) from their country of origin,” says Tan. 

“There is no harm in coming up with a new programme to attract high-net-worth participants, though we must highlight a few points: First, Malaysia will be up against many competitors such as Australia, Thailand, Indonesia and some European countries in attracting this premium target group. We must ask ourselves what our strengths are. What makes us special that we can attract these tycoons? Does this new PVIP align with other policies? What are we trying to achieve in attracting foreigners?

“We cannot craft policy without judiciously thinking through the impact and, especially, the unintended consequences that might arise because of hasty implementation,” he adds.

“Second, super-high-net-worth participants may not necessarily equate to high spin-off to the economy, as they are usually highly mobile, and their capital can be very liquid and mobile. In addition, one must understand that property and funds sitting idle in the bank account do not create a lot of spin-off effects to the economy.

“Third, is it possible to relax the criteria for the MM2H since we have a new scheme to attract the super-rich? There is no harm in having two schemes targeting two different target groups. There is a lot of potential for the MM2H if implemented correctly, we should carry out only minor tweaking and not overhaul the whole scheme, rendering it unfriendly to the targeted group.” 

During the period under review, there was only one new launch of landed development, and two registrations of interest for serviced apartment projects in 3Q2022.

Tan says, “The Straits View Link at Bandar Baru Permas Jaya launched 142 two-storey terraced houses with land areas ranging from 1,300 to 2,398 sq ft and built-ups of 1,704 to 2,254 sq ft. Prices range from RM699,000 to RM921,000. It clocked in at a commendable sale rate of 90%. This echoes our view that landed properties remain highly popular if priced right.” 

A serviced apartment/hotel development called Quayside JBCC started a registration exercise in 3Q2022. “It offered only a limited number of units for sale under a lease-back scheme of about 6% gross for five years. Most units are directly leased to hotels. The units are smallish, with a built-up area of 330 to 600 sq ft. We are given to understand that the targeted selling prices range from RM1,400 to RM1,500 psf,” says Tan. 

Another serviced apartment, known as M Minori, located in the Seri Austin area, is gearing for registration of interest in 3Q2022 as well. “We are given to understand that the developer plans to launch the serviced apartments at RM610 to RM649 psf. Sizes range from 570 to 880 sq ft,” says Tan. 

“Not many projects were launched in 3Q2022. This could be attributed to the cautious mood in the market because of uncertainties caused by global issues such as the Russia-Ukraine war, escalating interest rates, China’s persistent lockdown stance to attain zero-Covid status as well as Malaysia’s 15th general election.” 

Prices and rents in Johor Baru were generally stable in 3Q2022. “Only [prices of] 2-storey semi-detached houses in Taman Bukit Indah increased marginally, from RM920,000 to RM950,000. Other housing schemes within our basket remain stable.”

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