Johor Bahru property price escalation – Singapore buyers not the reason

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A market research analyst has dismissed the view that Singapore buyers are the reason for the Johor Bahru property price escalation. Khor Yu Leng, the Southeast Asia Research Director of Segi Enam Advisors Pte Ltd, in speaking to Channel NewsAsia last week, said that there was very little and inconsistent data to support this belief. He added that as far as the Malaysian property market was concerned, property investors from China eclipsed buyers from Singapore.

According to a recent survey of Johor residents by the ISEAS-Yusof Ishak Institute, about 40 per cent of Malaysians blamed Singaporeans for the higher cost of living there, An even higher number, 70 per cent, believed that Singaporeans make property unaffordable for locals b contributing to Johor Bahru property price escalation.

Johor Bahru property price escalation
Image credit: Eco World

But Khor, quoting data from the Malaysia My Second Home (MM2H) programme, said it was too simplistic to blame Singaporeans for this as the “data and a wider reading of the issue suggests strong domestic forces at play”.

The MM2H programme showed that about 3,200 applications from foreigners are accepted each year, but that Singaporeans are not the foreigners buying the most properties in Malaysia. Of the total number of buyers by nationalities over a 15-year period leading to August 2017, Singapore property buyers made up just 3.8 per cent of the total.

“Assuming each buys their own place, only around 1.1% of new housing and commercial units across Malaysia each year are sold to foreigners seeking a residency permit,” Khor said.

He added, “most who have signed onto the programme come from China (28%), Japan (12%), Bangladesh (11%), the UK (7%), and Korea (4%).”

Aggregating statistics from MM2H and Malaysia’s Inland Revenue Board, Khor believes that only 0.85 per cent of property sales in Malaysia are to foreigners.

“Of course, there would be Singapore and other foreign buyers who invest in Malaysian property while not seeking to apply for MM2H status. So it is surprising to find that the Inland Revenue Board’s (IRB) stamp duties system reports a ratio of 0.3% to 0.7% sold to foreigners each year in recent years. Averaging MM2H and IRB data, about 0.85% of property sales in Malaysia are to foreigners.”

Khor said while Johor seemed to have drawn disproportionate foreign buyer interest with 10.8 per cent of Johor properties sold to foreigners in recent years, the Penang Institute concluded that “Chinese investments in southern Johor have split the property development into a high-end market with excess supply targeted at foreigners as buyers, and a lower-tier market driven by local developers targeting mostly local buyers”.

Khor also quoted Bank Negara Malaysia’s report which said that average Malaysian house prices had increased faster than average incomes since the global financial crisis. While Johor had seen a property boom, with per square foot prices in some enclaves reaching Kuala Lumpur city centre price-levels, Khor noted that since 2017, Johor had witnessed a major slowdown – with a marked drop in transaction volume and property value. This debunks the theory that Singapore buyers are the major reason for Johor Bahru property price escalation.

In the third quarter of 2017, there were 6,129 residential property transactions, with only 17 per cent above RM500,000 (≈S$179,000), slightly down from 18.4 per cent in the third quarter of 2016.

“If we combine residential and commercial properties, including small offices, home offices and serviced apartments, there were 6,920 transactions but only 20% above RM500,000,” Khor said.

In terms of affordability, Johor Bahru’s figures appeared comparable to the rest of Malaysia with the median house price to median annual income ratio at 5.1 times.

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This figure for the city of Johor Bahru is higher than Bank Negara Malaysia’s reported 2014 median house prices in Malaysia which were 4.4 times the median annual income. But in comparison, other Malaysian cities like Kuala Lumpur and cities in Selangor (like Shah Alam, Subang Jaya, Petaling Jaya), have higher median house prices at 6.0 times-plus. George Town in Penang was the worst, with prices at 10.4 times median house prices in Malaysia.

Khor said Johor residents were reasonably insulated from the property enclave “boom-glut dynamics targeted at foreigners”. However, he warned that they were not immune to domestic-driven affordability problems which may drive .Johor Bahru property price escalation.

“Overall, the data suggests that the impact of foreign buyers is somewhat contained. Johor residents worried about property prices should also be concerned about domestic income growth, long-term planning, housing policy and interest rates – as should Johor politicians campaigning in the 14th general election.”

Johor Bahru property price escalation may in fact be welcomed by property owners. Some developers in Malaysia offer generous payment modes where buyers can pay just 1 per cent of the property price upfront and pay the remainder only upon completion. Banks eager to cash-in on this bullish sentiment in the Malaysian property market have also released several competitive mortgage loan packages.

One such bank, CIMB Bank Bhd, recently launched the 1-Minute Home Financing InstaApproval programme which facilitates complete approvals within a single minute upon full submission of information and documents, enabling a faster, secure, paperless and hassle-free home ownership journey for customers.

A total of 60 property projects, including developments by Ecoworld Development Group Bhd, are eligible for CIMB 1-Minute Home Financing InstaApproval programme. Ecoworld is one of the largest property developers in Malaysia with an estimated land bank of more than 8,000 acres in that country.

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If you are thinking of investing in a property in Johor Bahru (or any other city in Malaysia), it would be useful to talk to your property agent or Financial Advisor to generate an investment analysis report for you which is available at www.iCompareLoan.com/consultant.