Disclaimer:
1. The following blog post is not likely to be reposted or republished in any online media or property portals – particularly those advertising Iskandar and Malaysia properties, or organizing property shows for these properties. Expect to read this in PropertySoul.com only.
2. Without any new project to launch, any commission from buyers or any advertising dollar from developers, this blog is not compelled or incentivised to write about infrastructure development across the Causeway, property investment opportunities in Malaysia, or choices for homeowners in Iskandar.
3. If you are marketing an Iskandar or Malaysia project, have just bought a new property or have decided to buy one over there, the following content may be disturbing to you. You might want to skip this post now and wait to read the next one.
How bad are the numbers?
I picked up a copy of The Star while traveling in Malaysia two weeks ago The article on the front page titled ‘Malaysia’s property sector cooling off‘ caught my attention. It quotes the findings of the first half 2014 Property Industry Survey conducted by the Real Estate and Housing Developers’ Association Malaysia.
– Close to 90 percent of respondents experienced a slowdown in property sales due to cooling measures announced in Budget 2014.
– While 84 percent of developers were able to get bridging financing for their projects, 53 percent of their buyers faced challenges getting financing to buy the properties.
– Properties priced below RM1 million were left unsold because of buyers’ difficulty to get financing and a glut of unreleased bumiputra lots.
– 31 percent of properties priced between RM500,001 and RM1 million, mainly in Selangor and Johor, were left unsold after completion in the past three years.
– 34 percent of properties priced between RM250,000 and RM500,000, mainly in Perak and Pahang, were left unsold.
– 10,189 units were launched in the first half of this year but only 49 percent were taken up.
– Over 80 percent of respondents held a ‘neutral’ to ‘pessimistic’ outlook for the property market in the first half of 2015.
How does it fare compared with Singapore?
In Singapore, according to the latest figures from URA, as of end of 2nd quarter 2014, the vacancy rate of completed projects is 7 percent for private residential units and 12 percent for Executive Condominiums. For projects under construction, 15 percent of private residential units launched were still unsold while 34 percent of total number of units were unsold as of August 2014.
Across the Causeway, the outlook of the property market looks even gloomier.
It is the first time in recent history of the Malaysia property sector that less than 50 percent of units launched can be sold in a half-year period. For units completed in the past three years, over 30 percent are still left on the shelves.
What seems to be the problems?
There are four reasons behind the cooling property sector in Malaysia:
1. Oversupply in the market
According to Malaysia’s Valuation and Property Services Department, land prices and launch price of residential properties have doubled from 2011 to 2013. With so many projects launched during this period, there will be a huge supply of completed residential units flooding the property market in the next two to four years.
From 2011, developers jumping on the bandwagon loaded Johor, Selangor and Penang with countless upscale residential projects. Even overseas developers, including China developers, rushed to the country to diversify their investment. There were frantic moves such as building a man-made island without proper planning. And there is no authority to keep overbuilding in check.
Any industry can prosper with healthy organic growth. On the contrary, heavy dosage of growth hormones that promotes unnatural growth can result in many negative side-effects that ends up with premature mortality.
2. Disconnect between price and budget
There is huge injection of investment funds and impressive development plans in Iskandar. They contribute positively to the long-term economic growth in the area.
However, it takes time to reap what you sow. Earning power of the common people takes time to catch up. The 70 percent loan-to-value ratio is now beyond the capability of many home buyers. In fact, there appears to be a widening gap between the escalating property prices and the affordability of the home buyers.
3. Concerns of foreign buyers
Of course the high-end residential projects built by foreign developers are not relying on take-ups by the locals. But foreign buyers are deterred by the property cooling measures of Budget 2014, including 1) doubling of the price threshold to RM1 million; and 2) higher Real Property Gains Tax of 30 percent for properties bought by foreigners sold within five years of purchase and 5 percent hereafter.
For Singapore investors, they also find themselves at the mercy of the volatile relationship between the two countries on disputes over different issues like tolls, border or water.
The weaker Malaysian currency is a double-edged sword. The current exchange rate makes it look very attractive to own a property in Malaysia. But no one can guarantee that the ringgit won’t continue to weaken and will work against you when you want to exit the market one day.
4. Where is the resale market?
According to Malaysia’s Ministry of Finance, in the first half of 2013, only 1.5 percent of property transactions was above RM1 million in the Johor state. Those bought before 2014 with prices lower than RM1 million will have to wait for their properties to rise above that magic value of RM1 million until they can sell to foreign buyers.
Unlike Singapore, Iskandar is a testbed but not a tested market. Until recently, we have seen active buying but not active selling.
If one day properties with prices over RM1 million drop below the magic number of RM1 million, with all foreigners ineligible to buy, even if the locals are interested to take over, how many of them can afford the high quantum of these properties?
So stop asking me what I think of Malaysia or Iskandar properties. When everybody is talking about a hot market, it’s not the time to buy. It’s time to sell.
And don’t ask me again which project there is a good investment. Properties in any country is a good investment. The key is the time and the price you enter the market. That is exactly the homework property investors need to do before they buy anything in any market.
If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.
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According to a report by iProperty, Malaysia is the most popular location for overseas property investments. Singapore’s next-door neighbor account for 31% of investments.
In particular, Iskandar Malaysia remains a stronghold for investors, with 58%stating investment as a reason for purchase, while 54% cited affordability and 69% highlighted its proximity to Singapore as positives.
40% of respondents are looking to pay less than S$500,000 for overseas properties and the attractive exchange rate continues to draw Singaporeans.
Australia also sees continued interest, but its popularity has slipped slightly from 22% to 18%. The report notes that Australia appeals for its proximity, quality education and lifestyle.
– See more at: http://sbr.com.sg/markets-investing/in-focus/local-investors-flee-overseas-buck-singapore%E2%80%99s-sluggish-property-market#sthash.pKG9IbVi.dpuf
Maybank report released recently seemed to imply that the worst is not over…in fact it is on the way…wonder what do those who advocate buying previously have to say?
have we entered the worst yet? i think it is just getting started! with booing fee of just Rm10,000, buying it is real easy because everyone has the intention to dump at profits later. this is malaysian style of subprime in the making!
everyone wants to be landlord but soon it will be a case of i rent to you and you rent to me. it is a cinch that crash is upon us.
with slow growth in the world and deflationary pressure, prices must come down…
You need to buy Iskandar properties in Nusajaya with a 10 years time horizon. i have the option to abandon my purchase now with a 10% penalty with the property developer, but i am sticking to my original investment in a landed property. I have multiple bank loan offers but i have chosen to pay cash >RM1M. There are other cases in Puteri Harbour RM4-5M for a penthouse unit. Indeed these houses or apartments are not cheap in local terms as they are meant to be the equivalent of Sentosa Cove or Orchard Road residential properties.
Great report! Important to have such articles to bring people like us, who are swayed by persuasive marketing proposals, to reality – as commonly used in economics terms, don’t be the “greatest fool”
Thanks. Always read all the articles on foreign property investment with a pinch of salt. You can’t tell the buyers that the catch is not fresh when you are a fishmonger yourself, isn’t it?
Life’s short…no need to think too hard. You may become a chicken little afraid the sky may fall. i applied to two m’sian banks for loans and both approved..i chose to pay cash >RM 1mio.
http://www.propertyguru.com.sg/property-management-news/2014/3/37551/johor-investors-to-face-problems
…
Khoo added: “The common mistake that most Singaporean investors have made in Iskandar is buying property that is too expensive for locals – though cheap for Singaporeans – and yet not in a prime enough location, not a good enough design, and not in a good enough environment where there will be enough foreign buyers to take up these properties in the future.”
He noted that overseas investors who have purchased property below RM1 million in Medini are largely safe from potential sales challenges due to favourable pricing and exemptions from the RM1 million foreign buying limit there. Another sector he predicted that will see benefits from the new rules is the gated, guarded landed homes market.
I am still holding some stocks that I bought last time based on some so-called “recommendations by experts”. With their value falling by the day, I have two choices:
1. Dump it at whatever price and don’t look back again; or
2. Continue to hold and hopefully one day (and I’ll live long enough) to get back what I’ve invested.
Lessons learned:
1. Never follow the crowd blindly. Do your own research and find out the facts before buying.
2. Always listen to the words of the so-called experts with a pinch of salt.
3. Successful investment is all about buying and selling the right thing at the right time with the right price.
If you follow your time / price principle how did you end up with unwanted stocks.. Not sure of your case for my case i have just exercised s&p agreement but when i was searching in Jun 2014 for a resale property nobody was willing to sell even at a price of RM1 mio – a good price accounting for only 1.5% total transactions according to your research. well i can only share from my experience but i must say i only look at one project. Good luck!
I want to reply what FS replied earlier – since I can’t reply to his post.
property investors are always trying to hold on longer wanting higher prices. it is only when they can’t they then decided to sell – and forced to sell lower. sellers are te same everywhere. they’re testing their luck. but often when the signs are fully known as in a crisis, it is often too late. what property soul said is what he experienced and now he is wiser, as his “mistakes” of holding the stocks have proven costly I believe. so he is trying to share with you to cut losses fast – it is better to lose a bit than to lose A LOT!
property ownership has become a liability… the euphoria, the rush to buy afraid of losing out. properties in iskandar will CRASH! due to the very fact that it is in tremendous OVERSUPPLY, made worst by China developers. buying is easy. selling is hard and properties being illiquid, are difficult to unload. this is now a buyer’s market and I have seen increasing number of sellers trying to unload with what they called “below valuation” prices. banks NPL will rise for sure. I don’t think banks are right all the time. they’re just as greedy as the developers trying to get a slice of the markets…
get ready for a serious correction if not a crash!
Agree. Many people invest with three common traits:
1) Ignorance
– Trust the marketing and plunge in without doing their due diligence and primary research.
2) Herd mentality
– What everybody’s talking about must be the next big thing. Follow the crowd can’t be wrong.
3) Fear of losing out
– The kiasu logic: If I don’t buy now I will miss the chance to make money.
You’re absolutely spot on man! Many condo owners in Singapore unload with 50,000$ to 1,000,000$ losses. They bought at the peak! It’s better to lose $50’000 than $1 million bucks. The losers unload it after 3 to 5 years. Mortgage sales on the rise too!
FYI, danga bay country garden sales is only 1/3 sold… from insider sales person who had worked there. of course developers won’t release actual info.
The sad truth is that, just like any investment, insiders already know about a slumping market for long but choose to keep quiet – mainly for developers to launch projects in the pipelines or for fellow investors to offload what they have on hand.
I am also one of those who only mention this now when I should have blogged about it more than a year ago. But you know very well that whatever you say back then won’t have any impact amidst an atmosphere of frantic building and buying – when many thought that they had found a new heaven while their hands were tied by the restrictions at home.
Yeap! The agents are doing a disservice to the greater ignorant people. They’re sellers agents. I only met a handful of agents who speak the truth. Most are working for sellers. China developers risk turning the projects here into ghost cities in much the same way in China.
This is happening all the time.
1. Developers made early profits, lowered prices to clear stock and moved on.
2. Agents and “consultants” pocketed their commission and moved on.
3. Buyers were left holding the overpriced properties to face uncertainties on their own.
Agree, I strongly believe in this quote:
“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” Mark Twain
I like the quote too. The reality is that the blind is often leading the blind.
Just like what Jim Rogers said, “when many people are absolutely sure of something, you should be suspicious”.
Hi, referring to the correction (or crash) in Iskandar. When do you guys think will happen, a bull run up to 2018, then crash?. Will Medini area experience a correction too? How much correct are expected? I’m considering a medini unit priced at RM850 psf now.
It is impossible to tell what is going to happen in the market in the future. But the basic principle is to buy when nobody else is buying and to run away from any so-called ‘hotspot’.
Crash? i think 2015…… Now all property market slowly down!
A flock of sheep going off a cliff
Agreed with the report!
But mostly of the buyer now is Singaporeans…. Johorean less!
How can we solve this problem?
I think the authority should shoulder the responsibility of regulating the number of projects so as to avoid a sudden glut in the market.
I disagree with you. I think you were writing this article as you love. Try do a survey survey first and dont become syok sendiri type of person. You will find out that ‘affordability’ and ‘property speculators’ the main reason why this is happening. and dont forget ‘greediness’ of a few groups of people.
The rental market is also a very good indicator of problems. Iskandar has great potential. But the luxury condo boom was obviously far too early to be filled by owners or renters. The only way it could have worked is if so many investors that didn’t care about cash flow just bought and waited 5 to 10 years.
Once the MRT is working (with at least 5 stops in JB) my guess is the market will be very strong. But until that point there are concerns for any investor that can’t just have money sit for 5 or 10 years.
let the crash begin! signs are everywhere that people are trying to sell below “bank valuation”.
property investment for long run will surely be positive. but do take note of the oversupply issue, and i believe the rental market will also be affected. So DO NOT go into the position where you max loan repayment and need rental to help cover the repayment. What if you cannot get it rented out or at a not so good rental amount??
“31% of properties between RM500,001 to RM1 million remain unsold ……”. It is for landed & non landed properties or just for non landed properties?. Scary indeed.Today I gone for a look at the site of the corner lot double storey house, next to Masai town, which I have booked. Land size 3000sq ft. It will cost me nearly RM700k. Bank also called today that loan has being approved. If its value later dropped by 10% max I would be still ok as it is for long haul and for own stay. But would be foolish and a bit painful if it later dropped by 20%.
Notice that one couple were discussing about putting down payment of 130k for a upcoming office building priced at RM800k. Wonder now if to call it it off & forego the desposit. Any four wise man out there care to comment!
The keep-or-dump decision depends on the following:
– The percentage of deposit paid compared with the current drop in market value;
– The loss suffered so far after taking into the account of currency depreciation;
– The return on investment from rental after mortgage, tax and other expenses;
– The length of your holding power in the next 5 or 10 years or until market recovers; and
– What is the opportunity cost on other future investment opportunities.
Since the land in Malaysia is scares the valve impose should be neutral for both the local and foreigners like SIngaporean which attracts more demand and competition. Coz Singapore and Malaysia are bilaterally in good relationship and importantly people to people.
Agree the market in Malaysia is bad, I also agree most of the local cannot afford these expensive properties if they are working for someone in Malaysia. However I would like to point out a fact for Iskandar. Most of the Johorians are making Singapore dollars. They are either living in Singapore or in Johor. These Malaysians can afford to buy these properties.
Ktan, I totally agree with you that the market is still bad. In fact it’s even worse given the recent deterioration of the ringgit. There goes the resale market amongst the Malaysians themselves – and the instability in currency makes it too risky for those earning Singapore dollars to even make the investment.
Iskandar Malaysia’s property market is heavily influenced by Singapore’s own … especially in these times of economic uncertainty and if they are risk averse. … While the news may be bad in the short term, we remain heartened by the fact that … There is still potential ahead as these investments translate into more jobs.
We won’t disagree that Iskandar will grow one day and will be different in the future. The big question is “when”. I agree with what Jim Rogers said, ““You do not buy unless it is cheap and unless you see positive change coming within next 2 to 3 years”. Are the Iskandar projects marketed to Singapore buyers “cheap”? Are we seeing any positive change coming in the next 2 to 3 years?