5 reasons to be careful when buying residential property in Johor and Iskandar

Private properties in Nusajaya, Iskandar. The huge number of residential units coming up in Johor, particularly in Iskandar, has raised the concern of the Singapore Government. -- ST PHOTO: KEVIN LIM 
Private properties in Nusajaya, Iskandar. The huge number of residential units coming up in Johor, particularly in Iskandar, has raised the concern of the Singapore Government. -- ST PHOTO: KEVIN LIM 

The huge number of residential units coming up in Johor, particularly in Iskandar, the development zone coming up to the south of the state, has raised the concern of the Singapore Government.

This is because a glut could cause a fall in property values.

The following are five reasons to be more careful when looking to buy across the border.

1. The looming supply

The Monetary Authority of Singapore board member Lawrence Wong told Parliament on May 11 that nearly 336,000 private residential units are in the pipeline in Johor, more than all the private homes currently standing in Singapore.Most of these units are coming up in Iskandar.

Malaysia's National Property Information Centre (Napic) said in its report released last month that ""incoming supply" of housing units in Johor state - units that are being built - total 142,567 units.

There are another 193,271 units under "planned supply" - with planning approval but awaiting construction.

Added together, they total 335,838 units.

This is nearly half of existing residential stock in Johor, which totals 719,421 units.

2. Even more supply from reclaimed land

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The new units of homes coming up in Johor do not include another 1,400ha of reclaimed land near the Tuas Second Link that will come on stream from 2020, Mr Wong said.

The project he was referring to is the raising of four giant islands in the Strait of Johor off Tuas, that is named Forest City.

The master developer, Country Garden Pacificview said that when fully completed in 20 to 30 years' time, Forest City could have total residents of 700,000. The first phase of reclamation is to be ready in about five years' time.

Assuming one residential unit contains six people, it means that 116,666 homes would be built on Forest City over the next two decades or so, adding to the new supply of nearly 336,000.

3. Falling property prices

Johor property prices weakened the most in Malaysia in the last quarter of 2014, the latest period where data is available.

Johor prices dropped by 1 per cent in the September to December 2014 period, compared to the same quarter a year ago, according to a Maybank research report in April.

This is worse than the drop of 0.2 per cent for property prices in Kuala Lumpur, and a drop of 0.1 per cent in Penang during the same comparative period, Maybank said.

Kuala Lumpur, Penang and southern Johor are three most active property markets in Malaysia.

Mr Wong told Parliament that the number of Malaysian properties - not just in Johor - bought through real estate agents in Singapore fell from 2,609 in 2013 to 838 last year.

4. Curbs on foreign home buyers

Malaysia early last year doubled the minimum price of homes that foreigners can buy to RM1 million, thus reducing the number eligible to buy units in Johor.

In a move to curb then rising property prices, it also raised the capital gains tax to 30 per cent for properties sold by foreigners within five years of purchase. It taxes them 5 per cent thereafter, except for the Medini township in Iskandar. Medini is to be the downtown area for the Nusajaya flagship zone.

5. Danger of projects being abandoned

With the looming oversupply, there is the usual concern that sharp price falls could follow, and lead to some developers from completing their projects if their funds run dry as buyers stop coming in.

This is a remote possibility now in Iskandar. But there are signs of stress for developers already.

Maybank said in its report, that developers with land in the region are deferring their launches, or changing their property mix "so to avoid direct competition with the Chinese developers". They have also lowered their sales expectations for Iskandar, the bank said.