Commentary: The rise in Johor property prices and the myth that Singapore buyers are responsible
Are foreigners pushing up property prices in Johor? Political economist Khor Yu Leng says the data shows domestic factors are also at play.
KUALA LUMPUR: We know that about a quarter million Singaporeans visit Johor each week, thanks to newly available data about cross-border traffic. No doubt many make the trip to visit a favourite restaurant, shop or stay over a weekend vacation.
READ: A commentary on the impact of Johor-Singapore tolls.
Yet more Singaporeans are said to be also buying up Johor property.
No surprise seeing that Johor’s residential property market has seen an uptick in demand in recent years, fuelled by strong demand, and amid strong Malaysian economic growth.
A list of giant residential complexes are set to dot the Johor landscape – including the iconic Forest City, Suasana Iskandar Malaysia and Shama Medini in Nusajaya.
Despite a general climate of positive exuberance, to most Malaysians, a perennial reason for pushing up Johor property values and the cost of everyday goods and services remains Singaporeans who venture across the Second Link and Causeway frequently - and have found Johor to be a suitable second home.
An annual survey by the ISEAS-Yusof Ishak Institute of Johor residents since 2013 reports that over 40 per cent blame Singaporeans for a higher cost of living. More than 70 per cent think that Singaporeans make property unaffordable for locals, and about 80 per cent agree that limiting the sales of properties is a good move.
Yet a simplistic blame-the-Singaporean game is over-stated. The data and a wider reading of the issue suggests strong domestic forces at play.
HIGHLY SEGMENTED PROPERTY MARKET
Bank Negara Malaysia reports that average Malaysia house prices have increased faster than average incomes since the Global Financial Crisis.
Since 2014, affordable housing has become a prominent issue in Malaysia. There has been a push to build affordable homes and tighten measures against property purchases by foreigners. Among measures imposed include a real property gains tax and a nationwide minimum threshold on residential properties available for purchase by foreigners of RM1 million (S$338,000).
However, Johor has exempted Medini and Forest City properties - and it would be prudent to use a lower threshold such as RM500,000 to analyse changes in the property market, as a proxy to how many properties may have been purchased by foreigners.
Johor has seen a property boom with per square foot prices in some enclaves reaching Kuala Lumpur city centre levels. Yet, it has also witnessed a major slowdown with a marked drop in transaction volume and property value since 2017.
In 3Q2017, there were 6,129 residential property transactions, with only 17 per cent above RM500,000 (slightly down from 18.4 per cent in 3Q2016).
If we combine residential and commercial properties, including small office, home officer and serviced apartments, there were 6,920 transactions but only 20 per cent above RM500,000.
In terms of affordability, Johor Bahru’s figures look somewhat comparable to the rest of Malaysia with the median house price to the median annual income ratio stands at 5.1x, although this is higher than Bank Negara Malaysia’s reported 2014 median house prices in Malaysia which were 4.4x the median annual income.
In comparison, Selangor stands at 4.0x, Johor at 4.2x, and Penang at 5.2x.
Kuala Lumpur City and urban Selangor (Shah Alam, Subang Jaya, Petaling Jaya) are higher at 6.0x plus. Georgetown in Penang was the worst with prices at 10.4x.
Singaporeans are not the foreigners that buy up most of Malaysia’s properties.
The Malaysia My Second Home (MM2H) programme, an international residency scheme that permits foreigners to reside in Malaysia on a long-stay visa of up to 10 years, reports about 3,200 successful applicants each year Malaysia-wide.
Assuming each buys their own place, only around 1.1 per cent of new housing and commercial units across Malaysia each year are sold to foreigners seeking a residency permit.
Most who have signed onto the programme come mostly from China (28 per cent), Japan (12 per cent), Bangladesh (11 per cent), United Kingdom (7 per cent), and Korea (4 per cent).
Singapore buyers only make up 3.8 per cent of the total over a 15-year period leading to August 2017.
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 per cent sold to foreigners each year in recent years.
Averaging MM2H and IRB data, about 0.85 per cent of property sales in Malaysia are to foreigners.
While Johor seems to have drawn disproportionate foreign buyer interest with 10.8 per cent of Johor properties sold to foreigners in recent years, Penang Institute concludes 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”.
LARGE-SCALE CHINESE PROJECTS HAVE TRANSFORMED JOHOR’S HIGH-END PROPERTY SEGMENT
Johor earlier targeted Singapore property buyers via its Iskandar Malaysia project - especially after the 2010 land swap deals.
Indeed, Singapore has been the top investor in the so-called economic corridor and Singaporeans are regarded to have contributed to the investment property price spike from 2011 to 2013, though in concert with investors from other parts of Malaysia buying into the Iskandar-Singapore story.
But the property sector has evolved to feature bigger-than-life projects by China developers, largely marketing properties to China buyers in anticipation of improved transport links with Singapore.
Indeed, it was very recently announced that the Johor Bahru-Singapore Rapid Transit System Link will be launched by December 2024, with the ability to carry 10,000 passengers per hour per direction and only requiring passengers to clear customs only once.
Many eyes have been on Forest City, probably the most ambitious property project in all Malaysia. Built on recently reclaimed islands, this is in a special status zone in Johor without a minimum threshold for foreign buyers.
It is widely reported that its units were marketed with a residency permit, but its sales have yet to affect the MM2H data trend – which has stayed largely flat for the last five years since 2012.
By mid-2017, Forest City (with units starting at just over RM200,000) reported that 99 per cent of its over 5,000 units sold went to foreigners, most likely from China. Yet, demand has been tempered since 2017 when capital controls on outflows imposed by Chinese authorities gave Chinese investors less liquidity to spend on Malaysian property.
While Malaysian news coverage tend to focus on foreign purchases in the property market, prices and gluts in key property enclaves, there has been less attention on housing affordability across the rest of Johor.
Examining mean household incomes and average residential property transactions prices, a review of district-level data gives some insights into areas where Johor voters may be feeling more or less angst in the run up to the 14th General Election due this year.
The most unaffordable properties are in Johor Bahru and Kota Tinggi (4.3x and almost 4.0x although more distant from the big foreign property projects). Mersing and Segamat present more affordable housing (2.9x and 2.6x).
Rising incomes and a drop in residential unit transacted values have improved affordability indicators in Batu Pahat, Kota Tinggi and Pontian, but increased transaction prices in Mersing and Muar point to eroding affordability.
No surprise, there is also a loose negative relationship between unaffordable house prices and the rate of home ownership. Some 70 per cent of Johor Bahru households own their place compared to 87 per cent in Segamat.
DON’T LAY BLAME ON SINGAPOREANS
In summary, it is surprisingly hard to lay the blame on Singapore visitors. First of all, the data is surprisingly scant and inconsistent.
Significantly, there are various forces at play, including the arrival of other groups of well-heeled investors. Singapore’s prominence as Johor property buyers seems to be eclipsed by those from China.
In addition, Johor residents seem reasonably insulated from the property enclave boom-glut dynamics targeted at foreigners but they are not immune to domestic-driven affordability problems.
Since the Global Financial Crisis, residential prices have outpaced incomes, but the property slowdown and recent falling residential transaction values suggest improvements in some Johor districts.
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 Elections.
Khor Yu Leng is political economist at Segi Enam Advisors.