Monday, April 20, 2015

Its Not Going To Be A Smooth Ride

I do not have the time nor the resources or the inclination to dwell laboriously on the viability of Iskandar. Looking at the geography and proximity to Singapore, one should view Iskandar as a proxy play to Singapore's ascend up the value chain. Their lack of land is exactly what will ensure the long term viability for Iskandar.

However the ride to the pot of gold will not be smooth. As there is not a strong central coordinating body, land is transacted as often and as willingly possible. When there is not central planning (I know there is one but toothless when it comes to the release and development schedule) body that is effective in controlling the supply and demand, it will be rough going. 

As Singapore has to contend with its own woes in pockets of luxury housing (e.g. Sentosa), interest will be tepid. The aggressive projects by Chinese companies will also be a big headache. 

Having said that, there will come a time where the ringgit is so attractively priced or the Singapore dollar is so strong, or that Singapore property is so strong ... that eventually Iskandar will look attractive. In the meantime, the only kind of properties I think will be attractive will industrial in  Iskandar or those than pander to Singapore SMEs wanting, needing or forced to relocate to Johor.


The existing glut of homes in Iskandar will be aggravated by a huge incoming supply this year and the next, which would put property values under greater pressure over the medium term, a research report by Malaysia’s largest bank showed.
Advising investors to be cautious about the region, the Maybank report said that Klang Valley and Penang were better bets. Klang Valley, in particular, is preferred because of the upcoming rapid transit lines, and the Kuala Lumpur-Singapore high-speed rail project that will end at Bandar Malaysia. More importantly, Greater KL and Klang Valley has a strong population growth potential — a possible 40 per cent increase to 10 million by 2020 — that offers more sustainable demand for properties, it added.
The report pointed out that the value of property transactions in Johor had fallen by 33 per cent quarter-on-quarter in the fourth quarter of last year, underperforming the country (-7 per cent) and other major cities such as KL (-12 per cent) and Penang (8 per cent).
Property prices in Johor were also weaker than that of other cities, with the prices contracting 1 per cent quarter-on-quarter. In contrast, property prices in the whole of Malaysia dipped 0.2 per cent.
There are roughly 80,900 units of approved high-rise residences in Iskandar. Latest statistics from Malaysia’s National Property Information Centre (NAPIC) showed that as at the fourth quarter of last year, there were 142,567 homes under construction in the state of Johor, with another 193,271 units planned — among the highest in all of Malaysia.
The aggressive land-banking activities by Chinese developers could also worsen the glut and lead to price wars in the high-rise mixed-development segment, the report said.
“Without coordinated planning and control, this could aggravate the oversupply situation and induce price wars especially in the high-rise mixed development segment,” said Wong Wei Sum, an analyst with Maybank who wrote the research note.
The report also gave its assessment on some of the high-profile projects in Iskandar: At Guangzhou R&F Properties’ Princess Cove project, it noted that despite its prime location in the city centre of Johor Baru, the take-up for its phase 1 residential towers only rose slightly from 46 per cent in October last year to about 60 per cent currently.
Country Garden’s project in Johor Baru’s Danga Bay area is also about 60 per cent sold. A similar proportion of projects in Danga Bay by Greenland, a Chinese property developer, is booked. “Most of the buyers are Malaysians and the three Chinese developers (including Guangzhou R&F) are offering discounts/rebates ranging from 6 to 15 per cent, we were told,” Mr Wong said.
“We remain cautious over the increasingly crowded development space in Iskandar Malaysia and think the oversupply situation is likely to get worse... This will be aggravated by ample incoming supply by end-2015 and 2016 from units which were launched during Iskandar Malaysia’s peak time in 2012 and 2013.”
Property analysts said the concerns raised by Maybank about Iskandar are valid, especially at a time when demand for homes in the special economic region has started to wane, following the implementation of property cooling measures targeted at foreign buyers and tighter lending conditions by banks. If the oversupply situation is not managed well, the vibrancy of Iskandar will be affected with a large number of homes or even entire townships left vacant, the analysts said.
Colin Tan, director of research and consultancy at Suntec Real Estate Consultants, said: “By looking purely at the economics, the Iskandar story should succeed because so long as investments continue to come in, the place should be in a good state. The question is, ‘How long will it take?’ Iskandar’s progress seems to be held back by politics.” 
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p/s Gloria Emanuelle Widjaja is a breath of fresh air... so pretty, so lanky, so talented ... and only 21

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