KUCHING: Analysts believe the demand slowdown Iskandar Malaysia’s property sector is growing evident on the back of the oversupply situation aggravated by huge incoming supply over the next two years.
According to the research arm of Maybank Investment Bank Bhd (Maybank IB Research), NAPIC statistics show that the property slowdown in the country is more evident in Iskandar Malaysia.
It noted that the value of property transactions in Johor had fallen by 33 per cent quarter on quarter (q-o-q) in the fourth quarter of 2014 (4Q14), underperforming the country (-7 per cent) and other major cities/states such as Kuala Lumpur (KL; -12 per cent), Selangor (+2 per cent) and Penang (+8 per cent).
Maybank IB Research further noted that Johor’s property prices were also weaker than that of other cities with the House Price Index (HPI) contracting one per cent q-o-q versus Malaysia’s -0.2 per cent, KL’s -0.9 per cent, Selangor’s -0.1 per cent and Penang’s -0.3 per cent.
“Segment wise, Johor’s residential and commercial property transaction values plunged by 42 per cent and 43 per cent q-o-q respectively in 4Q14,” it said.
The latest statistics reaffirmed the research arm’s view that industrial properties are a better investment choice in Iskandar Malaysia due to the relocation of small medium enterprises (SME) from Singapore and its relatively limited supply as compared to residential and commercial properties.
Maybank IB Research’s recent discussions with salespeople tells the same story – that demand for Iskandar Malaysia properties has slowed down significantly since mid-2014, as demonstrated by its statistical analyses.
The research arm noted several reasons attributing to the slowdown in the Iskandar Malaysia property market include new property cooling measures by the government (e.g. two per cent levy on foreign purchases and a higher floor price for foreign buyers), tighter lending conditions by the banks, and stiffer competition by the newer developers which have resulted in tougher investment choices by potential property buyers.
Maybank IB Research noted that aggressive landbanking activities by the Chinese developers in the already-crowded Iskandar Malaysia area is of much concern.
Without coordinated planning and control, it said this could aggravate the oversupply situation and induce price wars especially in the high-rise mixed development segment.
Greenland recently acquired 128 acres of freehold land in the south of Bandar Baru Permas Jaya while Country Garden has received the green light from the Department of Environment (DOE) to continue its massive reclamation of 3,425 acres of the Forest City projectnear the second link.
Maybank IB Research is cautious on the massive land reclamation in Iskandar Malaysia.
It noted that the execution and planning of such reclamation projects is complex (especially Forest City) and carry elements of risk and uncertainty.
“Hence, developers’ financial positions are paramount; else we may see projects being abandoned or price wars initiated to clear inventories/reduce sales risks by the developers,” it said.
More importantly, the research arm noted that the failure of any of these projects could erode buyers’ confidence and perception on Iskandar Malaysia.
Among the three Chinese developers, GZRF has the weakest financial position with a net gearing of 1.2-fold while Country Garden’s net gearing could potentially drop to 0.58-fold after securing a HK$6.3 billion equity fund from Ping An Insurance (via a 9.9 per cent stake in Country Garden), according to Maybank IB Research’s China/Hong Kong property analyst.
“In comparison to GZRF and Country Garden, Greenland Group has relatively stronger backing and a better financial position, we understand,” it said.