SINGAPORE: Have you ever thought of investing in Johor Bahru’s (JB) property market? Perhaps you were enticed by the exchange rate between the Singapore dollar and the Malaysian ringgit, or maybe you’re already in the midst of making transactions, considering the upcoming SG-JB RTS link?
Many consider property investment and entering the rental market as a wise choice, but hold your horses! Before making such a significant investment, it’s crucial to adopt a sceptical approach, especially considering the risks involved.
Take, for instance, the experience shared by Tran Yen Mai in a report from VN Express International.
Tran Yen Mai’s property investment journey: from hopeful expectation to harsh reality
Tran Yen Mai’s journey into property investment began with hopeful expectations. Assured by a real estate broker that tenants would readily occupy his apartment, Mai eagerly ventured into the property market in Hanoi. However, reality soon set in as he encountered unexpected hurdles.
Mai’s trust in the broker was shattered when he discovered hidden fees and tactics aimed at encouraging tenant turnover. Reflecting on this, he recalled, “The broker who helped me buy my apartment told me they would find me tenants if I paid them a brokerage fee.”
Tenant turnover and difficulty in securing tenants willing to pay the anticipated rent exacerbated Mai’s financial strain. He found himself grappling with maintenance costs and extended periods of vacancy, which significantly diminished his expected returns.
He lamented and said, “I incurred losses due to maintenance and the long waiting time when the apartment was vacant. Comparing the investment costs and the returns, I could immediately see that this business model was not as profitable as I initially expected.”
In the end, Mai cautioned that “renting out an apartment is not as simple as the overly optimistic rumours spread around by real estate agents.”
But as Mai said, many people who buy apartments to rent out are facing similar situations.
Singaporean shares the same dilemma with JB property investments
Six months ago, a Singaporean shared on r/singaporefi a similar situation. She opened up about her parents’ tough situation with two properties in Johor Bahru.
She shared, “My parents bought two units in JB some years back, thinking (like a few other Singaporeans) that the price of these will rise. Unfortunately, and as is clear from the news, that didn’t happen. Many of these units are now at an all-time low. To make matters worse, my father, who is the main breadwinner in the family, was recently made redundant and is having significant difficulties finding another job. I’m now trying to help my parents figure out which are essential bills and which aren’t.”
They’re now faced with tough decisions, whether to continue paying the hefty S$1,800 monthly mortgage for the JB properties.
She further added that despite their efforts to sell or rent out the units, financial losses persist. “It seems like unless you sell for nothing or next to nothing, nobody is willing to buy. And we’re renting one unit out, but even that is at a loss,” she said.
This prompts a question for investors, more so for Singaporeans looking to invest in JB’s properties across the causeway—Is investing in JB’s property market hopeless? What about returns?
Before you answer that, let’s take a closer look at the gross rental yield of JB’s property market.
On Feb 7, 2024, Global Property Guide reported that the average gross rental yield in Malaysia remained steady at 5.16% (Q1, 2024), mirroring the figures from Q3, 2023. The report covers various areas, including Kuala Lumpur, Johor Bahru, Petaling Jaya, George Town, Iskander Puteri, Ipoh, Shah Alam, and Subang Jaya.
Johor Bahru’s rental scene
Let’s take a closer look at Johor Bahru’s rental scene.
The rental yields vary across different areas and property types in Johor Bahru. For instance, in Skudai, a 1-bedroom apartment can fetch a pretty good yield of 7.29%, while a 3-bedroom one jumps even higher to 8.86%.
Meanwhile, in Tampoi, a studio apartment yields 6.37%, and a larger 4+ bedroom unit offers a 5.74% return.
As you move across different neighbourhoods like Mount Austin, Plentong, and Permas Jaya, you see the yields fluctuate slightly, ranging from 5.47% to 6.55%, but there are still opportunities for decent returns.
Overall, Johor Bahru averages a rental yield of 6.25%, which suggests that despite the ups and downs in various areas, the rental market in JB holds favourable returns for investors.
Malaysia’s housing market slowing down
However, Global Property Guide provided a more recent report on Malaysia’s housing market on Feb 28, 2024, stating that Malaysia’s housing market is “cooling rapidly.” Malaysia’s house price growth is now noticeably slowing, amidst weakening property demand and falling residential construction activity.
In the year leading up to Q3 2023, according to data from the Valuation and Property Services Department (JPPH), the national house price index only saw a modest increase of 0.1%. This growth is notably slower compared to previous years, with rises of 4.33% in Q2 2023, 4.81% in Q1 2023, 3.9% in Q4 2022, and 5.15% in Q3 2022.
After adjusting for inflation, house prices actually decreased by 1.82% during this period. In Q3 2023 alone, the house price index dropped by 1.94% (-2.24% after inflation adjustment), marking the first quarter-on-quarter decline since Q3 2021. The average house price in Malaysia stood at MYR 458,751 (approximately S$130,182) over this period.
Considering these developments, investors might wonder: is this good news for them?
Good news or bad news for investors?
Malaysia’s housing market slowing down might mean fewer houses are being bought and sold, prices starting to dip, or construction projects scaling back.
But is this slowdown good news or bad news for investors? Well, it all depends on what they’re aiming for:
- Buying opportunities: For those eyeing a new property, a cooling market could mean getting a better deal with lower prices.
- Less competition: With fewer buyers in the game, investors might find themselves in a better position to negotiate and grab those sought-after properties.
- Rental market: A slower market might drive up demand for rental properties, potentially leading to higher rental income.
So, while a cooling housing market might bring some opportunities, it’s essential for investors to weigh their options carefully. As Mai said earlier, it “is not as simple as the overly optimistic rumours spread around.” /TISG
Read also: Is investing in property near JB’s RTS Link a good idea?
Featured image by Depositphotos