For the longest time, Singapore had been the top foreign investor in Iskandar Malaysia. However, as of March 2016, China has overtaken the city state. We gaze into our crystal ball and list five ways in which this will impact the property market in the special economic zone.
By: Khalil Adis
Iskandar Malaysia continues to see record investments with RM202.45 billion in total cumulative investments from 2006 to March 2016, according to statistics from Iskandar Regional Development Authority (IRDA).
Among the promoted sectors, the manufacturing sector recorded the highest cumulative committed investments at RM54.26 billion.
This includes investment from the sectors of electrical & electronics, petrochemical & oleo-chemical and food & agro-processing.
This is followed by investments in the logistics, tourism, healthcare, education, financial services and creative industries at RM6.03 billion, RM6.03 billion, RM2.77 billion, RM1.97 billion, RM1.47 billion and RM0.56 billion respectively.
In the non-promoted sectors, the residential, retail and industrial property segments collectively contributed to a cumulative investments of RM94 billion.
This is followed by utilities, government investment, mainly in infrastructure and public works and emerging technologies at RM12.96 billion, RM9.83 billion and RM2.85 billion respectively.
Of the RM202.45 billion, 51 per cent or RM103.50 billion represents investments that have been realised.
China – an upcoming force to be reckoned with
Additionally, domestic investments comprises RM121.44 billion while the remaining RM81.01 billion were from foreign investments.
Since IRDA began recording data since 2006, China has for the first time overtaken Singapore with record investments at RM22.17 billion.
Some of the notable Chinese investments within Iskandar Malaysia included Forest City, Greenland, Country Garden, R&F Princess Cove and Huawei.
This is followed by Singapore, USA, Japan, Spain, Germany, Australia, United Arab Emirates and the Netherlands at RM19.14 billion, RM6.78 billion, RM4.26 billion, RM4.18 billion, RM2.28 billion, RM2.04 billion, RM1.90 billion, RM1.89 billion and RM1.88 billion.
With China now being a force to be reckoned with, we list five possible impact Chinese investments will have on the property market
Impact 1: More Chinese set to call Iskandar Malaysia home
Since 2012, Chinese investors have started coming in droves to invest in a property within Iskandar Malaysia, especially within the Danga Bay and Johor Bahru areas.
Lured by the Malaysia My Second Home (MM2H) programme that gives Chinese nationals a 10-year visa free entry plus other benefits for the entire family, some developers are packaging this immigration programme alongside their sales pitch.
Under this programme, applicants can import their personal cars or buy a locally assembled car without having to pay for import duty and excise duty taxes.
In addition, their children aged below 18-years-old can also study at private and public schools while their parents, who are over 60-years-old will be eligible to live in Malaysia under a special 6-month social visit visa.
With world-class education available at EduCity like Newcastle University and the University of Reading, this has made the MM2H programme especially attractive among the Chinese.
Impact 2: Oversupply of medium to luxury homes within Flagship A
While the arrival of Chinese developers spell good news for the overall investment within Iskandar Malaysia, there are also concerns of oversupply of homes, especially within the Johor Bahru and Danga Bay areas.
While no official data is available, The Edge Property, citing a Malaysian developer, said that the estimated supply expected to come on-stream will be around 60,000 units come 2017 and 2018.
This will definitely put pressure on the resale and rental markets for investors.
A good investment is one where there is a clear exit strategy in order for investors to realise their capital gains.
In view of this, Flagship A may be a tough call for investors unless the property is located within close proximity to transport hubs or economic drivers where there is significant job creation.
Impact 3: Tough rental market
With 60,000 units expected by 2017 and 2018, the rental market is expected to be a tough one ahead.
Already, we are seeing both local and foreign investors having to drop their asking price resulting in them unable to cover their mortgages.
This results in a negative return on their investments.
However, some locals are coming up with creative solutions by offering the flexibility of short-term home stays with listings on AirBnB.
In view of the falling Ringgit, this has attracted tourists and other short-term renters visiting Iskandar Malaysia for shopping and other sightseeing.
While this is a lucrative market, the leg work is extremely challenging even for locals.
They have to be on the ground to attend to moving in, fixing leaking faucets and so on – definitely not for the faint hearted investors.
Impact 4: More infrastructure project from Chinese contractors
With the Chinese aggressively bidding for the High Speed Rail (HSR) and other infrastructure projects, properties in the Gerbang Nusajaya and Iskandar Puteri will receive an added boost in property values, similar to when the Coastal Highway was completed in 2010.
The Johor leg of the station is expected to be announced this month by both the Malaysian and Singaporean prime ministers.
Once the location has been announced, this will revive renewed interest in the property market, especially in the Iskandar Puteri, Medini and Gerbang Nusajaya areas.
Impact 5: Indirect jobs to be created for Johoreans in the construction and infrastructure related sectors
The Chinese are known to import everything from China, including using Chinese workers.
This leaves very little benefit for locally produced materials and workforce.
Nevertheless with the Chinese aggressively bidding for the HSR project and reclaiming land at breakneck speed, it would lead to indirect jobs to be created for Johoreans, particularly in the home renovation, retail and so on.
While developers have created jobs within the property sector by hiring Johoreans at their sales gallery, more could be done to benefit locals by hiring local workers for construction and infrastructure jobs.
However, concerted efforts have been made to bridge the cultural divide.
For example, at the Demi Johor Dua sporting event in March 2016, Forest City was one of the key sponsors while R&F Princess Cove was responsible for bringing the recent JB Arts Festival 2016 held in June.
Meanwhile Greenland Tebrau Sdn Bhd had signed a Memorandum of Understanding (MoU) with IRDA to position Iskandar Malaysia as a smart region.
Khalil writes for PropertyGuru; iProperty.com; Yahoo Singapore; The Malay Mail; Yahoo Malaysia; Berita Harian; RFP (HKG); Real Estate Malaysia, Property Buyer and Going Places (Urban Redevelopment Authority). Serving as the editor for Property Report South East Asia, the seasoned journalist has interviewed the movers and shakers of the industry, including Mah Bow Tan (Singapore’s former National Development Minister); Dato’ Ahmad Fuad Ismail (former Mayor of Kuala Lumpur) and YB Datuk Peter. He has his own consultancy business which presents a myriad of services which include property and market research, due diligence, editorial, content management and speaking engagements in the regional property market. Visit his website at www.khaliladis.com.