When I was growing up in Singapore, I recall my relatives telling me cautionary tales about Johor whenever a negative story appeared in the local media. While Johor is a great escape for us urban dwellers, it was a different story altogether when it comes to buying a property and safety. Although cheap in comparison to Singapore, the property market back then was riddled with risks and very much a buyers’ beware market. As a result, Johor’s property market was rather lukewarm and property prices never quite appreciated.
Johor is a huge state spanning from Johor Bahru all the way to Muar. It is now considered one of Malaysia’s wealthiest states with no debts. Johor’s close proximity to Singapore has helped to boost its economy. This was a stark contrast to almost two decades ago.
Iskandar Malaysia
Since the inception of Iskandar Malaysia in 2006, Johor’s property market has made a remarkable turnaround. When the land swap deal was concluded by the Malaysian and Singaporean governments in 2010, sentiment turned positive, leading to investments by Temasek Holdings and Capital Land in Danga Bay as well as in Medini. At the peak of the market in 2011 to 2013, Singaporeans were seen snapping up properties in Iskandar Malaysia like hot cakes. This had caused property prices to suddenly spike.
Due to its close proximity to Singapore, Iskandar Malaysia is the most successful out of the five economic corridors in Malaysia. The latest figures from Iskandar Regional Development Authority (IRDA) showed that Singapore is the top foreign investor, followed by China, the United States of America, Spain and Japan. The total cumulative investment from 2006 to October 2015 is now RM78.53 billion with the manufacturing sector leading the way at RM50.82 billion.
As Johor is huge, I would like to specifically focus on the property market in Iskandar Malaysia as this region shows the most promise to create wealth for Gen Ys. In all, there are nine economic drivers in Iskandar Malaysia: manufacturing, electronics, logistics, healthcare, tourism, education, oleochemical and petrochemical, finance and food processing.
Iskandar Malaysia measures 2,217 sq km and is three times the size of Singapore. It is divided into five flagship zones, as defined by the IRDA:
Area analysis of Flagship A
Flagship A is considered the second phase of Iskandar Malaysia’s development. Johor Bahru and Danga Bay have seen significant movements in per-square-foot prices from around RM600 and RM700 respectively in 2010 to RM1,000 to RM1,200 respectively in 2015. This arose after the IRDA announced the RM1.8 billion rejuvenation of Johor Bahru and after the land swap deal was concluded, resulting in Temasek Holdings and CapitaLand investing in A2 Island in Danga Bay.
Buyers’ profile and income level
Flagship A is generally driven by middle-income and well-to-do Johoreans, Malaysian permanent residents (PRs), Singaporeans as well as foreign investors.
The average quantum price here is more than RM700,000 with an average income of more than RM8,000 per month.
For Johoreans, this area is mainly dominated by the old generation whose properties have been handed down from one generation to the next. A significant number of Malaysian PRs have bought homes here to ease their commute in and out of Singapore.
Case study
Now, let us assume you would like to buy a studio unit in this area. The unit is priced at RM1,000 per square foot with a size of 500 square feet.
The quantum price will be RM1,000 x 500 = RM500,000.
Let us assume an interest rate of 4.45 per cent with 10 per cent down payment and 90 per cent loan over 30 years.
You will need to put down a down payment of RM500,000 x 10/100 = RM50,000.
Now, let’s work out your monthly mortgage payment using the mortgage calculator here:
Your monthly mortgage would work out to RM2,266.73.
If we work backwards using the income-to-mortgage ratio: to afford this unit, your gross income must be:
Gross income x 30/100 = RM2,266.73
Gross income = RM2,266.73 x 100/30 = RM7,555.77
For a fresh graduate who earns, say, RM3,000 a month, this property is unaffordable.
So what does the research show?
For Johoreans: The newer generation tend to shy away from this area as homes here are considered out-of-reach. As you can see from the above, the average quantum price for studio units here is around RM500,000.
For foreigners: Projects here are popular due to their proximity to Singapore and that certain projects have been exempted from the RM1 million minimum purchase price. The strengthening of the Singapore dollar versus the ringgit will spur buying activities. In addition, the RTS-MRT link will increase property values and the desirability of Johor Bahru.
Adapted from “Property Buying for Gen Y” by Khalil Adis. You can pre-order a copy here
