Iskandar Malaysia – medium term prospects concern

Many reports have shown the slowing down of transactions in Iskandar. However, if we look at land transactions, it is continuing and is not showing any slowing down signs thus far. The latest deal was by Greenland Group of China, buying 13.96 acres from Iskandar Waterfront Holdings Sdn Bhd (IWH) at a cost of RM600 million. The GDV planned is around RM2.2 Billion. Actually, in terms of land cost compared to GDV, this is indeed considered to be on the high side. It is around 27% of the GDV. This has yet to include the cost of construction such as labour and materials as well as cost of compliance.
Thus far, IWH has already inked 17 deals with local and foreign partners to develop properties worth RM127 Billion in GDV in Iskandar. The plans were for Johor to be turned into a waterfront metropolis facing Singapore. In fact, these continuous interest in Iskandar augurs well for its future growth even if there are many who are worried that with such a huge number of units flooding the market, it may not be able to absorb them all. Maybank IB Research also expressed their concerns for the medium term for Iskandar because of the massive incoming supply of residential and retail properties in hotspots like Danga Bay and Nusajaya.
Just looking at the planned launches (serviced apartments, hotels, office and retail spaces) by Country Garden, Hao Yuan, Guangzhou R&F Properties Co Ltd, CapitaLand and Greenland Group, the hotspot areas, ie, Danga Bay and Tanjung Puteri is already an enormous supply of high-rise mixed development projects and thus may put pressure on asset value. What’s the catalyst? if we hope for just the current two links between Johor and Singapore, the supply really does seem enormous. If however the RTS (Rail Transit System) or the HSR (High Speed Rail)  is built, then the number of people who are working in Singapore but wants to stay in a decent place instead of a small room in HDB flat for S$700 per month would meant that demand for properties in Iskandar would increase many times.
The only concern however would be that the prices must still be reasonable enough. If every new condo is RM1 million or higher, get serious, not many would be able to afford one. Not even if these people are earning 2.5x more than if they work in JB.
written on 14 April 2014
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