Caution advised on Iskandar residential, commercial property: Maybank

Channel NewsAsia 17 Apr 15;

SINGAPORE: The property oversupply situation in Iskandar Malaysia, Johor, is "likely to get worse before it gets better", said Maybank Investment Bank's research wing in a report, with property values in an increasingly crowded development space possibly declining over the medium term.

In a research note issued by the Malaysian bank on Tuesday (Apr 14) urged investors to be cautious about the region, noting that property transactions and prices in Iskandar have been dropping.

The value of property transactions in Johor had fallen by 33 per cent quarter-on-quarter in the Q4 2014, underperforming the country (-7 per cent) and other major cities such as Kuala Lumpur (-12 per cent) and Penang (8 per cent).

Property prices in Johor were also weaker than that of other cities, with the House Price Index (HPI) contracting 1 per cent quarter-on-quarter. In contrast, property prices in the whole of Malaysia dropped 0.2 per cent, the research paper said.

Residential and commercial property transaction values plunged 42 per cent and 43 per cent on-quarter in the fourth quarter 2014, respectively, compared to the 4 per cent dip by industrial properties.

"The latest statistics reaffirm our view that industrial properties are a better investment choice in Iskandar due to the relocation of small medium enterprises (SMEs) from Singapore and its relatively limited supply as compared to residential and commercial properties," Maybank said.


The research note said that Malaysian developers have scaled back their launches and shifted their product mix to avoid direct competition with Chinese developers, and have lowered sales expectations for their projects at Iskandar.

"Judging from the number of approved high-rise projects, the Iskandar property market could be hit by too much supply of high-rise mixed development projects if there is still no coordinated planning and control - this will induce price volatility," Maybank analyst Wong Wei Sum said in the research.

"The oversupply situation will be exacerbated by the huge incoming supply in 2015/2016, where units under construction have risen 18 per cent year-on-year in 2012 and 2013, respectively."


The research note also raised concerns about "aggressive landbanking activities" by Chinese developers in the already-crowded Iskandar region.

"Without coordinated planning and control, this could aggravate the oversupply situation and induce price wars, especially in the high-rise mixed development segment."

For instance, Shanghai-based Greenland Holdings Group recently expanded its foothold in the space with the acquisition of a 128-acre freehold land in the south of Bandar Baru Permas Jaya. This was after its first purchase of 14 acres of land in Danga Bay in 2014. The company is also looking to acquire about 1,200 to 1,400 acres of industrial land near the Tanjung Langsat Industrial Complex, according to Maybank.

"If this materialises, Greenland will emerge as one of the largest land owners in Iskandar with a total landbank of 1,342 acres and it would pose strong competition to the local developers," the report said.


Maybank also said it is "cautious" over "massive land reclamation" in Iskandar.

Reclamation works spanning 3,425 acres for the Forest City project has been given the green light from the Development of Environment. The development will spread over a 30-year period, and will consist of four man-made islands reclaimed in four phases.

"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 or reduce sales risks by the developers," Maybank said.

"More importantly, the failure of any of these projects could erode buyers' confidence and perception on Iskandar."

As such, the bank said it remains cautious on property exposure in Iskandar, instead preferring developers with exposure in the Klang Valley and Penang.

Klang Valley, in particular, is preferred because of the upcoming KVMRT and LRT lines, and potential KL-Singapore high-speed rail project, which will end at Bandar Malaysia, Maybank said.

More importantly, the strong population growth potential in Greater KL and Klang Valley - a possible 40 per cent increase to 10 million by 2020 - offers more sustainable demand for properties, it added.

- CNA/kk

Many risks in land reclamation at Iskandar, bank says
LEE YEN NEE Today Online 18 Apr 15;

The large-scale land reclamation for housing developments carried out by Chinese developers in Iskandar raises many uncertainties, a Maybank research report has warned, saying any failure of these projects risks undermining investor confidence in the special economic zone.

“We are cautious on the massive land reclamation in Iskandar Malaysia,” the report said. “The execution and planning of such reclamation projects is complex 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 or reduce sales risks by the developers. More importantly, the failure of any of these projects could erode buyers’ confidence and perception on Iskandar Malaysia.”

Several reclamation projects by Chinese developers have made headlines in recent months as they drew concerns from environmental groups to the Singapore government. Nonetheless, the projects have received the go-ahead from Malaysian authorities after they were scaled down in some cases.

One of them, Country Garden’s Forest City, is a massive 1,386ha development on four man-made islands off Johor near the Second Link with Singapore. Guangzhou R&F Properties’ Princess Cove project will see 30,000 homes built on a 46.9ha plot, part of which will be reclaimed along the coastline of Johor Baru. The reclamation will extend the Johor shoreline nearer to Singapore.

While Country Garden’s net gearing could potentially drop to 0.58 after securing HK$6.3 billion (S$1.1 billion) equity funding from China’s Ping An Insurance, Guangzhou R&F has the weakest financial position with a net gearing of 1.2 times, the Maybank report said. LEE YEN NEE