The presence of China-based developers in Iskandar Malaysia could be a bitter-sweet experience for the property market in the state. Overhang likely to appear in secondary market

Updated: Saturday February 15, 2014 MYT 10:35:17 AM

Overhang likely to appear in secondary market

BY EUGENE MAHALINGAM

THE presence of China-based developers in Iskandar Malaysia could be a bitter-sweet experience for the property market in the state.

On one hand, their presence in Johor would lead to the “internationalisation” of the property sector in the state but others are worried about the overhang that awaits the secondary market when buyers decide to sell.

Malaysia Institute of Estate Agents (MIEA) president Siva Shanker praised Country Garden Holdings Co Ltd for having the confidence to offer about 9,000 units for sale at one go but he worries of the impact on the market in Johor.

Says Siva: “The whole of Mont’ Kiara comprises between 18,000 and 20,000 units of apartments and that took some 20 years to build. But 9,000 units coming in over a period of two to three years will seriously throw the market off balance!”

“Country Garden has done well with their shock and awe system of launching so many units. They held a clever marketing campaign with a fun fair-filled atmosphere to lure people. They priced their units slightly lower than their competitors.

“They also had a big show in China to sell their properties there.”

It is speculated that Country Garden may have priced their units at RM200 per sq ft.

According to CB Richard Ellis (Johor) Sdn Bhd director Wee Soon Chit, Country Garden reportedly acquired about 57 acres freehold waterfront land at about 380 per sq ft.

“They started taking booking fees for about 9,475 high rise residential units in mid-2013. They reportedly spent about RM150mil for their sale carnival from Aug 11 till Sept 10. The response was good with more than 50% of the units reportedly booked.”

Wee says aggressive promotions were done to attract both local and foreign buyers, especially from Singapore and mainland China.

“The number of units launched was big. Certainly it has never happened in Johor Baru or maybe even in Malaysia.”

More is better?

One Johor-based property consultant says having more property players entering the market “is always a good thing.”

“It promotes competition. Of course, it’s best if the projects are launched in phases. If it’s all at one go, there would be oversupply and that’s not good.”

Wee says the slew of new units introduced into the market will certainly affect other competing schemes as buyers would be swayed by the “five-star living concept”.

“They are promoting 300m of beach front, 3 km eco garden, 10,000 sq ft infinity pool, a one-stop commercial centre and 75,000 sq ft integrated high end club.

“Prices will certainly be affected with so many units flooding the market but it is difficult to measure as different schemes somehow offer different products in terms of features, finishes and facilities.

If or when that happens, Siva says, existing investors and owners will face difficulty in either disposing off their properties or even finding tenants.

This is compounded by the fact that the property market is expected to remain soft in 2014, notes Siva.

“The property market had a bull-run from 2010 to 2012. This was partly because buyers could get up to 100% loans and incentives such as the developer interest bearing scheme.”

Siva says that the period between 2010 and 2012 was essentially a “speculator’s market.”

“The average profile of a purchaser during that two-year period was someone who didn’t have money for either a down payment or to repay their loan. That’s because the mindset was once the property was ready, I could sell it for profit. I make money out of thin air.”

He says there is a high likelihood that the purchasers “did not have money then” and probably “still not have money now.”

“Now their properties are ready and it’s time to start servicing the loan. They’re going to have problems selling because there’s going to be an oversupply of properties. To avoid defaulting their loans or even facing a possible foreclosure, they will try renting out, but that too could be tough.”

Siva feels that the speculators have no one to blame but themselves for the situation that they could potentially be in.

“In the last few years we have set ourselves for this to happen, due to the unabated greed (by speculators) for quick gains.”