Overcoming Bubble Doubts Iskandar Malaysia Real Estate

Pulling Iskandar Out of the Cold

Iskandar Malaysia was the darling of local and international investors and many pumped in large sum of investment of the years. The landscape changed rapidly in the span of less than a decade as projects after projects sprung up.

However, this special economic zone might have stumbled a little recently as it has fallen into doldrums together with the slow global economy. There are even fears of a bubble forming with investors fearing that the weak sentiments will ultimately trigger a massive slide.

Figures of Decline

Although the relevant authorities are reluctant to admit, there is no denying the fact that real estate volume and prices has taken a hit and the pace of development has indeed slowed down significantly.

According to Maybank Investment Bank, the slowdown begun in 2014 and the excess supply will worsen in 2015-2016. The Monetary Authority of Singapore also issued a warning in May that the 330,000 units of residential properties under construction have exceeded the total number of private homes in Singapore.

H1 2015 figures published by the NAPIC showed a weaken climbed of the MHPI (Malaysian Housing Price Index) to 211.1 points, up only 4.1%, the lowest gain in the past five years. Quarterly figures for Johor show a decline of 1.4%, although the yearly figures registered a gain of 5%.

Year on year transaction price saw a slight increase of 2,2% to 39.4 billion ringgit in Q1 but fell by 4.7% to 37.6 billion ringgit after the implementation of the GST.

Part of the Global Slump and More

Malaysia is not the only country faced with a decline as the global economic slowdown has significantly impacted nations all around the world. That being said, Iskandar has to deal with a host of other factors as well.

As mentioned, investment in Iskandar reached feverish pitch during the property boom and the market required a longer time to digest the influx of capital. However, the timing could not have been worse as the 1MDB financial scandal broke cover and the country started to see some political turmoil.

The issues were extremely unfavourable to the market and affected investment sentiments. Situation can be expected to improve once the market gets up to speed with the price-quantity equilibrium and there is greater clarity in the 1 MDB case and political stability.

Fundamentals Remain Strong

Iskandar continues to present a strong case for itself on the fundamental level as it continues to lead the nation in terms of population growth. Needless to say, population growth is a most telling indicator of demand for properties.

The region is also supported by well planned development regions such as the theme parks, EduCity, healthcare city, shopping districts and more. These districts are conceived to promote growth in specialized areas and would be relatively insulated from market noise as key players in the market react to long term growth instead.

The continued influx of foreign capital should ease further doubts as planned investment into Iskandar continues to flow in despite the weakening sentiments.

With the sluggish residential properties segment, investors into Iskandar can look into non-residential properties as there are still huge potential. Tourism related properties and industrial properties are two areas that are worth exploring. However, the projects would need to maintain a global high standard to ensure its long term viability as Iskandar shapes up to become a global gateway for Malaysia.

The much touted Singapore advantage remains a relevant point in Iskandar and always will. However, there is a pressing need to address the negative conception of the region by Singaporeans as well as global investors.

The perceived corruption and high crime rate as well as unexpected policy changes are just some of the issues that have gained the attention of this important pool of investors. The falling ringgit did not materialize into huge influx of investments by Singaporeans as a result of the above non-price issues.

More Infrastructure Needed

The road network in Iskandar is already very developed and should be able to service the various developments all across the region. However, non-road traffic connectivity is still far from adequate for a city aspiring to become a global cosmopolitan city. The Senai Airport and various piers around Johor still need much improvement to achieve global standard.

Hastening the development of infrastructure is one of the ways of strengthening investor confidence as proper infrastructure will directly lead to a strengthening of economic advantages.

Iskandar is a massive project with many stakeholders involved, each with their own view of how the development unfolds. It should come as little surprise that their different game plan can cause the market to react in surprising ways. That being said, a project the size of Iskandar is bound to run into hiccups, but the outlook remains positive as different stakeholders work towards ensuring the success of the region.

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