Malaysia’s Johor region looks to foster residential demand

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Real estate developers are quietly optimistic that new projects and a steady flow of investments into Iskandar Malaysia, the multi-purpose development zone in the southern state of Johor, will boost investor interest in property in the region, particularly in the overstocked residential segment.

Creating demand

“The authorities need to bring in industry and services in order to grow the population, but all of this takes time,” Ivan Teo, general manager of property developer Rawhide, told OBG. This underscores the need for more mixed-use properties, which provide a wider variety of services and cater to multiple segments of the community, he added.

There is some early movement in this direction, according to Freddie Lee, executive-director of developer Seri Alam Properties, thanks to increased activity in the industrial segment.

“A lot of Singaporean small and medium-sized enterprises are keeping their headquarters in Singapore but moving their factories here, because it is cheaper and Malaysia shares the same culture and law,” he told OBG.

In November Singapore’s Beyonics Technology opened a 27,000-sq-metre electronics manufacturing campus in Kulaijaya in Johor. Developed at a cost of $10m, the iPark could help to draw workers from around the country, and help spur demand for housing.

This followed on from a $250m plant opened by US confectionary giant Hershey’s in the Senai free trade zone of Johor earlier in 2015. As the company’s largest single investment in Asia and its second-largest plant, the 6500-sq-metre facility will create employment for roughly 400 workers and plans to export 90% of its output.

In the works

The rollout of other industrial projects in the region could also add to demand. In December Singaporean developer Rowsley announced plans to partner with private health care provider Thomson Medical to develop the Vantage Bay Healthcare City in Iskandar Johor.

The RM5bn ($1.2bn) medical city, set to be completed by 2018, plans to cater to the growing elderly demographic in nearby Singapore with a range of facilities, including a specialist hospital, medical school and long-term care facilities.

Other government-led projects are also set to generate local employment and housing demand. The RM97bn ($22.2bn) Pengerang Integrated Petroleum Complex (PIPC), a series of oil refineries, naphtha crackers, petrochemicals plants and liquefied natural gas import terminals, is being developed in Johor. The 8100-ha PIPC project is slated to create as many as 70,000 jobs during the construction phase and 4000 permanent positions upon completion.

The RM20bn ($4.6bn) Ibrahim International Business District (IIBD) project, announced by the Johor state government in November, could help attract other businesses to Johor in the coming years. A series of projects meant to upgrade the Johor city centre into a modern international business district, the IIBD will be rolled out over the next decade, in a bid to leverage the state’s proximity to Singapore while offering more space and lower costs.

Developers will also be looking to EduCity ­­– an integrated higher education centre being developed as part of the Iskandar project – to spur further interest in Johor.

Already home to half a dozen different campuses, with universities from the UK, the Netherlands and Singapore among those represented, EduCity is drawing a growing number of foreign and Malaysian students. The housing needs of staff and students are expected to increase demand in the residential segment, which stakeholders hope will help drive sector growth.

Price dynamics

The devaluation of the ringgit, which had fallen 17% against the US dollar year-to-date in early December, could also increase the appeal of property in Johor.

With the Malaysian economy slowing, many developers have been holding prices of residential properties in Johor steady in order to appeal to buyers, despite a rise in input costs. However, this could soon change, as the weaker ringgit puts greater pressure on the cost of imported machinery and materials.

This, too, could be an incentive for buyers looking for an investment property, allowing them to take advantage of lower costs ahead of an expected increase.

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