Bubble fears in 'Malaysia's Shenzhen'
CK TAN, Nikkei staff writer
November 20, 2014 12:00 am JST
ISKANDAR, Malaysia -- On a palm tree-lined coastal road here, the Country Garden complex will feature luxury residences and classy stores. Adjacent to the showroom, a Chinese developer is rushing to build more than 9,000 residential units and malls in high-rises.
The two complexes are being built on reclaimed land on the southern tip of the Malaysian Peninsula. And they face choppy waters.
"We have sold about 60% of the project," said Nicholas Hum, general manager of sales and marketing at Country Garden. Prices of two-bedroom units start at about half a million ringgit ($150,000), double the cost of those in standard high-rises in Johor State. The reclaimed land, known as Danga Bay, is located in the state.
Modeled after Shenzhen, a Chinese coastal city near Hong Kong, Danga Bay is part of a major development called Iskandar Malaysia. The project aims to transform Johor into an economic engine by capitalizing on its proximity to crowded and expensive Singapore. The development, which is about 2,200 sq. km in size, three times larger than Singapore, is scheduled for completion in 2025. Hubs for government, residences, education, industry and entertainment are planned. Train links with Singapore and Kuala Lumpur are also in the cards.
Roughly eight years after the project started, the pace seems to be slowing. Real estate developers are still building, but customer numbers are diminishing.
Malaysia in January put in place measures to cool the housing market and get debt under control. Partly as a result, residential prices in Johor declined 1.6% in the second quarter of this year. Adding to the state's woes are unsold properties. Johor accounts for a quarter of unsold units in the country, according to Malaysia's Valuation and Property Services Department. The state also had the highest "planned supply" of housing as of June, at 182,866 units.
From swamp to swamped
Johor was once a backwater. Land was abundant, and locals lived mainly in terrace houses. Then came the Iskandar boom. Established developers from Kuala Lumpur, Singapore and China rushed in, and high-rise dwellings shot up. And in places such as Danga Bay, they reclaimed land to build houses with sea views looking out onto Singapore.
"Sixty percent of those who invested in real estate in Iskandar are Malaysians," said Ricky Lee of Knight Frank, a property consultant, "especially those who work in Singapore." Every day, more than 150,000 Malaysians cross the border for better-paying jobs in Singapore. Immigration bottlenecks can keep these workers waiting up to an hour at peak times.
Steven Lee, a Malaysian accountant working in Singapore, bought a condominium here last year. His 700,000-ringgit, 140-sq.-meter unit will be completed in 2015. But Lee, who is renting an apartment in Singapore with his wife, has no intention of living in it. "It is meant for investment, and we will only consider moving in when the traffic improves with the new train," he said.
It remains unclear when those train lines will be completed. Recent news reports quoted the Malaysian transport authority as saying a Kuala Lumpur-Singapore high-speed rail project might be delayed beyond the target year of 2020.
Iskandar secured investment of 156 billion ringgit between its 2006 inception and September, according to the Johor state government. A third of the investment was in real estate development. On the east coast of Iskandar, state oil company Petronas is building huge petrochemical plants. Legoland Malaysia Resort, a theme park based on the popular toy, opened nearby in 2012.
In west Iskandar, factories in an industrial zone are gathering dust.
More construction
Local brokerage Maybank Investment Bank Research says too much development may cause Iskandar property values to drop in the medium term. In an October report, Maybank pointed out that demand for properties recently put on the market has not been as "robust" as it was last year. At some high-end condominium complexes, only 20% of the units are getting sold. Lee, the real estate agent, said these condominiums, some of which cost more than a million ringgit, are beyond the reach of average Malaysians. "Property price bubbles are forming already," he said.
Still, cranes and dump trucks are busy at Danga Bay. Near Country Garden, Chinese and domestic developers are clearing land in preparation for still more construction. Many believe the property slowdown is temporary; they point to the growing economy and generational shift toward modern, urban lifestyles. Such people "are investing in the future of Malaysia and Singapore," said Country Garden's Hum.
http://asia.nikkei.com/magazine/201...S/Markets/Bubble-fears-in-Malaysia-s-Shenzhen
