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Understanding the Iskandar property market using the iProperty Consumer Sentiment Survey 2013

By Getty Goh

The government announced the latest round of property cooling measures in Jan 2013. Since then, even more Singaporean investors have started looking to buy a property across the causeway in Iskandar, Johor.

As I run a real estate research consultancy, I frequently speak to investors and have come across some who willingly spend more the RM1million for apartments with the intention of getting rental yield as well as capital gains. Unfortunately, due to the lack of information, some of these investors may have entered the Iskandar property market, assuming it behaves somewhat similar to the Singapore property market.

To help our investors, we have been on a lookout for reliable sources of information that can give potential buyers an idea of how the Iskandar property market is really like. On 4 Feb 2013, iProperty.com released its latest consumer sentiments survey for 2013.

After reading the report, my team and I found many useful nuggets of information that buyers of Iskandar properties should be mindful of. A total of 8,048 residents in Malaysia responded to the iProperty.com online survey. Even though the survey reflects general property sentiments across Malaysia (and not specific to just Iskandar or Johor Bahru), we found that many useful insights could be gleaned from the report. In this article, I will share some of the key takeaways with you…

Takeaway 1: Malaysians prefer landed properties

I have come across some Singaporean investors who enter the Iskandar market with the belief that there is potential for capital appreciation. Due to space constraints, many Singaporeans have grown accustomed to the idea of living in non-landed condominiums. In addition, the convenience of having facilities such as a gymnasium and swimming pool add to the attraction of condominium living (see Figure 1). From the survey results, Private Condominiums garnered the most response with 69% of respondents in Singapore indicating their interests in buying this type of property. Inevitably, some Singaporean investors believe that Malaysian buyers have similar preference and they would be interested in condominium units in Iskandar as well.

Figure 1: Respondents from Singapore on the type of properties they are interested

Fig1Source: iProperty.com Consumer Sentiment Survey for 2013 and Ascendant Assets Pte Ltd

Interestingly, from the consumer survey, my team and I noticed that Malaysians have a strong preference for landed properties (see Figure 2). Terrace houses garnered the most response with 58% indicating their interest. Collectively, terrace houses, semi-detached houses and bungalows received 103% share of the Malaysian response (i.e. 58% terrace houses + 31% semi-detached + 14% bungalow), while the Singapore survey only received 34% (i.e. 16% terrace houses + 12% semi-detached + 6% bungalow).

Figure 2: Respondents from Malaysia on the type of properties they are interested

Fig2

Source: iProperty.com Consumer Sentiment Survey for 2013 and Ascendant Assets Pte Ltd

From this comparison, it is quite apparent that Singaporean and Malaysian buyers have difference property preferences. While Singaporean respondents are comfortable with staying in highrise condominiums, Malaysian respondents generally prefer landed properties. Hence, the assumption that Malaysians like condominium living and are prepared to pay a high price for it (in the resale market) may not be an accurate assessment of Malaysian buyers.

Takeaway 2: Majority of Malaysians have a property budget of not more than RM500,000

Based on the conversion rate of SGD1 to RM2.5, a RM1million property currently costs about SGD400,000. With an 80% loan from the Malaysian banks, the cash that Singaporean buyers have to come up with can be as little as SGD80,000. Hence, many Singaporeans find properties in Malaysia properties affordable and are jumping onto the bandwagon.

While a RM1million Malaysia property may be affordable for Singaporeans, not many Malaysian buyers have that type of property budget. Based on the iProperty.com consumer survey, up to 66% of Malaysian respondents have a budget of not more than RM500,000 (see Figure 3). Of the total respondents, 93% have a budget of less than RM1million and only 7% have a budget of RM1million or more.

In other words, if a Singaporean investor buys a RM1million unit and hopes to sell it for RM1.1million, there would not be many eligible Malaysian buyers as only a handful would have RM1million or more to spend on a property. This in turn would mean limited local/domestic demand for properties at that price range.

Figure 3: Property budget of Malaysian respondents

Fig3

Source: iProperty.com Consumer Sentiment Survey for 2013 and Ascendant Assets Pte Ltd

Takeaway 3: Not all Malaysians view Iskandar as the top property destination

With so much marketing efforts and hype surrounding developments in Iskandar, some Singaporean investors may intuitively think that the location is widely regarded, even by Malaysians, as the next property hot spot. However from the iProperty.com Consumer Sentiment Survey, it was revealed that 76% of respondents regard Georgetown, Penang as the top destination for property investments. From Figure 4, Johor Bahru and Nusajaya come in second and third with 50% and 49% respectively. In other words, more Malaysians view Georgetown, Penang favourably and would likely buy something there before looking at alternative investment location.

Figure 4: Respondents view on the top 3 investment locations in Malaysia outside Selangor

Fig4

Source: iProperty.com Consumer Sentiment Survey for 2013 and Ascendant Assets Pte Ltd

Conclusion

For any property investment to be profitable, there must be strong demand for the type of asset in the particular location. In other words, for Singaporean investors to make money from their Iskandar properties, there must be a situation where demand (from both overseas and local buyers) is more than supply.

While this survey does not specifically focus on the Iskandar property market, it gives property buyers a good idea of what Malaysian buyers look for. To summarise, the majority of Malaysian property buyers have a budget of less than RM1million and more than half prefer landed properties. For a portion of them, Iskandar may not be the first investment destination they will look at as they may head to Georgetown, Penang first.

I recognise that these findings are based on a sentiment survey and market situations do change over time. However, the point I am trying to highlight is that there is much more to the Malaysian and Iskandar property market than what many investors may have realised. For example, there were 38,640 residential transactions in Singapore in 2010. In comparison, the number of residential transactions in Malaysia during the same period was 376,583, almost ten times Singapore's transaction figure. Thus it may not be prudent for investors to assume that what works in Singapore will work in Iskandar or Malaysia, and they should understand the market a bit more before proceeding with their purchase.

If you would like to get a copy of the iProperty.com Consumer Sentiment Survey, you can download it for free at the following link: http://www.iproperty.com.sg/asia-property-market-sentiment-report.

Getty Goh has a Masters in Real Estate and a Bachelors in Building from the National University of Singapore. He conducts frequent talks on the topic of property investing. To sign up for his next sharing, please visit www.BuyByeProperty.com. For those who wish to know more about what are some of the factors that would impact the profitability of a development, please drop him an email to find out more.

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