Iskandar Malaysia has received quite the media bashing recently especially in Singapore with the recent highlight in parliament that as of Q4 2014, there were 142,567 units "incoming" in Johor and another 193,271 "planned". This total is almost 335,838 units, which is equivalent to the existing private housing supply in Singapore.  Data was quoted from Malaysia's NAPIC (National Property Information Center).

This statement caused some alarm within the investor community as it seemingly portrayed Iskandar Malaysia as having an over-supply of property. But before you make any conclusions, it is best to understand how the figures are defined and the differences between the Malaysian and Singapore systems.

1. The figures quoted are for Johor state in entirety.

The 335,838 figure quoted is for the entire state of Johor. Iskandar is only a sub-set within Johor state and should be approximately about 2/3 of the entire Johor figures.

 

2. Definition of "incoming" supply  and "planned" supply is different compared to Singapore.

"Incoming" is defined as any property project that has been approved by the local authorities. "Planned" supply refers to projects that are in submission with no approvals given yet and hence also no timeframes to build. Approved projects do not necessarily have started construction and typically approvals have a 2 year validity period in which if no construction has begun, the developer will have to seek re-approval. An approved project that does not receive good response from the market can always be deferred or amended (new approvals will be required in this case). Hence out of the 142,567 units defined as "incoming" in Johor state, the actual figure that has started construction on the ground is much lower.

 

3. Malaysian developments look at land cost differently compared against a Singapore equivalent.

Land cost as a component of the overall property project cost is lower in Malaysia compared to  a similar project in Singapore. As such, a real estate developer in Malaysia can afford to hold on to the land for a longer timeframe and choose not to build if they do not have good market response and there are no penalties involved from the authorities. Many developments are also the result of joint ventures between land owners and the developer, hence the land carries a low holding cost or none at all. This is unlike the Singapore market which is dominated by Government Land Sales (GLS) and where most developers and holding the land over a longer timeframe is often un-economical due to Additional Buyer Stamp Duty (ABSD) for un-sold units and Qualifying Certificate (QC) penalties for developers with foreign directors. As such, when land is sold in Singapore and approved for construction, it is almost a certainty that it will be built. This is unlike Malaysia, where townships can be built over 10-15 years with construction timed to the strength of demand instead of solely on when approvals are granted. Hence NAPIC incoming and planned supply numbers should be looked at within this context and understand that Malaysian developers have more flexibility in choosing when to start building.

 

4. "Incoming" and "Planned" supply numbers are cumulative and is spread over many years.

The "Incoming" and "Planned" numbers are cumulative, which means they consist of all the projects in various stages whether already under construction recently, started a few years ago or even if it is still on a drawing board. So while these figures can be used as a gauge of building momentum, it is not accurate to quote the 335,838 figure as a confirmed incoming property supply. And even if one were to make that assumption, it will be spread over a long timeframe possibly 5 years and likely more. This is unlike Singapore where URA and HDB only make available detailed housing site plans for the next  1 year. 

 

5. The supply is for both private and public housing so a right comparison should be made.

Reference is made that the upcoming 335,838 upcoming supply in Johor is equivalent to the Singapore existing private housing supply.  The private housing supply in Singapore is only about 20% of the entire Singapore housing stock and that if you include public HDB housing, the Singapore total housing stock is much larger, at 1.2million units and this serves a population of 5.3million (4.4 people per home). Johor state has a similar ratio where there is a total of 720,000 existing homes serving a 3million population (4.16 people per home). These figures for Johor are inclusive of all home types be it landed, high rise and low-cost homes, both public and private. In Malaysia, private housing is the vast majority and this serves all levels of population. Public housing in Malaysia is quite minimal unlike Singapore. So in comparing housing supply, it should be the sum of both public and private to make an accurate comparison and you can see here with a correct comparison, the population/supply ratios in Johor versus Singapore are actually quite similar.

 

6. Majority of properties being built are meant for the local Johorians.

Malaysian regulations only allow Singaporeans to purchase properties that are valued at RM1million and above (prior to 1st May 2014, it was RM500,000 and above and the Medini zone is exempted). The 335,838 incoming supply in Johor consists of homes that are of ALL price categories. Based on NAPIC transaction figures, homes above the RM500,000 range would generally be in the 75th percentile or higher for all property transactions conducted in Johor. This indicates that the majority of properties that are being built in Iskandar Malaysia are meant for the local population, and that the supply meant for foreign purchasers is not as large as suggested.

With that we hope this article clarifies some of the mis-perceptions that the public may have made with regard to the Iskandar Malaysia housing situation. It is true that incoming supply in Iskandar has increased in the recent years but that is to be expected with a booming local economy, rising investments and higher local incomes. Seeing the higher incoming supply as a potential problem is a "glass half empty" perception, others would argue that it points to a growing population and confidence in the economy (a glass half full scenario). The Chinese developers could be right after all, that once the High Speed Rail and Rapid Transit System is completed, we could see a population boom that outstrips all the current supply that we see today.  

This article appeared in The Edge Property Pullout of Issue 680 (June 8) of The Edge Singapore.

Ryan Khoo is co-founder of Singapore-based Alpha Marketing, a real estate investment consultancy that focuses on the Malaysian market, especially Iskandar Malaysia. The views expressed here are his own.