Progress of RTS Link fuels boom in Johor Bahru properties

/ EdgeProp Singapore |

November 24, 2023 8:30 AM SGT

When completed in three years, the Singapore-Johor RTS Link will help ease traffic congestion (Photo: Samuel Isaac Chua/EdgeProp Singapore)

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Singaporean Bruce Lye, co-founder of Singapore Realtors Inc (SRI), enjoys driving to Kuala Lumpur (KL), Malaysia, and taking a spin around the Sepang International Circuit on Open Track Days. He organises trips to Malaysia for friends and SRI real estate salespersons, such as durian feasts and premium outlet shopping.

A decade ago, Lye had invested in KL, focusing on prime condos. He acquired half a dozen units there, including Verticas Residensi in Bukit Ceylon by Singapore-listed developer Wing Tai Holdings, several condos in Mont Kiara, KL Sentral and KL City Centre (KLCC). After he sold some of them, he parked the gains in several investment funds.

He never considered investing in Johor Bahru (JB) until early this year: It was after Singapore Foreign Affairs Minister Dr Vivian Balakrishan and his Malaysian counterpart Zambry Abdul Kadir stated on Jan 16 that they had made “good progress on the Johor Bahru-Singapore Rapid Transit System [RTS] Link project”.

Read also: Where the property investment hotspots are

When completed, the RTS Link will serve 10,000 passengers per hour and should ease traffic congestion on the Causeway. It will connect Woodlands North station in Singapore and Bukit Chagar station in JB in Malaysia. The stations will be co-located with the Customs, Immigration and Quarantine (CIQ) checkpoints.

The announcement on the progress of the RTS Link, which is 52% completed as at October and set to commence operations by early 2027, was “a significant catalyst in making the JB property market a hot spot”, acknowledges Previn Singhe, founder and group CEO of Zerin Properties Group, an established real estate agency in Malaysia.

“It has given property buyers a shot of confidence, leading to a surge in inquiries from Singaporeans particularly interested in investing in properties near the upcoming Bukit Chagar station, which will benefit from the enhanced connectivity,” says Singhe.

View of Johor Bahru and the existing CIQ checkpoint (Photo: Samuel Isaac Chua/EdgeProp Singapore)

RTS-driven investment

SRI’s Lye agrees: “Once the RTS is open and people find it convenient to travel, more Singaporeans would be interested in exploring moving across the Causeway, especially if they can enjoy a better cost of living,” he says. “I think JB will boom.”

With that in mind, Lye bought his first condo in JB this February. It is a 700 sq ft, two-bedder at Setia Sky 88, an 838-unit freehold condo completed in 2017 by Bursa Malaysia-listed developer S P Setia. It has three 55-storey towers with units ranging from 484 sq ft for a one-bedder to 1,389 sq ft for a three-bedroom penthouse.

Located at Jalan Abdullah Tahir, Sky 88 is about 3.3km away from the RTS station, says Saniman Bin Amat Yusof, divisional general manager of S P Setia, who heads the operations in Johor.

S P Setia’s sales galleries at Harbourfront Tower in Singapore and in Johor saw a pickup in interest from Singaporean buyers since 4Q2022. According to S P Setia’s Saniman, the primary focus is on one- and two-bedroom apartments or condos with a built-up area between 600 sq ft and 800 sq ft, and prices ranging from RM600,000 ($171,600) to RM1,000,000.

“Many buyers lean towards completed projects due to the time saved, the reduced bank interest cost, and the ability to move in immediately,” adds Saniman.

For instance, Lye paid around RM600,000 for a high-floor unit at Sky 88. It is near the 40th floor, with an unblocked sea view. “I can’t even buy a new car in Singapore for that price,” he says. Despite being completed six years ago, Setia Sky 88 is “well-maintained by Singapore standards, with good security, concierge service and many condo facilities,” adds Lye. “S P Setia is a very reputable developer.”

Shortly after his purchase, Lye found a Singaporean tenant at a monthly rental rate of RM2,100 or $600, translating to a gross yield of 4.2%.

The 838-unit freehold condo Setia Sky 88 by developer S P Setia was completed in 2017 and is just 3.3km from the upcoming RTS station at Bukit Chagar (Photo: S P Setia)

‘Second home’

Another Singaporean, Taekwondo instructor, hairstylist and salon owner, Cephas Soh, recently booked a unit at Paragon Gateway, a new mixed-use development with serviced apartments and a retail podium at Taman Suria in JB launched in 3Q2023.

Soh made a down payment of RM1,000 for the 648 sq ft, freehold, one-bedroom-plus-study. The listed price was RM538,000 but the developer offered him a 12% discount. After including RM35,000 government administration fee, his final purchase price amounted to RM509,000.

The developer is JoLand Group, and Paragon Gateway is targeted for completion in three to four years. Soh intends to use the property as “a second home and a break from the monotony of living in Singapore”.

About six months ago, he and his friends initially focused on JB condos near the CIQ. However, he says many of those near the CIQ have already been fully taken up, or the only available units are large apartments priced well above RM1 million.

“High-rise residential projects launched in recent years and newer developments around the RTS station in JB have seen robust demand from local and foreign buyers,” notes Zerin Properties’ Singhe. “Average selling prices have surged to RM1,000 psf and beyond, aligning them with prices of high-end residential properties in the KLCC.”

One of Soh’s friends bought a unit at Space Residency, a 60-storey mixed-use development with 995 units by Linbaq Holding next to KSL City Mall. Another friend purchased a unit in a condo at Danga Bay for slightly over RM1 million.

Soh’s unit at Paragon Gateway is about 5km from the CIQ. He travels to JB bimonthly for leisure, mainly to shop and dine. “I purchase my health supplements, hair products, and organic health food, which are cheaper in JB,” he says.

Since borders reopened in April 2022, people crossing between Singapore and Johor Bahru have resumed (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Strength of the Singdollar

One of the factors that influenced Soh’s buying decision was “the favourable exchange rate” between the Singapore dollar and the Malaysian ringgit, which is at a historical low of $1 to RM3.5. Another factor was the RTS. “When the RTS is completed in three years, the price of my condo may go up,” he says.

The strength of the Singapore dollar relative to the ringgit has significantly enhanced the affordability of properties in Johor, says Singhe. It gives Singaporeans access to real estate with freehold tenure, spacious living spaces, scenic views and even houses with land.

“Developers of selected new project launches in JB have also sweetened the deal for buyers with enticing perks, including free legal fees, absorption of the 2% foreign state levy for foreign buyers, customisation options, and further discounts for cash buyers,” notes Singhe.

In Singapore, Additional Buyer’s Stamp Duty (ABSD) rates were hiked at the end of April. Foreigners buying residential property are now hit by a 60% ABSD, double from 30% before. Even Singaporeans are not spared, with those buying a second residential property having to pay 20% ABSD and 30% ABSD for those buying their third property. It has driven property investors to look offshore.

Meanwhile, monthly rents of high-end non-landed residential properties in Singapore have increased 51.9% over the past 2.5 years, according to Alan Cheong, Savills Singapore executive director and head of research. In 3Q2023 however, there was a 0.6% q-o-q dip to $6.16 psf per month.

Escalating rental rates in Singapore drove demand for strategically located and well-managed residential properties in JB, notes Singhe. The upswing in the rental market is primarily fuelled by an increasing number of Malaysians employed in Singapore who choose to relocate to JB for more cost-effective housing options despite the longer commute.

Sought-after areas are Iskandar Puteri, Tuas Second Link, and Causeway, resulting in rental rates returning to pre-pandemic levels and, in some instances, seeing an increase of over 50% (Photo: S P Setia)

Surge in buying, rental demand

This surge in housing demand extends beyond Malaysian professionals to include expatriates, students, and short-stay operators seeking properties for refurbishment into holiday rentals, says Singhe.

Sought-after areas are Iskandar Puteri, Tuas Second Link, and Causeway, resulting in rental rates returning to pre-pandemic levels and, in some instances, seeing an increase of over 50%, he adds.

Hence, the lower cost of living in Johor “adds another layer of attractiveness, making it a pragmatic choice for those seeking a comfortable lifestyle while saving on expenses compared to Singapore”, says Singhe.

According to S P Setia’s Saniman, most buyers of the developer’s projects in JB are local Malaysians who commute daily between Johor and Singapore for work. The second group of purchasers is Singaporeans planning to stay in JB when they retire. He adds that they intend to rent out their property in Singapore for additional rental income as they enjoy the retirement lifestyle they want in JB.

A third and smaller group of buyers are expatriates in Singapore considering relocating to JB to take advantage of lower housing cost options, notes Saniman.

Major infrastructure works

Beyond the RTS Link, the long-term growth prospects of JB’s property market are bolstered by other infrastructure projects, such as the Iskandar Rapid Transit, the potential revival of the Kuala Lumpur-Singapore High-Speed Rail, and the proposed Johor Bahru Light Rapid Transit, which is currently being considered, adds Singhe.

Malaysia’s Mass Rapid Transit Corporation (MRT Corp) and Hong Kong’s MTR Corporation signed a memorandum of understanding (MOU) on July 28 to develop a transit-oriented development (TOD) project at Bukit Chagar RTS station. The new mixed-use TOD will have a three million sq ft mixed-use complex with gross floor area spread across six acres. The TOD is set to transform Bukit Chagar into an economic hub in JB, capitalising on the cross-border economy.

The governments of Singapore and Malaysia intend to sign an MOU in January on the Johor-Singapore Special Economic Zone. Meanwhile, in August, the Malaysian government announced that it is designating Forest City as a Special Financial Zone, offering tax incentives and fast entry for workers in Singapore.

These programmes are expected to improve investment and development prospects in JB, says Singhe. “The cumulative effect of these projects is a growing demand for properties in the Iskandar region, driven by the anticipation of improved infrastructure and connectivity,” he adds.

Singhe: The announcement on the progress of the Singapore-Johor RTS Link has given property buyers a shot of confidence, leading to a surge in inquiries from Singaporeans particularly interested in investing in properties near the upcoming (Photo: Zerin Properties)

What should Singaporeans be aware of when buying property in Johor?

A foreign individual or company planning to buy property in Malaysia must obtain prior written approval from the relevant State Authority under Section 433B of the National Land Code (1965).

In the state of Johor, the minimum purchase price for foreigners is:

● RM2 million ($574,000) for landed property in designated international zones

● RM1 million for high-rise, strata-titled property within non-international zones, except for Medini, where there is no minimum price

● For those buying under Malaysia My Second Home Scheme, the minimum is RM1 million (the Malaysian Government is considering relaxing some of the conditions announced in Budget 2024)

Properties that are off-limits:

● Low- and mid-cost housing

● Properties built on land reserved for Malays

● Any property allocated under "Bumiputera interest (lot)"

Malaysia's Premium Visa Programme (PVIP):

Introduced in September 2022, MPVIP offers long-term residency visas for foreign investors and entrepreneurs, allowing them to live, work, or study in Malaysia:

PVIP is open to individuals of all ages and provides visa approval for up to 20 years. Initially valid for five years and renewable at five-year intervals, the PVIP has a maximum of four renewals.

Participants in PVIP are granted the opportunity to purchase real estate for residential, commercial or industrial purposes.

To be eligible for PVIP, a foreigner must meet two primary conditions: Have an offshore income of RM40,000 per month or RM480,000 annually and maintain a fixed deposit account of RM1 million with a licensed bank in Malaysia.

For Singaporeans who own HDB flats, additional restrictions apply: They must fulfil the Minimum Occupancy Period (MOP) before being eligible to purchase property in Malaysia, which typically means a wait of five years post-HDB purchase.

Taxes and levies:

Foreigners are subjected to a one-time levy of 2% on the property purchase price or RM20,000 (whichever is higher).

Real Property Gains Tax (RPGT): If foreigners sell a property within the first five years of owning it, they must pay a 30% tax on the profit. However, if they sell it in the sixth year or later, the tax is reduced to 10%.

Budget 2024:

Starting from January 1, 2024, the Malaysian Government plans to introduce a fixed 4% stamp duty rate on transfer documents from foreign-owned companies and non-citizen individuals, excluding Malaysian permanent residents.

Foreign Sourced Income: The Government has proposed that the gains received from outside of Malaysia arising from the disposal of capital assets will also be subject to tax from March 1, 2024, onwards. An exemption may be available if economic substance conditions are satisfied.

Mortgages and borrowing limits:

The financing margin offered by Malaysian banks depends on the specific circumstances. For those under the Malaysia My Second Home (MM2H) program, it typically amounts to 80% of the total purchase price. Without MM2H, the maximum financing margin is about 70%.

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