Johor investors to face problems

Singapore speculators who were banking on making a quick profit from buying property in Johor, Malaysia, are likely to run into difficulties when the new RM1 million (approx. S$385,200) limit for foreign property purchases comes into effect on May 1.

Many Singaporeans have been investing in property across the causeway in recent years, attracted by comparatively low prices. However, those who need to exit their investments quickly are likely to face significant challenges when trying to sell their property – and could ultimately be stuck with a property they cannot sell.

From May 1, foreign property owners including Singaporeans who reportedly account for as much as 70 percent of property purchases in some parts of Johor state, will only be able to sell their units to other overseas buyers at prices above RM1 million. They can sell to Malaysians below that price, however Malaysian buyers of resale new and yet-to-be-completed units are extremely few and far between.

Ryan Khoo, a long time investor in Malaysian property and author of the best-selling What's the Big Deal with Iskandar book, told PropertyGuru: "I do believe there are a significant number of buyers who have bought at levels below RM1 million and are potentially "stuck", but the impact to these buyers is not really being felt now because most of these are newer properties still under construction and with DIBS in place, so there is no urgent need to sell yet."

DIBS (Developer Interest Bearing Scheme) is where the developer pays interest payments on the buyers' loans during the construction period. Normally the buyer pays a down payment or deposit and legal fees, but nothing else until completion.

Khoo added: "The common mistake that most Singaporean investors have made in Iskandar is buying property that is too expensive for locals - though cheap for Singaporeans - and yet not in a prime enough location, not a good enough design, and not in a good enough environment where there will be enough foreign buyers to take up these properties in the future."

He noted that overseas investors who have purchased property below RM1 million in Medini are largely safe from potential sales challenges due to favourable pricing and exemptions from the RM1 million foreign buying limit there. Another sector he predicted that will see benefits from the new rules is the gated, guarded landed homes market.

"Foreign buyers will realise they might as well buy these types of properties instead of condos if they are going to spend RM1 million," he said.

Going forward, he believes that sales volumes will moderate and buying will be very selective, as buyers have a lot of choices and will gravitate to projects that have a strong product proposition.

He said: "The new rulings will help to moderate the Iskandar property market in the medium term, which is healthy for the market overall. Savvy investors will still find Iskandar an attractive investment, and will still invest for capital gains in the medium- to long-term, especially since most of the catalyst projects are underway and, as each of them progresses, the market will receive a boost in the years to come."

Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg

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