Future housing glut in Iskandar could 'lower value of homes there'

Singapore

THERE is a "real concern" about a future oversupply of properties in Iskandar Malaysia, which could mean a potential decline in the value of homes there, said Monetary Authority of Singapore (MAS) board member Lawrence Wong.

According to latest data from Malaysia's National Property Information Centre, there are nearly 336,000 new private residential units in the pipeline in Iskandar.

Mr Wong, putting this figure into context, said that it is greater than the total number of private homes in Singapore; he added that the figure does not include another 1,400 hectares of reclaimed land near the Tuas Second Link that will come onstream from 2020.

Speaking in parliament on behalf of Deputy Prime Minister, Finance Minister and MAS chairman Tharman Shanmugaratnam, Mr Wong was responding to Nee Soon GRC Member of Parliament Lee Bee Wah, who wanted to know the number of Singaporeans who had bought properties in Iskandar, and how Singapore banks were safeguarded against major defaults in property loans to these buyers.

"There are many risks involved in overseas property purchases, especially in markets where there is uncertainty of supply or no effective regulation of supply," said Mr Wong, who is also the Culture, Community and Youth Minister.

"If there is an oversupply of properties, investments can lose their value, and it will also be difficult to find tenants for an investment property," he warned.

He noted that some reports on Iskandar and Johor have highlighted "aggressive land banking" by property developers.

Given these indications, buyers are becoming more cautious. The Johor housing market is slowing down, with official data from Malaysia showing that the value of residential property transactions fell by 42 per cent quarter on quarter in the fourth quarter of 2014. Surveys of real estate agencies in Singapore have found that the number of Malaysian properties bought through these agencies fell from 2,609 in 2013 to 838 in 2014.

While this might indicate that more Singaporean buyers are becoming wary, Mr Wong said that not all buyers recognise the risks involved in making overseas property purchases.

To address this, MAS and the Council of Estate Agents (CEA) will continue to step up their efforts to raise awareness of these risks.

On its part, the CEA has issued guidelines on what investors in overseas properties should look out for, such as finding out about rules or restrictions on foreign property purchases and ownership, the taxes payable and the dispute resolution avenues available in the foreign market.

As far as financial institutions are concerned, Mr Wong explained that they do not have large exposures to loans for the purchase of overseas properties; such loans make up just 2 per cent of the housing loan portfolios of the key mortgage lenders in Singapore.

The total debt-servicing ratio framework, which the MAS introduced in June 2013, requires lenders to assess the debt-servicing ability of their customers for all new property loans, whether these properties are in Singapore or overseas.

"All existing debt obligations, including those for overseas property purchases, must be included for such assessments," said Mr Wong. "MAS stress tests on banks' housing loan portfolios indicate that the banks will remain sound even under stressed conditions."

This month, the Consumers Association of Singapore warned Singaporeans about the risks involved in buying overseas properties after having received some complaints. The move was prompted by the recent spate of advertisements in Singapore on investing in overseas property.

Meanwhile, the Advertising Standards Authority has already said that it would implement guidelines for advertisements pertaining to investments in financial instruments and property, including foreign properties, by the end of the year.

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