Johor property market still hot but watch out for pitfalls

THE strengthening of the Malaysian ringgit against the Singapore dollar since July could reshape how Singaporeans shop across the Causeway – including for big-ticket items such as property.

But for now – the stronger ringgit notwithstanding – Johor real estate is still whetting Singaporeans’ appetite.

Previndran Singhe, chief executive officer of Zerin Properties, a 22-year-old real estate agency headquartered in Kuala Lumpur, says Singaporeans’ interest in Johor property has been growing, especially since cross-border restrictions were eased post-pandemic.

“In recent years, close to 40 per cent of foreign residential property buyers have been Singaporeans, highlighting a sustained demand,” he adds.

Against the Singdollar, the ringgit strengthened to around 3.32 on Dec 2, up from around 3.48 on Jan 1; the currency has risen 7.6 per cent from its record low of 3.57 on Feb 21.

Mah Sing Group’s founder and group managing director Leong Hoy Kum told The Business Times (BT) that even with the rise in the ringgit, the strength of the Singdollar still gives Singaporeans “a stronger purchasing power, making property in Johor affordable and attractive”.

It is an advantage that enables Singaporean buyers to maximise the value of their investments, especially in strategically located developments, he adds.

Exchange rate aside, developments such as the Johor-Singapore Special Economic Zone (JS-SEZ) and the Johor-Singapore Rapid Transport System (RTS) Link could further drive interest in the property market across the Causeway – though risks remain for those who take the leap.

Growing appeal

WK Tan, a 52-year-old Singapore Permanent Resident who works in the semiconductor industry, bought a two-and-a-half storey landed property in Eco Flora for RM2 million (S$604,556) during the pandemic, intending it as a second home.

He says he bought it because it was affordable for a landed property. He is glad he did so because inflation has since set in, and homes there are getting more expensive, “so it was a good choice to buy it then”.

Since then, other factors have only added to the appeal of Johor.

The JS-SEZ project is expected to pull in new investments, spur trade and generate employment opportunities. Spanning 3,500 sq km, it covers Johor Bahru (JB), Iskandar Puteri, Pasir Gudang, Pontian, Kulai and Kota Tinggi.

The RTS link, a 4 km light-rail transit shuttle service between Bukit Chagar station in Johor Bahru and Woodlands North station in Singapore, is another draw, in that it promises to improve connectivity between Singapore and Johor. It is expected to be up and running by January 2027.

Wong Wei Sum, an investment bank analyst from Maybank, is upbeat about the gains from the JS-SEZ, because it would create jobs and drive commerce, which would in turn attract more people and fuel a demand for property; the RTS Link would complement these developments and further boost commercial activity in the area.

However, she adds that she does not expect Singaporeans to choose to live in Johor Bahru while continuing to work in Singapore as a way of lowering their living costs.

“We believe their property purchases are more likely to be for investment or holiday homes, rather than for their own stay.”

Instead, she expects more Malaysians with jobs in the Republic to live in JB, and commute daily after the RTS starts operations because of the relatively lower living costs in JB.

Emily Teh, chief marketing officer at property developer UEM Sunrise, says buyers from Singapore tend to lean towards condominium developments for their affordability, convenience and amenities. But she has noticed a rising interest in landed properties in gated communities, especially among families looking for larger spaces.

On a per-square-foot (psf) basis, the average prices that Singaporeans go for range from RM500 to RM800 psf; those eyeing higher-end properties plumb for those costing above RM1,000 psf. These psf rates translate into prices of between RM500,000 and RM1 million, notes Zerin’s Singhe.

Lee Kun Thye, director at Knight Frank Malaysia (Johor), says foreigners are required to buy properties costing at least RM1 million; those looking to buy lower-priced properties direct from developers need the approval of the Johor State Authority. In the parts of Johor designated as international zones – Iskandar Puteri, Medini and Pasir Gudang, for example – foreign buyers looking at landed properties have to spend at least RM2 million.

Foreigners eyeing property there can also do so under the “Malaysia My Second Home” (MM2H) visa scheme, which was introduced by the government for non-Malaysians to retire and live in Malaysia for an extended period.

Under this programme, applicants enjoy long-term residency in Malaysia, and are welcome to buy properties between RM600,000 and RM2 million – but they must hold the property for at least 10 years, notes Knight Frank’s Lee.

In terms of rental yield, market experts say the average gross yield is between 3 and 6 per cent, against the national average of 5 per cent, though the yield varies according to property type and location.

Zerin’s Singhe points out that although the rental market has grown, demand fluctuates, so investors should remain vigilant about market trends and ensure that their properties are well-maintained to attract tenants.

That said, he notes that key areas near the border tend to yield higher returns, as they attract professionals commuting to and from Singapore.

Tan, who bought his landed property in Eco Flora, told BT that, from his own experience, it is tougher finding tenants for landed properties than it is for condominium units sited near shopping malls and amenities.

Singaporean homemaker T Chen bought an approximately 1,000 sq ft condominium unit in Citywoods for RM600,000 a couple of years back as a second home. But she is now renting it out for RM2,000 a month, which works out to a gross rental yield of 4 per cent.

Samuel Tan, chief executive officer, and Tan Wee Tiam, executive director of Olive Tree Property Consultants, note that Singaporeans prefer properties in the city centre, and in Iskandar Puteri and Medini to the west of downtown Johor Bahru.

Projects such as Leisure Farm, Horizon Hills, Bukit Indah, East Ledang, Eco Garden, Ledang Heights, Aspira Homes, Senadi Hills and Eco Botanic are also popular with buyers from Singapore.

Up and up?

Notably, prices in Johor have been trending up since 2019. The overall price index for all housing types in Johor rose 20.7 per cent, from 227.5 in 2019 to 274.7 in the first quarter of this year, and then took a slight dip to 272.3 in Q2 2024.

Official figures from the National Property Information Centre (NPIC) put the average house price in Johor at around RM424,976 – much higher than in the neighbouring states of Negeri Sembilan (RM318,503) and Malacca (RM233,255).

The asking prices of high-rise units in selected projects in the JB city centre also tend to be higher, relative to those on the city fringe or at Iskandar Puteri and Medini, says Knight Frank.

In the last five years, the number of residential transactions in Johor has risen steadily, from 10,193 units sold in the first half of 2020 to 18,648 units in H1 2024.

The state’s residential segment had recorded RM9.02 billion in property purchases by the first half of this year.

Knight Frank’s Lee notes significant demand for the high-rise residential segment in Johor Bahru city centre in Q1, marked by a notable rise in transaction volume and value for condominium and apartment segments.

He attributes this to the upcoming RTS Link, which has spurred market activity in and around the city centre.

Between Q1 2023 and Q1 2024, the volume of transactions for condominiums and apartments rose 36.3 per cent, or from 526 to 717. In that same timeframe, the value of transactions jumped 64 per cent, from RM200.27 million to RM328.36 million.

Official data indicates that 5,376 residential properties in new projects were launched in Johor between January and June this year; some 2,057 units, or 38.3 per cent, were sold.

Pinegate Residency, Oasis Residence, Florian Residences, Avenue Residences and Larkinton-AdisonWest were among the launches in 2024.

In H1 2022, Johor recorded a high overhang of 6,040 units. But by H1 2024, the number of unsold units had shrunk to 3,219 units, reflecting growing demand for properties in the state.

Not out of the woods

Forest City, a 1,740 hectare-project launched in 2013 to house 700,000 residents on four reclaimed islands south of Johor by 2035, has been languishing, hobbled by its strategy of attracting affluent Chinese buyers, which failed because of the Covid-19 pandemic and the Chinese government’s currency controls.

A recent media report said only one island with 26,000 apartments in several dozen towers have been built so far in the US$100 billion development.

But the area has been designated a Special Financial Zone (SFZ), sparking hopes that investor interest in the project could be revived.

The project is a collaboration between troubled Chinese developer Country Garden and Esplanade Danga 88, a private firm backed by the Johor government and the Sultan of Johor.

Tan Kin Lian, the 75-year-old, two-time presidential candidate and former chief executive of NTUC Income, bought a three-bedroom apartment there for S$400,000 five years ago. The 1,060 sq ft unit was handed over in 2021.

He also bought a 600 sq ft office unit in the development for about S$160,000.

Tan says prices in the development are “very low” compared to Singapore. With recent positive developments from the RTS Link, JS-SEZ and SFZ, he says he intends to “buy one or two more shop units at less than S$300 psf”.

He adds: “It is better to buy a completed property so that you are assured that the property is completed and know the quality of the construction.

“For property under construction, the reputation of the developer is important. Preferably, invest in Johor’s properties with ready cash, so that you do not have to rely on a bank loan or mortgage.”

The SFZ initiative aimed at reviving the fortunes of Forest City includes the offer of a zero tax rate for family offices, tax incentives and easier residency approvals for high-net-worth individuals and their families, says Zerin’s Singhe.

Market experts believe the SFZ could amp up demand for the project and in Johor’s property market as a whole, but there are caveats.

Olive Tree Property Consultants say: “A lower or even zero tax (rate) is not sufficient. The entire ecosystem must be conducive and attractive to investors. Policies must be consistent and maintained over a long period, tweaked only when necessary.”

Maybank’s Wong, agreeing, says: “We believe more needs to be done to generate interest in Forest City. For example, efficient transportation networks and infrastructure, such as high-speed rail or ferry services to Singapore, would also help market the project.”

All things considered, investing in a property in Johor requires prospective buyers to do their homework thoroughly, market watchers told BT.

“Singapore buyers should consider currency fluctuations, which can affect their investment. It’s essential to understand foreign ownership laws, property titles and additional maintenance costs,” says UEM Sunrise’s Teh.

Singaporeans can “take comfort in the similar legal structure for property ownership between the two countries”, says Phan Yan Chan, divisional general manager from EcoWorld Development Group.

Factors such as location, the project’s accessibility to major roads, highways and public transport, as well as lifestyle amenities should also be considered. “Additionally, the quality of the development and the track record of the developer are crucial,” he notes.

Jury’s still out

Experiences vary widely among those who have taken the plunge. Homemaker T Chen, now with the wisdom of hindsight, says she does not regard buying a property in Johor a good investment.

“I do not think it is worth (investing in) because of the relatively low rental yield and the exchange rate fluctuation. The property may also suffer from poor building quality and maintenance,” she adds.

Another investor, a seasoned property agent who declines to be named, bought a RM680,000 condominium unit for investment around 2008. He sold it before the project was completed, and suffered a loss of approximately 30 per cent from the deal.

“I purchased the property because of Johor Bahru’s strategic location near Singapore, its attractive pricing compared to Singapore properties, and the growth potential in the Iskandar region, which is supposed to attract industrialists and jobs, thereby providing tenants for my property. However, it did not pan out as planned,” he says.

He says two factors shrank the pool of prospective tenants: an oversupply of properties, especially condominiums, and a lack of demand from expatriates because the region has not attracted as many companies as planned.

But market watchers such as those from Olive Tree Property Consultants note that the Johor property market started to see “green shoots in 2022 and has since grown steadily”.

“With all the catalytic projects, the property market is expected to grow for the next three to five years before it plateaus,” it estimates.

Knight Frank’s Lee expects high-rise residential developments, particularly around the RTS Link and Causeway, to continue to be in demand. This could have a ripple effect on other sectors, such as retail, office spaces, industrial and hospitality in the long term.

“However, it’s important for the relevant authorities to monitor developments to ensure the region remains sustainable, and to avoid overbuilding, which could lead to potential risks to the property market.”