Everyone who was on holidays and missed out on revelling in rumours of the new Johor government introducing higher property taxes for foreigners (see our blog post: http://www.properties.my/blog.php?id=52530276037), has now got a second chance: there are new rumours leaked by the government (see this NST article) - that at the beginning of 2014 a new foreign purchase approval fee will be introduced. Instead of the current RM10,000, the government wants to charge foreigners 4% to 5% of the property value as foreign purchase fee. This will add 5% to the purchase costs a foreigner has to come up with in cash when buying a property in Johor. On top he/she will have to pay legal fees and stamp duty.
Example: John and Lisa, British citizen, are working in Singapore, but their kids have just enrolled in Marlborough College Malaysia, so they would like to live in Malaysia and have their eyes on a RM5m bungalow with swimming pool in Nusajaya.
The more conservative loan policy of Malaysian banks means the average UK citizen (who is not Singapore PR) will only receive a 70% loan. So John and Lisa have to come up with 30% cash downpayment (RM1,500,000).
They also have to pay the following:
- Foreign purchase fees: currently RM10,000 (plus RM2,000 legal fees for the application), but soon according to the news 5% of the purchase price, i.e. RM250,000 (plus legal fees for the application).
- Stamp duty and loan and SPA legal fees: around RM250,000 on a RM5m purchase.
> This means fees and taxes would make up around RM500,000 or 10% of the purchase price.
John and Lisa’s RM5m house would effectively cost them RM5.5m. And they would need RM2,000,000 in cash to purchase it.
To increase the foreign purchase fees from a flat fee of RM10,000 to 5% of the property value would effectively double the usual property transaction costs of Malaysian properties from around 5.5% to over 10%. Quite a radical move which would make Johor property less attractive compared to property in KL, Penang and other locations within Malaysia. The question remains whether Johor in comparison with these other locations has reached a level of attractiveness and development to justify such a move.
Malaysian property investors locked into selling to locals only?
The government also considers banning Malaysians from selling their properties to foreigners once the 30% foreigner quota in the area the property is located in has been reached. Whether this will in reality make any difference is questionable. The areas where most foreigners want to live such as East Ledang and Puteri Harbour have already some time ago been declared to have a 100% foreign quota allowance. So in these areas there would be no restriction on Malaysians selling their properties to foreigners.
Another article actually throws doubt on the reason the government gives for its actions - namely that the Johor property market needs cooling: Malaysia Property Inc (MPI) is claiming that the percentage of foreign ownership in Malaysia has been stagnant over the past few years: 7.2% in 2010 and 7.3% in 2012. Anecdotal evidence in Nusajaya also shows that the resale market has slowed down a lot since August. It remains to be seen whether it is wise to introduce the above mentioned measures in a market that is already cooling due to regular market forces.
It is interesting to see that more and more markets in Asia are imposing restrictions on foreigners whilst Western countries have no restrictions whatsoever. Malaysians can buy properties in prime spots of London or any other place in the West. And Malaysians do take advantage of this situation by buying up prime locations in the West - without having to pay special taxes or facing foreign quotas. Life is not fair!
Sweet! Johor is getting its own chocolate factory. The chocolate confectionary company HERSHEY’S from Pennsylvania/USA is opening a huge 700,000 sqf plant in Senai Airport City, near the Johor airport, around 20min from Nusajaya. Let’s hope they will have a factory shop!
HERSHEY’s plant will create around 400 jobs for Johoreans.
And most important for us landlords: where will Willy Wonka rent a place as his residence?
A little more boring, but good news nonetheless: China’s Huawei is investing in a 90,000 sqf regional data hosting and logistics centre creating 600 new jobs.
Since August the waters of Iskandar Malaysia have been a little quiet, the rental market and the subsale market have slowed down notably. What kept going were the condo launches - so much so that they seemed floating in the air, without any connection to the ground. Some residents in Nusajaya, many of whom have seen the fast growth of the last 5 years first hand, talked about the crazy amount of condo launches and worried that there would be not enough people wanting to live here to fill those condos, once completed in 3 to 4 years time. An oversupply of condos would mean lower rents and lower resale prices - bad news if purchasers bought at the premium prices of up to RM1,300 psf for which some of the condos are selling for.
The good news is that new employers keep coming to Iskandar Malaysia and the Malaysian government keeps helping to attract big companies to invest in Iskandar and employ people. From 2006 to August 2013 the Iskandar Malaysia project has created 584,000 new jobs. The plan is to create up to 1.4m jobs by 2025:
If everything goes to plan the population of Iskandar Malaysia will have doubled by 2025 to 3m people. To read a good 2013 summary of the Iskandar project click here to download the flyer.
In a nutshell, is it good news or bad news in Iskandar Malaysia? Our take is, we are optimistic and can see the growth in population, traffic and businesses first hand on the ground. But we think there may be a medium term oversupply in condominiums, which means that the rental return and the resale prices for such condos may be under pressure for several years after completion. We hope that such a development will not result in owners not paying their maintenance charges and the condominiums becoming derelict.
In the meantime we are waiting. We have rented out and sold residential properties in the area since 2008 and our experience is that things in Nusajaya happen in waves. And now we can slowly see the waters rising and dancing like waves again. In Malay there is even a word for it: ‘laut bergelora' meaning a sea where the waves are moving faster and faster and are indicators of a storm to come. Translated into our human field of emotion it is 'jiwa bergelora’, a feeling of anticipation and expectation.
So get your boards ready to surf the big wave.
Iskandar Malaysia is developing fast. Now that Legoland Malaysia and the Puteri Harbour Family Theme Park have proven their popularity to the masses, new fun ventures are in the making:
- Legoland will open in October 2013 the Legoland Water Park just adjacent to the existing Legoland Park.
- And Sunway is planning an eco theme park in its mangrove lined property. Maybe something similar to Sunway’s Lost World of Tambun theme park in Perak?
- And in Johor Bahru city centre a JV with a Finnish company is planning the establishment of an Angry Bird theme park in the JBCC building just next to the City Square shopping mall in May 2014. Most likely an indoor version of Särkänniemi’s Angry Birds Land.
Johor is set to become South East Asia’s dream destination for theme park fans!