Johor Property Market: Observations from 2019 & What Can We Expect in 2020

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NAPIC recently released its Property Market Report 2019 which showcases the industry performance at a national and state level. Samuel Tan, Executive Director of KGV International Property Consultants highlights important observations in the Johor property market and what we can look forward to in 2020.

Here are the 7 Observations from 2019 in a nutshell:

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  1. Johor’s property market performance increased at a slow pace, with residential at the forefront
  2. Johor contributed the second-highest residential transactions to Malaysia’s overall in 2019
  3. Serviced apartments & SOHO sub-sector remained active in 2019
  4. Commercial property market – Increased in transactions, but dropped in value
  5. Shopping complex sub-sector strengthened as occupancy improved slightly
  6. Purpose-built offices portrayed a downward performance
  7. Industrial property held on, new planned supply increased 6 fold in 2019

Johor property market recorded a growth of 4.0% in terms of total transaction volume against 2018. There was a marginal drop of 0.9% in terms of total transaction value. Total transaction volume increased from 41,653 in 2018 to 43,314 in 2019. Transaction value-wise, it was RM19,325 billion in 2018 and RM19,148 billion in 2019. This is quite similar to the reported national figure.

The residential sub-sector in 2019 dominated the market share at 66.7% of the total market activity. At the national level, this sub-sector was at 63.7%. In terms of total transaction value, this sub-sector took 52.8% in Johor and 51.2% nationally.

2019 was a stable year for the Johor property market. It synced with the national performance and did not have many changes when compared with the preceding years. Johor contributed the second-highest residential transactions to Malaysia’s overall in 2019. However, Johor recorded the highest serviced apartment overhang with 71.2% share in volume and 76.9% share in value of the national total. 2020’s outlook is not exactly rosy. The reduction of the foreigners’ price threshold from RM1 million to RM600,000 for overhang came a little too late. Moreover, the restriction to unsold stock after 9 months from the date of issuance of CCC should be relaxed. Foreign property buyers in Malaysia can refer to this.

In terms of shopping complex sub-sector, COVID-19 has now changed the entire landscape for our future shopping experience. The requirement for social distancing and other healthcare concerns will derail any immediate recovery of the retail market. Any improvements will be progressive and can only be measured over half to one year.

Purpose built offices portrayed downward performance as the average occupancy rate contracted to 71.2% (2018: 75.9%). There is a likelihood that rentals will be under further pressure in 2020 due to an oversupply situation. To revitalise this segment, new drivers must be found. The Singapore Rapid Transit System (RTS) and High-Speed Rail Project (HSR) projects are potential game-changers in transforming Johor Bahru as a regional HQ for businesses.

Post MCO, tenants may plan for a less fixed operating cost. For example, some firms may opt for the Working From Homes (WFH) model and co-working spaces may become more popular, attracting an increasingly sizable market.

Purpose-built office spaces in Medini Iskandar should consider giving a tax rebate for the rental paid by their tenants. This is a possibility as Real Property Gains Tax is also waived for properties in this special economic zone. Certain criteria such as minimum CAPEX, minimum headcount or specific services can also be imposed.

The industrial sub-sector recorded 1,016 transactions worth RM2.06 billion, an increase of 17.3% in volume whilst value contracted by 7.6% (2018: 866 transactions worth RM2.22 billion).

The overhang and unsold situation improved marginally. Overhang dropped from 579 units in 2018 to 554 units in 2019. Unsold under construction also decreased from 288 units to 276 units. There was no record of unsold not constructed for both 2018 and 2019.

Construction activity was moderated. However, the new planned supply increased significantly by more than 6 fold. As at the end 0f 2019, there were 17,681 existing industrial units with 1,305 units in the incoming supply and 940 units in the planned supply. Prices recorded mixed movements.

We believe that this segment will remain attractive. Post MCO, to avoid disruptions to the supply chain, factories will relocate their plants to various locations/countries instead of concentrating in just one particular location.

During this pandemic, we saw US and Japanese factories planning to relocate some of their plants from China. Malaysia should definitely capitalise on this trend.

Upon recovery of the economy, we believe some Singaporean factories will also relocate their plants to Johor. This is to mitigate the risks faced by them having a limited manpower pool and a higher cost of operation.

Existing factories with smaller floor plates and outdated specifications will find it difficult to attract tenants. However, managed industrial parks will continue to attract buyers. Mega distribution centres will be the new trend moving forth. This in part will be due to the growing demand for e-commerce.

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