Massive Chinese project to stimulate market

WEALTH EFFECT: With 9,000 condominium units slated to complete by 2018, the mammoth Country Garden Danga Bay (CGDB) project by Chinese top 10 developer, Country Garden Holdings Ltd is being hailed as a watershed moment for Iskandar. How would it impact other local developments?

Country Garden Holdings, China’s seventh largest property developer and ranked 783rd in Forbes list of Global 2000 companies has just made an indelible mark on the Malaysian property market with its recent high-profile launch of its waterfront development CGDB in Iskandar, Johor Bahru with a GDV (Gross Development Value) of RM18 billion.

According to Michael Ong, Country Garden Properties Sales Supervisor, response to the project has been overwhelming. On offer are 33 blocks of condo and 11 blocks of apartments comprising serviced apartments and condos with one, two and three bedrooms. Prices range between RM720 – RM1,100 per sq ft, translating to an average price range (before discount) of RM450,000 to RM1.8 million for areas ranging between 402 sq ft and 1,522 sq ft.

Ong further elaborates that more than 5,000 units or more than 50 per cent of the units have already been sold, mostly to Malaysians (40 per cent), Singaporeans (30 per cent), Chinese (25 per cent) with others including Koreans and Taiwanese making up the rest of the buyers. He says that the 57-acre development will be completed in phases – Phase 1 (3,000 units) to be completed in 2016, Phase 2 (3,000 units) to be built by 2017 and Phase 3 (3,000 units) to be completed in 2018.

Pull factors
Wee Soon Chit, Executive Director
of Landserve (Johor) Sdn Bhd is cautiously optimistic about the development. “Nine thousand (9,000) units being launched simultaneously is certainly astounding for Johor Bahru or the entire country for that matter! The marketing campaign is also revolutionary whereby enormous amounts of money have been spent on various promotional activities to attract buyers.

The response has been overwhelming with more than 50 per cent of the units reported to have been booked. The pull factors for the project come from its integrated 5-star development concept, reputable developer, excellent location and 180-degree sea view as well as the possible link by light rail system.”

Wee feels that in the short term, the bulk of potential buyers come mainly from Mainland China, Singapore and locals. He says that it could indeed pose a threat to other developments in the region and in the long run, when all the 9,000 units are completed, there would certainly be concerns on occupancy rates.

Sign of confidence
Sr Michael Geh, National Committee member of FIABCI-Malaysia on the other hands says, “Overall, I’m very happy and encouraged professionally to see that a large international development company like Country Garden, a top 10 developer from China has decided to invest in Iskandar. China’s confidence is good for the Malaysian property market. Because the reputation of the developer and the quantum of investment is large, it is a very big boost and a sign of confidence for the Malaysian property industry as it is now being seen as an international destination for foreign property developers.”

On concerns that this massive supply of 9,000 units would somehow have an adverse effect on the local property market, Geh offers that Johor is a very big state with a huge land area and “there are certain areas where locals traditionally stay”.

“I don’t think foreigners will flock to these areas to buy. They won’t go to the secondary market. Instead, they usually purchase directly from the developers. Therefore, I don’t think the presence of foreign developers will negatively impact local buyers so much. Local buyers have a lot to choose from and have their own buying patterns and preferences. I don’t think we should be unduly alarmed by developments by foreign developers,” assures Geh.

Datuk Alan Tong, Bukit Kiara Properties (BKP) Group Chairman agrees and is not surprised at the scale of the development of CGDB. “That is the normal scale of development in China. For me, long-term, we should welcome them. Let them be the pioneers. For example, Shenzhen has transformed from just a fishing village into a booming Special Economic Zone (SEZ) in just over 30 years. Shenzhen is creating so much economy for China. Similarly, I think they can bring us a lot of wealth.”

The Condominium King of Malaysia continues: “There are two ways of looking at it. Firstly, Country Garden will help solidify the branding for Iskandar.  And secondly, the presence of this Chinese pioneer will spur healthy competition in the local property industry.”

Tong adds that the presence of the Chinese developer may even spur more Chinese to set up home in Malaysia through the MM2H (Malaysia My 2nd Home) programme. “The question then arises: How fast can we process the many applications from them,” he asks.

On suggestions that special economic zones (SEZ) be created to cater solely for foreign property buyers, Tong says it is still too early to consider it. “Wait till it booms first. In any case, Iskandar still has plenty of land left.”

State policies
Tan Ka Leong, Director of WTW (CH Williams Talhar & Wong) opines that every developer has their their own unique offerings and products requiring different marketing approach.  

“Even within Iskandar, other than special designated zones such as Medini, Puteri Harbour and now Danga Bay where restrictions to foreign buyers are waived, developers’ products are still capped by the state government’s policy for quota on foreigners. For example, in other areas of Iskandar with a successful take-up rate of at least 60-70 per cent, less than half of the units are sold to foreigners, compared to the Country Garden project which I believe is targeted at foreigners rather than locals. The state government’s policies on property developments depend on the product, location and type of developments.

“For example, for pure commercial shop houses or offices, developers can only sell 10 per cent to foreigners. The general rule for developers of serviced apartments in Iskandar, is about 40-50 per cent foreign buyers for serviced apartments, other than areas such as Medini where there are no restrictions.”

Sr V. Sivadas, Executive Director of PA International Property Consultants meanwhile is of the view that in terms of the number of units involved, there is no real issue. “There are probably around 150 towers already in Iskandar, either ongoing or approved and in the pipeline. There is definitely going to be a substantial increase in high-rise developments and reduction of landed units.  In terms of evolution, in the last 10 years, a lot of major property players have come to JB due to the saturation of the Klang Valley.”

Sivadas explains that the demand for existing completed condos and serviced apartment in JB is still very strong although there was very limited supply previously, especially after the 1997 economic crisis. Nevertheless, he sounds a note of caution.

“In the last 5 years, a lot of people have been developing properties in JB. The big question is who are going to occupy these apartments? What we saw before the ‘97 downturn was that a lot of locals and foreigners were buying. After the economic conditions started sliding, a lot of foreigners stopped paying service charges, including security fees. A lot of apartments and condos were empty and crime rates rose due to lack of security.”

“If we are going to sell predominantly to foreigners, we have to ensure that this situation would not happen again. Many foreigners buy but don’t stay in their units very often. If the foreigners decide not to pay service charges, what happens next? From an investment point of view, local residents might suffer. For example, if 80 per cent of the units are foreign-owned but not fully occupied and the rental market is around RM2K - RM4K, would locals want to stay there?” asks Sivadas.

The executive director also says that incoming supply for serviced apartments in JB is quite high. “Prices are up and there is a big lag between old and new units. Expectations on rental are quite high. If you are buying RM1K per sq ft in Medini developments, you would have to pay RM4K-5K to cover installments. Many are buying for investment or to sell off for a profit. They are buying future value now.

There are a lot of expats staying in JB buying units here. For example, in Singapore, a HDB (Housing and Development Board) apartment may cost RM1,289 – RM1,547 per sq ft, which is more expensive than a luxury development in Medini at RM1,000 per sq ft,” Sivadas shares.

Quality ownership
He further adds that one of his major concerns is the effect on the locals. “Where do the locals stand? My personal view is that it is the state’s responsibility to ensure that locals have good and affordable housing. JB has a lot of land bank outside the MPJB (Majlis Perbandaran Johor Bahru) areas. There needs to be a lot of infrastructure to develop these areas outside city limits. The state has to open up land to ease the pressure of the property market for locals who won’t be able to afford these units in Iskandar.”

Sivadas’ other concern is the quality of foreign owners that we are attracting. “RM1K per sq ft for us might be high end, but for foreigners such as Singaporeans, it can be considered within range for its low-middle income segments. Are we attracting the right type of foreigners? There has to be a cap. We need to attract quality people who are complementary and add value to the local economy. We wouldn’t want to be a dumping ground or just an extension of Singapore. If developers are selling to buyers in China, we need to study how to collect service charges and run the management corporations effectively if the owners are not staying in their units full time.”

Sustainable long-term
Another property consultant from Johor, Lim Boon Ping (Chief Operating Officer of Tiram Realty) shares Sivadas’ concerns but is positive that with long-term foreign investors such as Country Garden setting foot here, Iskandar will be sustainable in the long run.

“Even my counterparts in Singapore are asking about the situation of whether there could be an oversupply of condos in JB. Some of them are a bit wary whether it’s going to be sustainable, but five years ago, people had asked me whether Iskandar could take off. Now, the nature of the question has changed, they are asking whether Iskandar can sustain instead.

“Nobody really knows how far Iskandar can actually go but big Chinese developers such as Country Garden coming to Iskandar definitely adds a big wow factor. As a real estate agent in Johor Bahru, even though I was a bit sceptical of Iskandar during its early stages, I am no longer in a state of denial. Iskandar is here to stay and I have to be very positive about it right now, although I cannot predict how far it can go. It’s the classic chicken and egg situation. We are in a frenzy of creating and building in anticipation of high demand in the future,” observes Lim.

Former Valuation and Property Services Department director general, Datuk Mani Usilappan expects a lot more interest from other Chinese developers following Country Garden’s foray in Iskandar.

“Our country’s policies in terms of housing is still very open and I hope that they will continue. There isn’t really any worry on the number of foreign property owners. We have around 400,000 property transactions annually and only around one per cent are foreign purchases. They won’t endanger the local market, especially if the foreign developers are targeting the foreign market. Also, preference of local property buyers is not necessarily confined to Danga Bay. There are other developments taking place and furthermore all the planned units are not going to come in at the same time. The developers will probably stagger it over a period of time,” offers Mani.

On concerns that Iskandar’s foreign developments such as CGDB will attract short-term property speculators, Mani is quick to allay these fears.

“Foreigners are very unlikely to flip in the short term. Speculators will expect at least 30-40 per cent price appreciation before considering flipping for a handsome profit, after factoring in costs such as RPGT, stamp duty, legal fees and borrowing costs. That means they would have to hold the property for at least two to three years. I don’t see the flippers involved in this huge development. Maybe in a few years time when prices are up would they be able to make a reasonable profit. Flippers are usually not keen on holding. The moment they get their keys, they want to sell and usually look for substantial gains. Normal investors will wait until prices are right for them and their costs have been properly absorbed,” Mani gives his take.

He adds that these foreign property buyers are not going to blindly rush into buying in Iskandar and would probably have done their own research before investing.  “Iskandar is becoming like a magnet.

These latest developments will encourage other foreign developers to come in. The success of places like Iskandar will depend a lot on foreign investments. They are the people with the money and experience and it would have a trickle-down effect on the local market in Johor. For example, look at KLCC and how it has impacted the surrounding area. Furthermore, not many want to buy a home and stay in Iskandar. Locals in JB can buy property in other places. I don’t see a lot of locals buying in Iskandar to stay unless they are business people who want to stay there, or to rent to people who want to do business there.”

Read more: Massive Chinese project to stimulate market - RED - New Straits Times http://www.nst.com.my/red/massive-chinese-project-to-stimulate-market-1.338471#ixzz2oBBGclhg