Iskandar – Time to Buy or Time to Sell?
For the past few years investors from Singapore and Malaysia have touted Iskander to be one of the hottest places to invest in Malaysia. With 100% foreign ownership it has attracted a huge amount of attention from developers and buyers alike. I wanted to dive deeper into this hotspot and assess how viable investing there will be in 2015 and what the slowdown of the Malaysian property market will do to its progress.
Lets start by looking at the facts of Property in Malaysia in 2014;
The following are figures taken from the Real Estate and Housing Developers' Association Malaysia 2014 report.
- 89% of real estate companies experienced a slowdown in property sales due to cooling measures announced in the 2014 Budget.
- 84% of developers were able to get bridging financing for their projects, 53 percent of their buyers faced challenges getting financing to buy the properties.
- Properties priced below RM1 million were left unsold because of buyers' difficulty to get financing
- 30% of properties priced between RM500,001 and RM1 million, mainly in Selangor and Johor, remain unsold after completion in the past 3 years.
- 34 percent of properties priced between RM250,000 and RM500,000, mainly in Perak and Pahang, remain unsold.
- 10,189 units were launched in the first half of this year but only 49 percent were bought.
- Over 80 percent of real estate companies held a 'neutral' to 'pessimistic' outlook for the property market in the first half of 2015.
With average property prices down 4% in 2014 it is safe to say the Malaysian market is oversupplied and is on the slowdown. This is not to say there is no money to be made however investors will need to look at pockets of value and be smarter when choosing their investment location in 2015 and beyond to maximise their returns.
Why is the market slowing?
In 2011 land prices for developers cost half what it would do in 2014 and this spurred developers to build new projects in areas such as Johor, Selangor and Penang. China developers also spotted opportunities to profit from the market and before long the balance has tipped.
Foreign buyers were also deterred somewhat in 2014 buy the new sanctions which doubled the price threshold to RM1 Million and increasing the real estate gains tax to 30% if sold within the first 5 years and 5% thereafter. With fewer profits to be made it seems overseas investors are now looking to place their money in other growing markets with less restriction and more importantly less tax.
What about Iskandar
Iskandar will not likely escape the market downturn and the price of off-plan and ready property are expected to fall in 2015 along with the wider predictions for the Malaysian market. It is important to know how this will affect you if you have already bought there and there are some important factors to consider. Those who bought in Iskandar have yet to make a profit from their investment as the investment cycle has just started for some. Here are a couple of key points to take note of when investing in Iskandar;
- You cannot sell your property to a foreigner unless your property is valued at over 1 million ringgit. Take this into consideration before buying property less than this amount especially now the market downturn will lessen the value during this period.
- Iskandar is a testing ground for Malaysia. It has had huge inward investment which has led to mass hype however you should know your investment is largely down to the entire area being a success as well as the wider Malaysian economy. Islander is not a tried and tested market and investors should be prepared to take that risk.
Should i sell or buy?
The question i get asked the most is should i sell or should i buy. When markets go up or down you will always have people on both sides however everyone has the same goal in mind when investing which is purely down to timing. Get in at the low and get out before the crash. It may seem difficult to judge however if your holding long-term (10+ years) then your rarely going to lose money from property which is what makes it a very tangible and risk free investment for most providing you can eliminate construction risk from off-plan developments.
The question then changes to the individual and how liquid you need to be within the short to medium term. If all your money is tied up into one property then suggestions to sell may be a viable option however if you can stick out the market downturn until it hits a boom again then there is no need to do so.
I am interested to know what you think of the property markets future for 2015 and more specifically Iskandar. Have you bought there? Has the price gone down or is the 2015 outlook healthy?