This article first appeared in City & Country, The Edge Malaysia Weekly on July 26, 2021 - August 1, 2021

The recent uptick in Covid-19 cases and the implementation of Movement Control Order (MCO) 3.0 have had a significant impact on Johor Baru’s property market, with the number of transactions slowing to a trickle.

“Our economy cannot afford to remain closed for a prolonged and unspecified period of time. The lockdown had a widespread impact on the economy as most trades and businesses were adversely affected owing to restricted movement and reduced activities,” says KGV International Property Consultants (Johor) Sdn Bhd executive director Samuel Tan in presenting the KGV International Property Consultants Johor Baru Property Monitor 2Q2021.

“Businesses closing down, pay cuts and retrenchments affect consumer sentiment. For big-ticket items such as property, the reluctance of prospective buyers to commit will be even greater,” he says.

In 2Q2021, the period in review, there were no official new launches. Meanwhile, prices and rents remained almost unchanged. “The rent and yield of double-storey semi-detached homes in Horizon Hills, Austin Heights and Taman Ponderosa have dropped marginally,” Tan notes.

A solid recovery plan is paramount to help alleviate the situation, he adds. “It is critical to have a clear and implementable recovery plan to bring our economy out of the doldrums. Apart from accelerating vaccinations, it is crucial to have a holistic strategy to pave the path to normalcy. Efficient contact-tracing, clear and consistent standard operating procedures (SOPs) as well as strict enforcement are some of the critical tools to win the battle,” he says.

“The pandemic does not appear to be vanishing anytime soon. We must therefore be prepared to accept the fact that Covid-19 will become endemic and be in our midst for a long time. Amid the dire state worldwide, international investors are watching closely and assessing which countries are managing well.”

According to Tan, Malaysia’s ability to manage the crisis, followed by the adaptability of local developers, contractors, consultants and agents, will determine its economic recovery and ranking among investors. “In the meantime, the government needs to come up  with a clear exit plan to assure the public,” says Tan, adding that there needs to be a balance between  health and the economy. 

Meanwhile, he highlights the importance of reopening the Johor-Singapore border to kick-start the Johor Baru market. “The need to reopen the border crossings between Johor and Singapore is so pressing and yet does not seem to be imminent, owing to the current situation. We hope a workable solution can be found so that people and businesses can be mobilised in a controlled manner between these two places. A prolonged lockdown will further hurt the economy and the property market,” Tan points out.

“Under these circumstances, developers need to restrategise their product offerings and marketing to suit the local market rather than depending on foreigners.”

During the period in review, disruptors in the Johor Baru market included new developments regarding the Iskandar Malaysia Bus Rapid Transit (IMBRT), the overall performance of the economy and the development charge.

According to the monitor, the long-awaited IMBRT started a test run of the proposed Iskandar Puteri Line in 2Q2021.

“People are able to experience the Automated Rail Transit (ART) as it will run till the end of July. The ART is a medium-capacity transit system for urban passenger transport, which allows for higher passenger capacity at a lower cost of implementation compared with light-rail systems, and will run on clean sources of energy such as electricity or hydrogen. Apart from improving public transport in Iskandar Malaysia,  it will contribute to the rapid development of the region’s economy and society,” says Tan.

“Another spillover effect is the emergence of transport-oriented developments (TODs) and the increase in demand for houses in places serviced by this system. In April, the state authorities formally acquired land needed for the RTS (Rapid Transit System), signalling the beginning of the process of constructing this much-touted rail system. Expected to operate by 2026, the project will [boost] confidence in the property market as it [reaches] various development milestones.”

Meanwhile, the monitor highlights that the new provision for development charge (DC) under the Town and Country Planning Act (Akta Perancangan Bandar dan Desa) was gazetted on May 13, 2021. Tan says, “Under the revised provision, there is a new formula to calculate the DC when there is any increase in land value as a result of change of use, enhancement in development density and gross floor area. In summary, the DC will be levied based on a percentage of the land value enhancement. The DC rate ranges from 10% to 30%, depending on where the subject land is located.”

He opines: “The new DC rate leviable on the enhancement in land value will add to the development compliance cost. The additional cost will be passed on to the end-purchasers. As the Johor property market is still in the doldrums, the timing of the new DC at this juncture is going to further dampen sentiment.

“The DC rate, at 10% to 30%, appears high. It may be more palatable to adopt a lower DC rate initially and increase it subsequently should the market situation warrant it. As the calculation of the DC levy is subject to the government valuer’s valuation on a case-by-case basis, this could create additional administrative hassle in conducting such valuation exercises, especially when there are a lot of submissions. A more efficient and transparent approach could be to publish a DC table, with rates for various sub-locations detailed at the outset and revised at regular intervals. This approach gives certainty to developers and cuts down the red tape in valuing and managing individual cases.”

Moreover, it is uncertain whether the private sector can appeal on the DC rate levied, he adds. “We must understand that valuation of land can be complex and highly specialised. Issues such as choice of comparables, adjustment on land value and interpretation on the land’s potential are factors that could have a great impact on the land value before and after the enhancement.

“We understand the importance of creating an additional avenue to generate revenue for the state to fund new infrastructure and its recurrent maintenance. Nevertheless, we implore the authority to relook the timing of implementation, rate of DC and the mechanism in calculating the DC rate.”

Meanwhile, the monitor also focuses on Malaysia’s subdued economy. “The gross domestic product (GDP) in 4Q2020 and 1Q2021 was -0.5% and -3.4% respectively. In view of the extended MCO 3.0, second-quarter growth will definitely be lower. As a consequence, the official full-year GDP estimate of 6.0% to 7.5% is likely to be revised downwards,” says Tan. It was reported on July 13 that the government will revise the GDP forecast in August.

The property market will remain soft as many prospective buyers are concerned about job security, says Tan. “The fear of catching a falling knife deters many from committing to a big-ticket item. Apart from price reduction, developers must be creative and proactive in coming up with new concepts to entice buyers. Features such as a flexible layout, excellent IT connection, integration with F&B outlets and convenience shopping and contactless facilities are some of the factors that buyers will be looking at post-Covid-19. The challenge is to promote social cohesiveness yet maintain safe distancing, create spacious layouts that do not require excessively large floor space, and create a development that is exclusive yet with easily accessible amenities.” 

Tan foresees that prospective buyers will be increasingly receptive to the marketing of properties via virtual reality. “Sale of properties via social media platforms will become the norm. Digitalisation and big data analysis will drive the trend of property development,” he notes. 

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