KUALA LUMPUR: The Iskandar Malaysia (IM) property market in Johor has recovered from the supply glut, but not all areas are flourishing.

Only projects that are strategically located and commercial properties that are well managed are popular among property buyers, investors, and tourists.

Despite the fact that things have changed and the momentum has increased significantly in Johor, particularly in the areas surrounding the Johor Bahru-Singapore Rapid Transit System (RTS Link) station at Bukit Chagar, some completed projects in IM are still selling for 40 per cent less than the initial launching price, said RHB Research analysts Loong Kok Wen.

"While most investors are upbeat about the Johor thematic idea that we have been marketing since July, some expressed their concerns over the supply glut issue in IM. Admittedly, the IM region experienced a period of overbuilding from 2012 to 2014, and hence, the overhang units surged. Subsequently, from 2018 to 2021, the glut gradually eased, in line with the overall trend for Malaysia," Loong said.

According to NAPIC data, the number of overhang units in Johor peaked at 7,030 in the fourth quarter of 2020 (4Q2020) and has since eased to 4,717 in 2Q2023.

Loong believes the overhang units will continue to trend lower in the coming years, given that the Johor state government issued a freeze on new applications to construct serviced apartments in 2015.

The situation may also improve as many major listed developers have been aggressively winding down their completed unsold inventory since 2017.

Developers have also cut back on their launches during the property market slowdown between 2015 and 2020.

"With new catalysts from the completion of major transport infrastructure such as the RTS, we think that not only will the overhang units fall further, new demand can also be created, supported by the influx of foreign and domestic direct investments," Loong said.

Overall, the growing property sales in Johor recorded by major developers is strong evidence that the IM property market is not as bad as initially perceived, Loong said.

She said other than UEM Sunrise Bhd, which was temporarily diversifying away from the Johor market with its other major launches in the Klang Valley, many tier-1 developers have experienced increasing sales from the Johor region over the last three years.

There are 11 projects—Sky Suites, V Summer, Sky Habitat, Meldrum Heights, R&F Princess Cove phases 1 and 2, Tri Tower, Twin Tower, Bukit Chagar luxurious apartment, SKS Pavilion, and Paragon Suites - surrounding the RTS station at Bukit Chagar, going at an average selling price (ASP) of RM1,000 to RM1,300 per sq ft, which is on par with the prices of many condominiums in the KLCC area (aside from the branded ones).

While some projects were launched between 2016 and 2018, some of the newer projects are seeing a strong take-up, mostly by Johor locals.

"The RTS will be a game changer. The overall Iskandar property market is expected to benefit from the return of property buyers and investors, both locals and foreigners. This will further be boosted by increased spending from visitors from Singapore, which should benefit the retail and hospitality sectors in Johor," Loong said in a note.

The completion of the RTS by the end of 2026 will not only result in increased cross-border human traffic, but it may also entice Malaysians from other states to relocate to Johor and work in Singapore in the future.

Given the price and rental gaps, Loong believes that rental rates, particularly for link houses near the Johor Bahru city centre (causeway) and the Second Link, will see increased demand in the near term.

She also believes that the high rents and house prices in Singapore are pushing many Malaysians and expats working in Singapore to relocate to Johor, owing to the proximity and price differences.

Rentals for condominiums in Singapore increased following the pandemic, owing to delays in the construction and completion of many housing projects as well as pent-up demand due to the work-from-home trend.

Furthermore, the Singapore government increased the additional buyer's stamp duty (ABSD) for foreigners from 30 per cent to 60 per cent at the end of April this year, primarily targeting foreign purchasers and local investors.

"We think houses near the Johor Bahru city centre, and perhaps the Second Link, will see increasing demand for rentals over the near term. The completion of RTS and the upcoming HSR (KL-Singapore high-speed rail) should drive demand for property in the Iskandar region over the longer term.

"During our trip in July, we gathered that some Malaysians working in Singapore are already renting units near the RTS station, and the commuting time is two hours, one way. We note that, upon the completion of the RTS, the commuting time will be cut significantly to only five minutes," she said.