A GLANCE OF JOHOR BAHRU PROPERTY MARKET

Overview
The overall property market in Johor has experienced moderately slow growth in the first half of 2007. The focus and concentration of local and foreign investors are largely centred on the Iskandar Development Region (IDR). The Johor government expects to capitalize on the prospects of IDR and consequently secure firm commitment from investors. In conjunction with the government’s role to drive and promote IDR, some key promoters of the project such as UEM World and Danga Bay have also shown their commitment and enthusiasm by speeding up their catalysts projects. One notable project that has been added to the Johor market recently is the RM1.4 billion Asia Petroleum Hub (APH) developed on a 40-hectare reclaimed island off Tanjung Bin Petrochemical Area. The APH, to be completed by 2009, provides integrated bunkering services to ships and forms part of the petroleum trading network and bulk-gateway to regional and domestic markets.

Nevertheless, despite effort and incentives from the government as well as local players, the IDR has received relatively lukewarm response from foreign investors since its launch. Property players, consultants, and analysts have maintained a neutral stance on IDR and reiterate their caution on both the business viability and project execution. JP Morgan, in its Asia Pacific Equity Research (Issue 05 July 2007), states that the IDR is still rather conceptual in the short-term and will take over 20 to 30 years of execution to achieve the “end-state model”. In view of the massive scale of IDR and the huge undeveloped land bank, the impact of IDR towards the Johor property market in the short term will not be significant. Furthermore, Johor is currently experiencing an oversupply of property. The CIMB Research Report (Issue 19 March 2007) highlights Johor’s massive property glut, which remains one of the toughest markets in Malaysia. The spillover effect of oversupply in the Johor property market will substantially affect the IDR as well as the overall property development of the state.

Residential
The 2007 second quarter Property Market Status Report Quarter released by Valuation & Property Services Department (JPPH) reveals that Johor continues to have the highest number of overhangs in the country (8,043 units), which make up 30.4% of the market share. The value of these units stands at RM1.44 billion. The district of Johor Bahru accounts for 77.8% (6,261 units) of the overhang in the state. Most of these units (5,487 units) have been in the market for more than 24 months after their sales launch. Johor continues to account for the bulk of the unsold residential properties in the market comprising 23.7% (12,521 units)

Transaction levels on conventional properties such as terraced and semi-detached units have not experienced significant movements. The bulk of the overhang completed terraced units in the country is still from Johor. There are 3,189 units of 2-3 storey terraced and 1,576 units of single storey terraced properties overhang in Johor. Some of the pricings of the completed terraced properties need to be reduced in order to improve their sales status. For instance, the pricing of the completed double-storey terrace houses at Tebrau Development Corridor has been reduced from RM280,000 to RM250,000 to stimulate sales. The oversupply condition for condominium/apartment components is also relatively serious. For ongoing constructions, there are 7,047 unsold terraced units and 2,250 unsold condominiums/ apartments units.

Shop-Offices
Generally, Johor has registered the highest number of overhang shops in the country as of the second quarter of the year (2,279 units), which accounts for 46.9% of the national share. About 65.0% (1,483 units) of the overhang shops in the state are located in the district of Johor Bahru. Similarly, Johor also registered the highest number of unsold under-construction shops in the country (1,703), which account for 37.0% of the total. About 57.1% (973 units) of these unsold units are located in the district of Johor Bahru.

Purpose Built Office
Demand and supply of purpose-built office space in Johor, particularly Johor Bahru, have remained stagnant compared to the previous year. The same status quo applies in respect of occupancy and rental rates. As of 2nd quarter of 2007, there is 9.46 million square feet office space available in Johor and approximately 7.08 million square feet (75%) is situated in Johor Bahru. There will be an additional 1.31 million square feet office space added to the Johor market (1.28 million square feet in Johor Bahru) in the near future. The average occupancy rate in Johor and Johor Bahru hovers around 74%. The prime space is let at an average of RM2.30 per square foot gross per month whilst offices at secondary locations average RM1.20 per square feet gross per month.

Retails
In comparison to the year 2006, there has been no substantial change in the retail sector with regards to demand and supply. The existing supply of retail space as of 2nd quarter of 2007 is estimated at 11.3 million square feet (8.57 million square feet from Johor Bahru) and approximately 62.9% is occupied (64.3% for Johor Bahru). Prime gross rents of shopping centers which are doing well (with occupancy rates in excess of 85%) range from RM15 to RM25 per sq ft per month. Some notable retail centers located in Johor Bahru area:

Johor Bahru City Square
Johor Bahru City Square is a shopping centre located in the Central Business district of Johor Bahru. The Government Investment Corporation of Singapore owns 70% of City Squares shares. The remaining shares are divided between the Johor Bahru City Council and MBJBT. Like Komtar, city Square is located on Jalan Wong Ah Fook. Due in part to its proximity to the Johor-Singapore Causeway, City Square attracts many shoppers from Singapore. The building interior consists of five storeys of shopping malls, including a thirty-six storey office block, which is divided into lower, middle and upper zones. The car park occupies three levels of the basement. The building is the tallest in Johor Bahru.

City Square also enjoys a trendy and stylish reputation amongst youngsters in Johor Bahru, similar to shopping areas in Bukit Bintang, Kuala Lumpur and Singapore’s Orchard Road. Prominent names which operate their business in City Square include financial institutions such as Maybank, Affin and RHB Bank. TOPS supermarket, previously located at Basement 1, was declared bankrupt in 2002, and replaced by Kapitan Mart. The Mega Pavillion Cinema has also been upgraded recently to Cathay Cinemas with new theaters at both level 5 and level 7.

The Johor Bahru City Square is currently enjoying nearly full occupancy rate and the average rental fall in the region of RM18psf to RM20psf.

Kompleks Tun Abdul Razak
Kompleks Tun Abdul Razak or KOMTAR is also located along Jalan Wong Ah Fook. KOMTAR is probably the oldest shopping complex in Johor Bahru. Officially opened on March 11, 1979, by the third prime minister of Malaysia, Tun Hussein Onn, KOMTAR consists of a two-storey shopping centre and a 25-storey office tower block. Currently the Komplek Tun Abdul Razak is temporarily closed down for refurbishment and renovation.

Plaza Kota Raya
Plaza Kota Raya is located along Jalan Abdullah Ibrahim next to Puteri Pan Pacific. The mammoth Plaza Kotaraya covers an 11-acre site. The big players include Mun Loong's, a local department store, and Shop 'n Save supermarket, which enjoys regular patronage despite its limited stock. The complex also houses a mosque; hence it is port and alcohol free. The Plaza Kota Raya is also enjoying nearly full occupancy rate and the average rental fall in the region of RM 8psf – RM12psf.

Hotel
With the launching of the Visit Malaysia Year 2007 Campaign by YAB Dato’ Seri Mohd Najib bin Tun Abdul Razak, the Deputy Prime Minister of Malaysia, various tourism promotion activities have been introduced by the Malaysian Tourism Board. The success of the marketing and promotion activities have significantly increased the number of tourists visiting Malaysia. Cumulatively, tourist arrivals recorded from January to August 2007 are 14,047,276, representing an increase of 22% compared to 11,518,288 in 2006.

The increased of tourists to Malaysia has also improved hotel occupancy rates and leisure businesses in Malaysia. A glance of the hotel industry in Johor reveals that the total number of hotel guests recorded has slightly increased from 2.83 million in 2005 to 2.99 million in 2006. According to the statistics provided by Tourism Malaysia, the ratio distribution of total hotel guests in Johor between domestic and foreign guests is 68:32 in 2006. Together with Kuala Lumpur and Selangor, Johor forms the top three domestic hotel guests, consisting of a mix of leisure and corporate guests.

The total existing supply of hotel rooms in Johor stands at 12,811 rooms from 273 hotels. Amongst them, approximately 4,305 rooms are recorded from hotels in Johor Bahru. The table below shows the distribution of hotel rooms in Johor Bahru in terms of star-rating.

The average occupancy rates of hotels in Johor, particularly in Johor Bahru and Johor Bahru CBD are found to be satisfactory compared to other states in Malaysia. The table below shows the average occupancy rate of hotels by locality in year 2005 and 2006:

Some notable hotels located within Johor Bahru include:

Malaysia Property Market 2008 - The Times Ahead

What has happened in 2007?

The Year 2007 was a significant year for Malaysia as the country celebrated its 50 years of independence. The Malaysian property market enjoyed a flying start in 2007 as it inherited the spill-over effects of strong market sentiments after the launching of the ninth Malaysia Plan (9MP) and the establishment of the Iskandar Development Region on 4 November 2006. The government has also introduced several incentives and implemented numerous measures to enhance competitiveness, spur economic activities, and improve the country’s attractiveness to foreign and domestic investors. These incentives have directly and indirectly affected the property market especially in the first half of the year. Among the notable measures pursued by the government are inclusive of the following: -

a. Establishment of Economic Corridors
- The Master plan for the Northern Corridor Economic Region (NCER) was launched on 30 July 2007 and encompasses Kedah, Perlis, Penang and northern Perak.
- The East Coast Economic Region (ECER) which covers states of Kelantan, Terenganu, Pahang and the north of Mersing district of Johor was launched on 30 October 2007.

b. Amendment of rules and regulations in relation to the property sector
- The waiver of the Real Property Gains Tax (RPGT) effective from 1 April 2007;
- The introduction of a few measures to relax the forex rules by Bank Negara Malaysia effective 1 April 2007 has further liberalised Malaysia’s foreign exchange policy;
- The introduction of Certificate of Completion and Compliance (CCC) to replace the Certificate of Fitness for Occupation (CFO) with effect from 12 April 2007;
- The set-up of the new One-Stop Centre to ensure that development projects are given fast-lane approval within four months;
- The introduction to the Building and Common Property (Maintenance and Management) Act 2007 which was gazetted on 12 April 2007;
- The amendment of the Housing Development (Control and Licensing) Act 1966 to incorporate service apartments;
- The amendment of the Strata Titles Act 1985

c. Transport Infrastructure
- Expansion of the local bus route, RapidKL, in the Klang Valley
- Announcement of the Penang Monorail Project scheduled to take off in Year 2008 undertaken by Syarikat Prasarana Nasional Berhad (SPNB)
- Extension of the LRT network to be implemented in Selangor’s prime urban areas
- The announcement by the Cabinet Committee to revive the shelved Ipoh-Padang Besar double tracking project

The second half of the year has been relatively slow compared to the first half of the year. The property market was dramatically affected by some global issues toward the second half of the year. The US Sub-prime mortgages crisis has resulted in the decline of stock markets worldwide. The effects of this meltdown has spread beyond housing and disrupted global financial markets. Besides, crude oil prices have been creeping higher and higher in recent months. The persistently high crude oil prices have impacted the global economic performance significantly. Towards the end of the second half of the year, the market generally adopted a more cautious approach.

Market View on 2008 – Break the trend?
The Malaysian Property Market has shown some positive surprises in the past few years. Can this trend continue or will it be broken in the year 2008?

Generally, market analysts and economists have predicted that the year 2008 will have a tough start globally due to the twin Macro stresses of weakening US consumption and China’s policy tightening. The global economic outlook could be affected by the fallout of the US Subprime mortgage crisis. The excessive mortgage-related losses and the downturn in US housing market will potentially push the country into recession. In addition, economists also extend their worries over the possibility of China continuing to implement measures to tighten its national policy in order to rein in accelerating inflation. If China implements the tightening measures at the same time that the US economy is weakening, the risks of a sharper-than-expected deceleration in China’s growth are higher, which would also have ripple effects regionally. The two Macro impacts and the persistently high oil prices, which is another threat to the world economy, will create significant dampening effects towards the global market inclusive of Malaysia. These effects will also translate into the real estate sector in the form of slowdown in sales volumes, low confidence amongst investors and substantial price increase in construction material.

Notwithstanding the above mentioned risks, the global economy is anticipated to continue expanding at 5.2% in 2008 (5.2% in 2007) with Japan, Europe and emerging Asia, in particular China and India, counterbalancing a possible moderation of the US Economy. Malaysia is well positioned to take advantage of the growing external market as well as the increasing trade and investment opportunities, supported by continuous efforts to enhance national competitiveness and resilience.

Business Opportunities
In view of the potential global market challenges, we must adopt a very cautious strategy in any financial commitment. Having said that, there is also good potential magnitude, path and direction in the real estate market that we can seriously consider: -

a. High levels of equity capital particularly from Middle-East Countries continue to pour into the Malaysia property pool;

b. The practice of relocating corporate offices especially in the finance, insurance, real estate and business support services, from big cities such as New York and London to other cities which have lower operation costs;

c. The active promotion of Islamic Finance by the government being an alternative financial instrument offers both developers and investors a lucrative financing package in Malaysia real estate markets.