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Iskandar proving a boon to struggling Chinese developers

SINGAPORE — A challenging property market in China is driving many developers in Asia’s largest economy to scour for better returns in alternative destinations, with Malaysia’s Iskandar special economic zone featuring heavily on their radar.

Princess Cove in Iskandar is a 47ha project by China’s R&F Properties. Photo: R&F Properties

Princess Cove in Iskandar is a 47ha project by China’s R&F Properties. Photo: R&F Properties

SINGAPORE — A challenging property market in China is driving many developers in Asia’s largest economy to scour for better returns in alternative destinations, with Malaysia’s Iskandar special economic zone featuring heavily on their radar.

At least six Chinese companies have acquired land and are building residential developments in Iskandar at the moment, market watchers said. A major appeal of the special economic zone is its proximity to Singapore, a regional business hub with a ready pool of potential buyers.

“They have started to venture out of China because financing is being tightened. It’s becoming difficult for developers to get funding, and sales are not moving. Generally, things look quite bad for the real estate sector. It’s probably more of a push factor than a pull factor,” said Mr Colin Tan, director of research and consultancy at Suntec Real Estate Consultants.

“Developers usually go for ‘safer’ markets such as Hong Kong or Singapore, which are developed and more transparent. But Iskandar is in a unique position even though it’s not a mature market. It’s next to a First World country, with tremendous purchasing power for developers to tap, and land cost is low compared with developed markets.”

China has spent more than four years trying to rein in record housing prices amid worries of a bubble. Last month, new home prices fell for a second consecutive month after expanding for almost two years, the China Real Estate Index System Survey showed. Sales of new homes also fell 23 per cent in the first half of this year, compared with a year ago.

The slowdown has resulted in developers becoming more cautious over splurging on land and committing to new projects. As a result, land sales in 300 cities plunged 29 per cent on-year in the second quarter.

In addition to being a low-cost alternative, land-abundant Iskandar offers Chinese developers something Singapore cannot — the expanse of space needed for large-scale projects.

“There’s enough large-sized plots in Iskandar, and payment terms for such plots are probably more favourable to the developers than in Singapore,” said Mr Ku Swee Yong, CEO of real estate agency Century 21.

Chinese developer Country Garden is developing a 22ha land with 9,000 residential units at Danga Bay in Southern Johor and has another project in the pipeline that may entail a land area of “a few thousand acres”.

One of the newest entrants to the Iskandar property scene is R&F Properties, which is reportedly building 30,000 residential units across a 47ha site in its first venture outside China. Around 800 condominiums of the first phase of 3,200 units at its Princess Cove project are expected to go on sale later this month.

R&F has said it expects to see robust sales despite recent measures by Malaysia to cool the market. Foreigners are now allowed to only buy properties priced above RM1 million (S$390,000) and are subject to a higher real property gains tax (RGPT) of 30 per cent if they sell their homes within five years of purchase. After the fifth year, they have to pay a 5 per cent RGPT.

“I believe the measures have made buyers more selective. They’re taking more time to decide where they want to invest,” said an R&F spokesperson. “But our development’s best selling point is its location. The company sees a lot of potential in Johor Baru, especially with the state government’s commitment to refurbish the area.”

However, analysts are taking a more conservative stance on Iskandar’s potential. “I think people are aware of the potential oversupply situation. The common argument against this is that Iskandar has the backing of the government and that the high-speed rail (will) project improve connectivity, so its potential will eventually be realised. But the next question is, how long will that take? It could well be many years,” said Suntec Real Estate’s Mr Tan.

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