Singapore Property Boom Fuels Malaysia Spillover Bubble ~ Marina Bay Sands

Thursday, November 21, 2013

Singapore Property Boom Fuels Malaysia Spillover Bubble

2:32 AM Koomhoo No comments

Chris Metcalf commutes for 45

minutes to Singapore each day from Iskandar, a region just over

the border in Malaysia, to work as a lawyer at Clyde Co LLP.

“It’s too expensive to live in Singapore,” said Metcalf,

who moved across the Johor Strait in June after finding he could

no longer afford the island-state on a local salary and with

four children. “We’re selling a house in the U.K. and when we

do we’ll consider buying in Malaysia because it’s definitely

better value.”

Malaysia is seeing the spillover from Singapore’s four-year

property boom and its subsequent efforts to cool the market.

Prices of homes at Horizon Hills, where Metcalf now lives, have

jumped almost threefold over the past five years amid a flurry

of foreign buying, according to data from property broker Knight

Frank LLP.

Now Malaysia is taking steps to prevent its own real estate

inflation from emerging and appeasing locals who say they can no

longer afford to own a home. In last month’s budget, Prime

Minister Najib Razak doubled the minimum amount foreigners must

spend on property and raised the capital gains tax to 30 percent

on homes they sell within five years. The local governments of

southern Johor state, where Iskandar is based, and Penang to the

north, are considering additional tariffs on overseas buyers.

While Horizon Hills surrounds a golf course and is

luxurious by Malaysian standards, homes cost far less than in

Singapore. Four-bedroom houses in the 1,200-acre (487-hectare)

development, popular with expatriates, are advertised online at

$270 per square foot, compared with the $503 per square foot

asked for a four-bedroom public-housing flat in Singapore’s

central Bishan district.

Comparative Costs

The average price of a new 1,000-square-foot (93-square-meter) condominium in Singapore is between $800,000 and

$960,000, according to London-based broker Savills Plc. A

similar-sized place in Kuala Lumpur costs about $374,000,

according to CBRE Group Inc.’s Malaysian unit.

Singapore has ramped up efforts to bring down housing costs

with measures such as linking borrowers’ maximum debt levels to

their incomes, higher stamp duties and capital gains taxes. Home

prices have still jumped 40 percent to a record since the

island-state started introducing curbs four years ago. The gains

led to Singapore being ranked the most-expensive city to buy a

luxury home in Asia after Hong Kong by Knight Frank in a wealth

report in March.

Malaysia Attracts

The difficulties of purchasing in Singapore have prompted

potential buyers to explore Malaysia.

“Malaysia has certainly been the recipient of a lot of

Singaporean money since the tighter cooling measures here,”

said Nicholas Holt, Knight Frank’s Asia-Pacific research

director. “Singaporeans probably top the list in terms of

overseas buyers in Malaysia, most notably in Iskandar, but also

in Kuala Lumpur and Penang.”

That’s prompting Malaysia to act, joining Hong Kong and

mainland China in seeking to cool surging housing markets to

help combat concerns over affordability and prevent a housing

debacle from emerging in the financial system.

Malaysia’s central bank shortened the maximum length on

mortgages in July, saying household indebtedness had risen by an

average 12 percent per annum in the past five years. Last month,

the government barred developers from helping home buyers by

absorbing some interest payments on loans.

Malaysians have accumulated Southeast Asia’s highest level

of household borrowings at 80.5 percent of gross domestic

product, according to Bank of America Corp.’s Merrill Lynch

unit.

Priced Out

B. Shashikumar, a 32-year-old Malaysian bank manager, wants

to buy a home before he gets married.

“Even with my 5,000 ringgit ($1,568) monthly salary, I

can’t buy a house in Kuala Lumpur or Selangor below 300,000

ringgit,” said Shashikumar, who typically spends three hours

each day commuting to and from work in Malaysia’s capital from

Shah Alam, a city where he lives with his parents. “I’ll have

to find one in another state. It’s difficult to get high loans

for a house in the city.”

Average Malaysian home values rose 43 percent to a record

in the four-and-a-half-years to June, according to government

data. Prices in Kuala Lumpur climbed 62 percent to 605,711

ringgit between the start of 2009 and the end of the second

quarter this year, said CBRE, citing government data. They rose

49 percent to 298,697 ringgit in Penang and 37 percent to

187,644 ringgit in Johor during the same period, the data

showed.

Cooling Measures

Cooling measures may slow home sales, according to

consultants including CBRE and Knight Frank. “The market is

expected to self-correct in the next six to 12 months,” said

Judy Ong Mei-Chen, a Kuala Lumpur-based executive director at

Knight Frank.

Iskandar, a development zone spanning 2,217 square

kilometers (856 square miles), three times the size of

Singapore, was started in 2006 to compete for manufacturing and

logistics business with its neighbor in the south. It’s aimed at

piggy-backing on Singapore’s economic rise, just as Guangdong

gained from Hong Kong, by offering lower-cost alternatives to

manufacturers, food processors and energy companies.

Residential neighborhoods featuring large homes, gardens

and swimming pools, are being built. Spin-offs of foreign

schools and universities are also opening offering cheaper

international-standard education than Singapore, including

Britain’s Marlborough College, where Metcalf now sends his kids.

Legoland, Pinewood

Some high-profile projects, including the Legoland Malaysia

amusement park and Pinewood Iskandar Malaysia Studios — a

franchise of the U.K.-based company where James Bond films were

made — are done or nearing completion in a flagship development

zone called Nusajaya.

Wealthier foreigners are encouraged to settle in the

country under the government’s Malaysia My Second Home

Programme, which provides them with renewable 10-year multiple-entry social visit passes. About 77 percent of the 22,709 people

who have applied are from Asia, with the largest number of

recent arrivals coming from China, government data showed.

Singaporeans account for 70 percent of overseas buyers in

Malaysia, making them the largest group of foreign purchasers,

Wan Abdullah Wan Ibrahim, chief executive officer of UEM (UEMS) Sunrise

Bhd., told reporters Nov. 13. UEM, which is co-developing

Horizon Hills with Gamuda Bhd. (GAM), is the biggest landowner in

Iskandar.

“The impact of the budget measures will be temporary,”

Wan Abdullah said. “Developers are very creative. We will find

other means of attracting buyers.”

Developers Fall

UEM, UOA Development Bhd. and Mah Sing Group Bhd. may post

slower sales growth due to the cooling measures, KN Kenanga

Holdings Bhd. said a research note dated Oct. 28, predicting a

knee-jerk reaction to foreigners’ appetite in the next few

months.

UEM shares have fallen 14 percent since Najib announced

property cooling measures on Oct. 25. UOA dropped 12 percent and

Mah Sing is down 9.5 percent in the same period, under-performing a 1 decline in the benchmark FTSE Bursa Malaysia KLCI

Index.

“Currently, Malaysia has a rather low number of foreign

purchasers despite having one of the most accommodative

environments for property investment in the region,” Leong Hoy

Kum, Mah Sing’s group managing director, said in an e-mailed

response to Bloomberg News queries. “This means that even

should sales be slower, it may not have a very strong impact on

the market in terms of pricing and sales volume.”

Johor, Penang

Johor is planning to impose an additional 2 percent tariff

on buyers from overseas across all segments of the property

market from May, Singapore’s Business Times reported Nov. 13,

citing Koh Moo Hing, chairman of the Johor branch of the Real

Estate and Housing Developers’ Association.

Penang is seeking public feedback on proposals to introduce

a 3 percent levy on foreigners purchasing homes next year, Lim

Guan Eng, the state’s chief minister, said last month.

“If I buy a property, I’m not going to buy it to

speculate,” Metcalf said. “I want to buy a house that I can

live in and the kids can grow up in and that we can call home.

Iskandar feels more like living in the U.K.”

To contact the reporter on this story:

Pooja Thakur in Singapore at

pthakur@bloomberg.net

To contact the editors responsible for this story:

Andreea Papuc in Hong Kong at

apapuc1@bloomberg.net;

Rob Urban in New York at

robprag@bloomberg.net

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