Could this ambitious infrastructure project be just what Johor needs to put their property woes to rest?

For years, Johor has not fared well against the number of overhang properties plaguing the southernmost state. Once a favourite among real estate investors especially from China and Singapore across the Causeway, the state has suffered significantly mainly due to too many luxury projects, the Covid-19 pandemic and the subsequent loss of investor interest. Enter the Rapid Transit System (RTS) Link, the up-and-coming high-speed rail project connecting Johor Bahru to Singapore. Could this ambitious infrastructure project be just what Johor needs to put their property woes to rest?

Interesting statistics

It is important to assess the scope of the overhang issue to comprehend the possible effects of the RTS on Johor's real estate market. As of the second quarter of 2023, Johor's residential overhang was valued at RM18.9bil by the National Property Information Centre (Napic). This number constitutes a sizeable chunk of the overall national overhang. Price declines affected developers, investors and homebuyers alike in both residential and commercial. The state government has implemented various measures to address this issue, including cooling measures and incentives for affordable housing. Yet, the overhang persists.

In April 2022, Malaysia entered the endemic phase and the demand index increased by 29%, from 394 to 507. PropertyGuru's demand index for Johor properties increased by 17% to 614 in April 2023, coinciding with the RTS Link's 50% completion rate in Singapore. As a result, there has been a decrease in the number of unsold and overhanging units still under construction in Johor Bahru over the last few years. 

Data from the National Property Information Centre (Napic) shows that overhang properties in Johor Bahru decreased from 16,799 in 2022 to 14,063 in 2023. From 19,544 units in 2020 to 14,063 units in 2023, the overhang for high-rise apartments decreased by 28%. Unsold units that are still under construction decreased as a result, from 11,054 to 5,597 units, a 49% decrease.

Most of the overhang is found in the more expensive residential segments, especially in Iskandar Malaysia, a special economic zone designed to attract foreign investment. Although the area has undergone significant development, the rate of population increase and economic growth has not kept up with initial expectations. As a result, there is less demand for upscale real estate.

Transforming Johor’s landscape

Property prices and infrastructure projects heavily rely on each other. The RTS certainly has potential but it's not a foolproof solution. First off, the affordability of Johor properties affects how well the RTS reduces the overhang. Singaporeans generally buy properties in Johor as it is a cheaper alternative but the time cost of commuting to and fro the Island State can be taxing. Second, the state of the economy as a whole is very important. Even with better connectivity, a recession or other economic downturn could reduce demand for real estate.

Additionally, the provision of adequate housing options sets the stage for assessing the RTS's ability to draw in Singaporeans. The RTS may not have the desired effects if there is a lack of good, reasonably priced housing. The government must keep a close eye on property prices, transaction volume and overhang figures to determine the true impact of the RTS on Johor's real estate market.

RTS a big step forward

Passengers can travel from the Bukit Chagar station, which is next to the JB checkpoint, to the underground Woodlands North station in Singapore and vice versa in about five to six minutes. The train frequency is expected to be 3.6 minutes during peak hours. The 4km RTS can carry up to 10,000 passengers per hour in each direction and this is expected to ease congestion on the one-kilometre-long Causeway.

Without a doubt, the RTS Link is a big step forward for Johor. There is little doubt that it has the potential to be a catalyst for positive change, even though it is too soon to say with certainty whether it will fully resolve the state's property overhang issue. The RTS has the potential to be the much-needed lifeline for Johor's property market by enhancing connectivity, promoting economic growth, and drawing in new residents and businesses.

Other potential catalysts expected to propel Johor further include the proposed Johor-Singapore Special Economic Zone (SEZ), the plan to designate Forest City as a special financial zone (SFZ), the resuscitation of the Kuala Lumpur-Singapore high-speed rail (HSR), and the RTS  are among the factors that will propel the state of Johor in 2024.

In the end, several variables, such as the project's prompt completion, seamless integration with Johor's public transportation system and the general state of the local economy, will determine how well the RTS addresses the property overhang. It will be interesting to watch how the project affects property values, occupancy rates and other factors as it develops.

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