Beyond Iskandar: 5 Next boom towns in Johor

As Johor prepares to become the next economic powerhouse in Malaysia, properties in these old up-and-coming small towns begin gearing up for a price surge.

Johor. Iskandar City.

Highlights:

  • Kluang, Batu Pahat, Muar, Segamat and Kota Tinggi towns recorded the highest number of transactions among areas outside of Iskandar Malaysia between September 2016 and August 2017.
  • Terrace house is the preferred building type with 78.1% of the total transaction, and 43.7% of these terrace homes are those in the range of 751 sq ft and 1,000 sq ft.
  • Johorian buyers’ preference skews toward terrace homes that are in the mid-price range above RM 230,000 and below RM570,000.

With a land area of 19,210 km2, Johor is easily the 3rd largest state in Peninsular Malaysia, which translates to an abundance of land area for development opportunities.

Since the establishment of Iskandar Malaysia in November 2006, it has become the state’s superlative economy over the past decade; mention the name Johor and Iskandar Malaysia – with its elaborate development plans and all of its glorious upscale projects – the master development was all we’ve talked about.

The Southern state has become a major investor’s magnet, with huge potential in attracting educated millennials to the future smart city. So, does this mean that other parts of Johor, particularly the more modest towns, are not seeing much real estate action?

In this issue of area focus, we explore secondary towns in Johor that are quietly rising to the challenge in becoming Johor’s secondary economic engine.

Diamonds in the rough

When it comes to potentially rising areas, we often envision large-scale developments with the blueprint of a master township and buses of foreign property buyers roaming in and out of the vicinity. There are, however, areas that lie quietly for years and when opportunities arise, bloom into secondary cities due to catalysts such as low cost of living and the arrival of a new development/infrastructure.

In Johor, the opportunity came late last year when the Johor government announced the formulation of a specific development blueprint for each district in the state that would ensure a fair distribution of wealth and growth. Some of these changes are expected to boost the performance of certain small towns that exhibit growth potential.

Transactions in the top 5 areas outside of Iskandar (Sep 16 – Aug 17). Source: iPropertyiQ.com

Since the announcement, several of these small towns have started seeing a difference in terms of the number of transactions and price appreciation. iPropertyiQ data gathered from September 2016 to August 2017 showed that the top five performing areas outside of Iskandar Malaysia in terms of transactions in the secondary market are: Kluang, Batu Pahat, Muar, Segamat and Kota Tinggi.

Percentage of the transaction according to building types (Sep 16 – Aug 17) Source: iPropertyiQ.com

Much like everywhere else in Malaysia where the demographic is made up of mostly families, landed homes are preferred to any other building types. Terrace house won the race by a landslide making up 78.1% of total market share, while semi-D comes in second place at 13.5%. The remaining 8.5% is shared among bungalow home at 4.1%, flat at 2.4%, and, apartment and cluster house at 0.6%, respectively.

These five areas accounted for 17.8% of Johor’s overall transaction, which amounts to a total of 2149 out of 12, 000 transactions between September 2016 to August 2017.

Terrace house transaction (Secondary market)

Source: iPropertyiQ.com

Kluang, which sits in the center of Johor about 100km away from the capital recorded the highest number of transactions in that period at 679; and out of this number, 481 were terrace houses priced at RM 181 median psf with a y-o-y capital growth of 11.2%. The developing town’s low property price and relatively low asking median rental at RM800 allows for a relatively high rental yield of 5.3%.

Batu Pahat’s thriving small and medium industries such as textiles, garments, and electronics helped to boost development, but it wasn’t enough to push its growth towards the positive scale yet, not until the government’s plans come to fruition. It came in close to Kluang with 664 total transactions; terrace homes make up 59% of the transacted properties at a median price of 226 psf. Terrace homes here experiences y-o-y capital growth of 5.7%, only half of Kluang’s appreciation due to its higher price tag, which contributed to lower demand.

House prices in Muar have been experiencing a dramatic growth in recent years at 9.1% y-o-y, despite having a low number of transaction (238). Last year the furniture hub saw the arrival of a new nightlife area at Jalan Bakri and several educational institutions that will potentially turn Pagoh into an education hub, which could have contributed to the increase of its median price psf.

Despite having the lowest total transaction at 188, Kota Tinggi scored second highest in terms of price out of the five districts at RM230 median price psf. In fact, due to Pengerang’s -an administrative district there – proximity to the deep-water petroleum terminal, Petrochemical Integrated Development (Rapid) projects and the positive spillover from the Desaru Coast, it experiences the highest y-o-y capital growth at 14.3% with an asking median rental of RM 3,300 and asking rental yield of 16.9%.

With a total of 191 transactions, Segamat, which was previously dubbed as a “retirement place” recorded the lowest transaction of terrace homes, median price psf, y-o-y capital growth and y-o-y transaction growth at 167, -6.0, and -38.7, respectively.

Oil products tanker approaching the Pengerang Deepwater Petroleum Terminal.

Below is a breakdown of top 10 neighborhoods/townships in these areas:

Source: iPropertyiQ.com

What were people buying?

iPropertyiQ.com data revealed that 43.7% of the terrace homes sold in Kluang, Batu Pahat, Muar, Segamat and Kota Tinggi were those in the range of 751 sq ft and 1000 sq ft. Second most purchased size range is from 501 sq ft to 750 sq ft at 17.1%, followed closely behind by those in the range of 1001 sq ft and 1,250 sq ft.

The most popular price range among the Johorians in these areas is from RM 230,000 to RM 310,000 at 24.1%, while those in the range of RM 310,000 and RM 440,000 made up for 17.2% of the terrace units sold. Third most preferred prices are those that fall in the range of RM 440,000 and RM 570,000, making up 17% of the total terrace units sold.

From the data, it can be concluded that that Johorians’ preference skew towards terrace homes that are in the mid-price range, above RM 230,000 and below RM 570,000. Affordability plays a key role in the appeal of these smaller sized terrace homes.

Area demographic

iPropertyiQ data also showed that from 2010 to 2016, the population of Kluang, Batu Pahat, Muar, Segamat and Kota Tinggi town experienced 1.48% estimated annual growth from 682,000 to 754,500. These towns are also home to a total of 182,000 households with an average household size of 4.1 people per home.

As domestic and foreign investments in Johor continue to flourish, each of these small towns will be expecting more job creation, economic growth and an increase in population.

Future outlook

Most would argue that the competition these rising towns receive from the thriving Iskandar Malaysia will not deviate attention from the future smart city and foster growth elsewhere. However, while these towns are not necessarily ripe for investment just yet, there are upcoming plans and catalytic projects that will act as a catalyst for growth.

The introduction of the development blueprint by the Johor government for each district will ensure a fair distribution of wealth, foster balanced growth and create economic opportunities through both big and small industries. Kluang and Segamat’s unbelievably low property price tag and high asking rental yield present the perfect opportunity for first-time home-buyers to capitalize on when these changes began taking place.

Muar and Batu Pahat particularly will benefit from The High-Speed Rail (HSR) project connecting Kuala Lumpur and Singapore. As two of its stations will be located here, many developers will be spurred to launch their developments along its planned route and encourage price appreciation. Muar’s infrastructural development and proximity to Singapore also gives it an added edge.

Johor Bahru, Malaysia.

The spillover effect from multi-billion- ringgit development between the Petroliam Nasional Bhd’s (Petronas) Refinery and Petrochemical Integrated Development (Rapid) project and the Pengerang Integrated Petroleum Complex (PIPC) in Pengerang is expected to lead to more job creation and business opportunities in Kota Tinggi. Projected to be the new growth area, it is no surprise that rental rates and capital growth have skyrocketed in the recent year.

As for Segamat, in the wake of global concern on the aging population, there are studies being done to explore the desirability of retirement neighborhood among the Chinese elderly in Segamat.

The study explores Segamat’s retirement neighborhood potential as a new source of economic growth. If realized, it would attract people from all walks of life to Segamat whether as residents, tourists, visitors or investors, and kick-start an upward movement.

DISCLAIMER
1) The data from JPPH officially record a property transaction once the stamp duty for the Sales and Purchase Agreement is paid, hence why the review period ended in September 2017, as the data from JPPH has not been released yet. Analytics are based on the data available at the date of publication and may be subject to revision as and when more data becomes available

Interested to invest? Join us at the Malaysia Home and Investment Expo on the 23 to 24 June 2018.

Originally published as Beyond Iskandar: 5 Next boom towns in Johor by Mira Soyza. An author at iProperty.com.my.

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