I mentioned as early as April 2013 that the capital appreciation phase for Iskandar is over. I always believe that a city with rental yields lower than mortgage costs has no fundamentals. I like cities like London, Birmingham, most US coastal cities like New York, Florida, LA, or oil cities like Houston and Austin. I also like Australian cities very much, like Brisbane and Perth. But I like continental European cities that are the epicentre of the Global Financial Crisis the most: Madrid, Dublin, Milan, Rome, Barcelona, Lisbon.
For the next five years, developers will be launching new properties equivalent to 42% of the existing stock in Johor. That's close to 300,000 new dwellings, enough for 1.32 million people. Do you see that many people flocking to Johor? Would everyone really choose to retire or work in Johor, and earn 1/4 the wages of Singapore? Would crime eventually drop to Singapore's levels? Will the MRT be completed in 5 years? I seriously doubt if an MRT will even be completed by 2030, let alone 2020. The High Speed Rail will probably be completed earlier, maybe by 2025.
The name of the game in Iskandar is for the government and land owners to sell their land to developers, who then forb it to gullible Singaporeans / foreigners. The property indices may tell us that prices have appreciated by 80% in the last 5 years, but let me tell you that the truth is probably more disappointing. If you had bought a Horizon Hills property in 2011 for RM 780k, you'd probably just about sell it for RM 1.2m in end 2013. That's like 54% in capital gains and is as good as it gets. If you bought it in 2012, you'd probably had bought it at 975k and if you sell it at the peak in 2013, you'd made only 23%. If you bought an off plan terrace in HH for 1.3m at the peak, the price is probably closer to 1.1m now. Oh how the mighty has fallen.
Prices of condos in JB's old town have probably reached a new normal of RM400 - 500k, from 200 - 300k in 2010, for the resale market. Indeed, some people have made good money, but they are usually locals, not Singaporeans. Prices of terraces probably rose from 300 - 600k over the same period. But rental in Malaysia can never rise beyond 2k per month. Those who can pay over 2k would have bought a new home. This means that for a condo, the yield is probably only 4.8% to 6%. Still respectable. But if you bought something over 500k, you'd probably have trouble covering even the interest on your mortgage.
When you invest in properties, always go for cities where supply is constrained, and population growth constantly rising.... and invest in a country where the rule of law is strong!
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