In a sobering report, Maybank has warned of mounting risks to Iskandar’s already weak property market.
Oversupply is looming and price wars are possible. The “aggressive landbanking activities” of Chinese developers in the “already crowded” Malaysian development zone could make matters worse.
In January, Shanghai’s Greenland Group bought about 52ha of waterfront land along Tebrau Bay.
It joined a string of Chinese developers, including Country Garden and Guangzhou R&F Properties, that have announced ambitious Iskandar mega projects in recent months.
Signs of a supply glut can be seen as Malaysian developers scale back their launches or shift their product mix to avoid direct competition with the Chinese firms, said analyst Wong Wei Sum in the report released earlier this week.
This comes on top of lower sales expectations.
Meanwhile, the three Chinese developers have been offering discounts on their units ranging from 6 per cent to 15 per cent, said the report.
“Without coordinated planning and control, (Chinese developers’ landbanking) could aggravate the oversupply situation and induce price wars, especially in the high-rise mixed development segment,” said Ms Wong, adding that “a huge incoming supply” of new units will hit the market this year and next.
If developers abandon projects or initiate price wars to clear inventory or reduce sales risks, “the failure... could erode buyers’ confidence in Iskandar”, Ms Wong warned.
She also paid particular attention to the risks posed by vast reclamation projects.
Earlier this year, Country Garden got the green light to resume reclamation works for four man-made islands off Tuas for its 1,386ha Forest City luxury township project.
Such projects are “complex” and require developers to maintain strong financial positions and holding power, noted Ms Wong.
Among the three Chinese developers, Guangzhou R&F has the weakest financial position with a net gearing – or ratio of debt to equity – of 1.2, said the report.
Maybank estimates that Country Garden’s net gearing could drop to 0.58 after it sells a 9.9 per cent equity stake to Ping An Insurance, China’s second-biggest insurer, for about HK$6.3 billion (S$1.1 billion).
Meanwhile, Greenland appears to have the strongest financial position, said the report, and may soon emerge as one of the largest landowners in Iskandar.
Greenland is looking to acquire about 480ha to 560ha of industrial land worth RM2.1 billion (S$773 million) near the Tanjung Langsat Industrial Complex facing Pulau Tekong, according to a report in Malaysia’s The Star last week.
Maybank said that it “remains cautious” on property exposure in Iskandar, preferring developers with projects in the Klang Valley and Penang.
This article was first published on April 18, 2015.
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