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26,000 needed but building 86,000 units? Oops.

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An interesting piece of news from a local English daily in Malaysia. According to Iskandar’s Comprehensive Development Plan 2006 – 2025, a total of 26,000 units of serviced apartments are needed for south Johor. How many is being built? Based o the approved ones, 86,000 units. Do not smile, yes that is an excess of 60,000 units being built. Fortunately, these 86,000 units will not be flooding the market anytime soon. It will be built from today until 2025. Perhaps by then, the 26,000 requirement would have been adjusted much higher. Oh yeah, according to the Menteri Besar of Johor, all new applications are now frozen but those approved earlier are allowed to proceed. Yes, in other words, total units would remain at just 86,00 units until further notice.

Assuming you are a developer and you have access to this data with regards to demand and supply, what would you do? Well, if you are really able to sell it quickly, then you would build it as quickly as possible. As for those who can wait because their land premium is very low, I think they would be postponing their project or even send in a fresh application for different type of development. So, if it is true supply is going to ‘kill’ the market, it is also true that developers would not just stand there, continue building and ‘kill’ themselves when nothing could be sold or the prices falling down as soon as they completed the projects. I am not so sure if any developer would love to be in such a situation. This is why I think there would always be some truths to demand vs supply. Especially, from the demand side. It’s much more manageable.

Oh yeah, do note that serviced apartments are NOT the same as apartment units. Apartment units are under residential while serviced apartments are not, thus, there are much more leeways for such units. Building residential units meant more rules and regulations to follow. I never not yet come across any serviced apartments which to me is a well maintained one. Most of the time because the owners may not be staying there, the maintenance will be tough for the management and the outstanding payments are normally huge. After all, if they are not staying there, even if you disable their entry card, it is still ok. The owners can always come in as visitors instead. I do hope that majority of these 86,000 units may just prove me wrong and establishes a market for serviced apartments in Iskandar.

written on 14 Dec 2014

Next suggested article: Iskandar trending the Singapore property market? Prices Down 13.5%!

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