- The local press reported recently that the Johor government is looking at raising higher tax rates for about 130,000 foreigners that own property in the state.

- Johor Mentri Besar Datuk Seri Mohamed Khaled Nordin was quoted as saying that the decision to impose higher taxes was still under discussion.

- However, the plan is to impose it by year-end following a state-wide property re-evaluation exercise to ensure property tax returns for local councils.

- The latest news may create some uncertainties in the Johor property market over the near term. Our channel checks indicate that foreigners account for up to 50% of total buyers in Iskandar Malaysia (IM) – with Singaporeans making up the bulk of them.

- But, the actual impact may depend on:

        - The quantum of taxes;

        - The pricing bands for properties that are affected - likely to involve high-end units, in our view;

        - Type, locality and built-up.

- Furthermore, we do not discount the possibility of a broadening in tax rates through other forms – e.g. quit rent, assessment rates.

- That said, we believe the Johor government would not implement any measures that would be detrimental to the progress of IM – which had just only reached its tipping point in 2012.

- This is backed by stronger landbanking newsflow momentum; notably rising investments by Singaporeans that are led by state-backed Capitaland, Temasek and Ascendas.

- On the other hand, property prices within IM still lag behind major Asian cities despite being on a strong upward trajectory over the last two years. The region is also among the most liberal in terms of foreign ownership.

- Notably, the Medini area (under Iskandar Investment Bhd – a unit of Khazanah Nasaional) is a special zone that already enjoys full liberalisation of property ownership along with a host of incentives specially designed to drive inward migration into IM.

- We maintain our OVERWEIGHT stance on the property sector pending more clarity on the proposed taxes.

Source: AmeSecurities