- The Star quoted State Housing and Local Government Executive Councillor Datuk Abdul Latif Bandi as indicating that the Johor government is looking to impose higher processing fees on foreign property buyers in Johor.

- According to The Star report, foreigners would have to pay between 4% and 5% of the sales price of the properties. Currently, a flat rate of RM10,000 is applied for residential, commercial as well as industrial properties. This new rule is supposed to be introduced from January next year.

- In addition, another proposal that was mooted concerns restriction on foreigners buying properties in the secondary market from locals in Johor – although purchases from other foreigners is still permissible. This is not dissimilar to some of the current restrictions in Australia.

- In our view, a tweaking of the foreign levy from the current RM10,000 should correlate with current property prices in Johor and Iskandar Malaysia. However, it should not be too severe as this may discourage future foreign investments into this growth corridor.

- Nevertheless, we believe that a 4 to 5% hike in the foreign levy and/or further restrictions in the subsale market for foreigners may distort the vibrancy of the Johor property market, where the resulting price discovery cycle would be affected.

- The latest development may dent sentiment on select developers in the near term, particularly those with a relatively high exposure to foreign buyers or high-density developments. The list would include Iskandar Waterfront Holdings, UEM Sunrise, Country Gardens, IGB, SP Setia, Gamuda, Brunsfield, Tebrau Teguh and Tropicana Corp.

- However we are unsure if these new rulings have already been gazetted. Secondly, it should not apply to Medini, a specially carved-out zone within Iskandar Malaysia that is free from foreign restrictions.

- Third of all, there is already a minimum price band of RM500,000 and above that is imposed on foreigners looking to buy properties in Malaysia.

- Furthermore, the recent landbanking moves by other developers such as Mah Sing (1,352 acres of land in Pasir Gudang) are primarily centred on the local market with affordably-priced homes (>RM500k). Hence, we believe Mah Sing’s upcoming property launches in Johor would not be impacted by any changes from this new ruling.

- Broadly, any fresh measures to be imposed by the Johor government would have to be delicately balanced to avoid stifling the future prospects of Iskandar Malaysia, which is still at a relatively nascent stage of its growth cycle.

- We maintain our OVERWEIGHT rating on the property sector. Mah Sing and IJM Land remain as our two top picks for leverage to an expected resurgence in pre-sales after Budget-2014, where more clarity should emerge from any policy changes for the Malaysian property market.

Source: AmeSecurities