The  Johor  state  government  is  implementing  additional  cooling measures  on  the  property  sector.  The  additional  impact  is  minimal, given  the  already  unfavourable  cumulative  impact  from  the  measures announced in Budget 2014.  Developers will likely face margin pressure due  to  their  limited  ability  to  raise  selling  prices  amid  weak  demand, while more aggressive marketing strategies are needed to lure buyers.

• Johor imposes  2% levy on foreigners.  The Johor state’s budget was announced  last  week.  A  2%  levy  (of  the  price  as  stated  in  sales  and purchase  agreement)  and  a  floor  price  of  MYR1m  will  be  imposed  on foreigners effective from 1 May 2014. The 2% levy was lower than the 4-5% charge indicated earlier.
• Penang  mulling 3% levy on foreigners.  Following the announcement of the Federal Budget, the Penang state government is proposing a 3% levy  on  foreigners  from  Jan  2014 .  Although  the  state  government  is currently  collecting  feedback  from  the  public,  based  on  our  channel checks, we understand that the measure is likely to be implemented.
• Net impact:  Margin pressure.  These  measures are not  surprising, as the  state  governments  had  given  “warnings”  earlier.  Following  the cooling measures in Budget 2014, in the face of weak demand, property developers will likely  face  margin pressure due to their  limited ability  to raise selling prices to pass on the incremental costs going forward, while more aggressive marketing schemes  are needed to stimulate buying. In other  words,  developers  may  help  “subsidise”  the  levies  on  behalf  of foreign buyers.  That said, some well-designed projects will still see good demand,  but  these  are  just  a  small  percentage  of  all  the  property projects in Malaysia.  
• Maintain  NEUTRAL.  As  expected,  many  property  stocks,  particularly those with high exposure to the Iskandar region, have been  sold down after the Budget 2014 announcement. While valuations may have largely factored in the negative impact, most property stocks (with no companyspecific angle)  will likely  be  range-bound over the next  few  months  due to  the  lack  of  near-term  catalysts.  Meanwhile,  the  physical  property market  may  take  3-6  months  to  adjust  to  the  regulatory  changes.  Our
• Top  Picks  –  IJM  Land,  Tambun  Indah  and  Hua  Yang  –  remain unchanged  given  their  solid  fundamentals  and  minimal  exposure  to foreign buyers. 

Source: RHB