Escape to Iskandar Malaysia
House hunters in crowded, pricey Singapore are fleeing to Malaysia’s new commercial zone in search of affordable homes, peace and quiet, and some elbow room.
Audrey Beh of Singapore was preparing for her wedding when she came to a realization: She had to leave the country.
Ms. Beh and her future husband had been searching for a new home to share once they were married, and quickly grew frustrated with the local real-estate market—among the priciest in Asia. “We looked for about eight months, but house prices in Singapore are too high,” the financial consultant said.
The solution was to join an increasing number of Singapore-based professionals snapping up significantly larger and less expensive properties across the border, in the southern Malaysian state of Johor, where rapid industrialization fueled by government and foreign investment has been taking place.
She and her fiancé spent about 1.2 million Malaysian ringgit ($380,400) in 2011 on a 4,500-square-foot, semidetached house in Horizon Hills, a gated compound being built around rolling hills and an 18-hole golf course. They moved in November 2012.
Singaporeans own more than 40% of the currently occupied homes in Horizon Hills, which will have 5,000 units—including cluster houses and bungalows—when completed in 2020, according to the developer. Ms. Beh is one of the many residents who commute daily to Singapore’s central business district, about one hour’s drive away.
Horizon Hills sits within Iskandar Malaysia, a development corridor created by the country’s government in 2006 to rejuvenate an area of gritty towns and palm-oil plantations. Spanning 855 square miles—about three times the size of Singapore—Iskandar has been carved into five zones that aim to attract foreign investment in fields ranging from health care to education and tourism.
Located where continental Asia meets the Straits of Malacca and the South China Sea, Johor encompasses beaches, industrial town centers and leafy planned neighborhoods that abut former plantations.
“Johor has long been the backyard of Singapore, and [Iskandar] gives us the opportunity to do something similar to Hong Kong and Shenzhen,” said Lim Kang Hoo, vice chairman of Malaysian developer Iskandar Waterfront Holdings, referring to how the latter city has served as an industrial hinterland for the land-scarce Chinese territory.
Horizon Hills, shown here, offers large homes in a gated compound being built around a golf course.
While the area isn’t expected to be fully developed until around 2025, attractions such as a Lego-themed amusement park have opened and educational institutions such as the University of Southern California have announced plans to set up satellite campuses there. A plan to extend one of Singapore’s subway lines into Johor by 2018 is in the works.
Much of the initial investment came from Malaysian authorities. Iskandar Waterfront is owned in part by entities linked to the government. Its showroom offers a model of how Mr. Lim envisions Iskandar in a dozen years: waterfront apartments, glitzy convention centers and quay-side restaurants.
UEM Land, which co-developed Horizon Hills and has other properties in Iskandar, is owned by Malaysia’s sovereign-wealth fund. The state energy producer Petronas is constructing a $19.7 billion dollar refinery expected to create thousands of high-skilled jobs.
As a result of the public initiatives, developers from across Asia have rushed in with plans to build office buildings, malls and condominiums. In December, Country Garden, a large Chinese property developer, purchased 55 acres of land from Iskandar Waterfront to build a marina club and serviced apartments.
Iskandar Waterfront also is co-investing with Temasek Holdings, the Singapore sovereign-wealth fund, and Singapore-based developer in a $2.5 billion mixed-use project on an island made of reclaimed land.
Few of these developments are under construction, but Getty Goh, director at Singapore property consultancy Ascendant Assets said 150,000 units—ranging from waterfront condominiums to countryside villas—would be complete across Iskandar by 2015. Precise estimates of foreigners living in Johor aren’t readily available, but brokers selling high-end properties there say that more than a third of their sales are to Singaporeans and that the 50% government quota for foreign-owned homes is usually quickly exhausted.
The rising demand is affecting prices. Homes at Tropaz Residences, a 1,150-unit condominium complex with ocean views, set to be completed late next year, now go for $349 per square foot, up from about $238 two years ago. A four-bedroom terrace house in Horizon Hills that now sells for $380,400 went for as little as $63,400 in 2007.
Even so, these figures are just a fraction of what equivalent property in Singapore would command. “Instead of a ‘Mickey Mouse’ house in Singapore, they can get a four-bedroom terrace here,” said broker Daffy Ewe.
Singaporean buyers are paying for elbow room. Singapore’s government recently announced plans to increase the country’s population through family and immigration incentives from its current 5.3 million—a move that sparked rare public protest in the otherwise orderly city-state. By contrast, Iskandar’s population is projected to be around three million by 2030.
“When I come home after work, it’s like coming to a resort because I see trees and not flats,” said Stephen Santhanaraj, a Singaporean management consultant who lives in a 6,500-square-foot semidetached house in East Ledang, a gated community in Iskandar that has amenities such as an infinity pool and an Angsana hotel-branded spa. “The houses are well spaced out and you get that feeling of openness that you just don’t have in Singapore.”
Various policies have been implemented to aid foreign buyers. The Malaysia My Second Home program gives foreigners who meet certain criteria the renewable right to stay for 10 years. Malaysian banks offer mortgages of up to 90% of the property’s price.
The authorities also have moved to address certain concerns, such as poor security, which has hindered Singaporean investment in Johor. Mr. Lim said that the government has spent $105 million on security infrastructure and that his developments were all staffed with armed auxiliary policemen. Street crime in Iskandar fell 47% in 2011 compared with 2010, according to government statistics.
The zone’s developing status, however, still poses challenges. Mr. Goh said the abundance of land makes it easy for property developers to keep building, which could result in deflated prices. He advises clients seeking to invest in Iskandar to purchase beach or waterfront property, which is limited. Such homes are popular with mainland-Chinese buyers.
Johor’s volatile economic history raises questions about the possibility of a future downturn. Real-estate prices in the area boomed in the early 1990s before plummeting during the 1997 Asian financial crisis. This allowed developers like Mr. Lim, whose company owns 4,200 acres of Iskandar property, to purchase land at fire-sale prices.
Some foreign buyers also worry the government’s support for Iskandar Malaysia could change with the local political winds.
A version of this article appeared June 21, 2013, on page M4 in the U.S. edition of The Wall Street Journal, with the headline: Escape to Iskandar Malaysia.