Is Medini Iskandar now gold? - kinibiz

By doubling the minimum property purchase price for foreigners to RM1 million last week, has prime minister Najib Abdul Razak inadvertently turned Medini Iskandar into investors’ ‘gold’?

While the minimum price limit applies to the whole country, Medini has been the exemption — foreigners can purchase any property in the 2,230-acre district without any price restrictions.

Pretam Singh Darshan Singh

In his Budget 2014 speech, the prime minister did not mention any changes to the exemption in Medini — by all appearances, the exemption seems to remain in place even as Budget 2014 unveiled a number of cooling measures for the property industry.

“I don’t think (the raised minimum price limit) will be applicable to Medini,” said property lawyer Pretam Singh Darshan Singh when contacted by KiniBiz.

The implication now is that with the entry bar raised everywhere else in the country, Medini has become a stronger magnet for foreign property investors looking for properties priced below RM1 million.

“Medini is foreigners’ only chance to buy properties below RM1 million,” said Danny Goh, executive director of MCT Consortium which has a mixed development project in Medini.

Ready, set, rush?

According to Goh, a majority of properties in Medini at the moment are priced below RM1 million.

“For our D’Pristine mixed development, our buyers are about 50:50 between locals and foreigners,” said Goh. “Our prices are about RM700,000 per Small Office Flexible Office (SoFo) unit.”

Prices in Medini has been quite stable, said valuer Sr Loo Kung Hoe of Rahim & Co (Johor), with prices varying between RM700 and RM1,000 per sq ft (psf). Some developments are already seeing prices going beyond the RM1,000 psf mark, added Loo.

But with Medini spared the property cooling measures in Budget 2014, is a ‘gold rush’ by foreign investors looming?

“I think so, yes,” said Goh flatly.

However, the actual overall impact may not be significant, said Brian Koh, executive director of property consultancy DTZ Nawawi Tie Leung.

“Maybe some of the smaller units would be impacted because they are usually priced below RM1 million, but the bigger ones not so much (affected),” said Koh to KiniBiz via phone.

“If foreigners want to buy, they’ll continue to buy (regardless),” added Koh, pointing out that investment in Iskandar has been driven by other factors.

One possibility however is that developers may start building bigger units in order to price their properties higher, said Koh.

RPGT exemption until 2020

Loo Kung Hoe

One way or another, valuer Loo feels Medini’s property prices may soon see its stability ending, especially since the lack of price controls for foreigners is on top of an exemption from real property gains tax (RPGT) under certain conditions.

“From the way I look at it, since (Medini) was not affected by Budget 2014, I think prices may start shooting up,” said Loo to KiniBiz. “Medini is now king.”

In his Budget 2014 speech last week, prime minister Najib Abdul Razak also did not touch on Medini’s RPGT exemption for certain types of purchasers. The implication is that the exemption currently in place would remain.

According to information from the Iskandar Regional Development Authority (IRDA) website, the Medini Incentive Support Package provides among others an exemption to foreign knowledge workers (FKW) from real property gains tax (RPGT) for disposal of land and property until 2015 and 2020 respectively.

However, to qualify for the RPGT exemption the FKWs must be a non-Malaysian citizen working with either an IDR-status company, an approved developer, an approved development manager or an approved node project development company.

Additionally, the FKW must reside in Iskandar Malaysia as well as possessing required education qualifications and professional experience in select categories.

IRDA is a statutory body established under the Iskandar Regional Development Authority Act 2007 (IRDA Act) to oversee the development of the Iskandar Malaysia region in terms of policies and promotions, among other roles.

Under the IRDA Act, section 5(e) states that IRDA’s function among others will be “to recommend to the relevant Government Entities incentives in relation to taxes, customs and excise duties and other fiscal incentives applicable to investors in the Iskandar Development Region”.

How the minimum price exemption works

The exemption for foreigners in Medini from the minimum purchase price limit works via a well-known practice in other countries including Australia and Canada, although Medini perhaps represents its first implementation in Malaysia.

Instead of purchasing land directly in Medini, foreigners would instead be buying leases from appointed master concessionaire lease developers (MCLD) or subsequent layer investors (SLI) — each transaction done by the registered lessee would not affect the freehold status of the land.

In such an arrangement, the freehold ownership effectively remains with a local party as the foreign purchaser’s ownership is akin to a long-term tenancy.

Property lawyer Pretam Singh previously wrote that the lease period acquired by the foreign purchasers would be 99 years with an option for an additional 30 years in certain cases.

The body that appoints MCLDs and SLIs for Medini is Iskandar Investment Berhad (IIB) and at the end of the lease period for a Medini property, ownership would revert back to IIB.

At present there are more than 20 MCLDs in Medini Iskandar, said Haslinda Othman, senior vice president of Development, Medini Iskandar Malaysia Sdn Bhd — which is a member of Iskandar Investment Group — when contacted by KiniBiz.

However, as Malaysian law does not cater to the sale of leases at present, developers with projects in Medini need to apply for an exemption from the housing ministry to allow for such sales of leases.

The housing ministry’s exemption would allow developers to deviate from Schedules H and G of the Housing Development (Control and Licensing) Regulations 1989, which are the mandatory standard agreement between purchasers and developers in Malaysia.

A greenfield development spanning 2,230 acres, Medini is designed to become the central business district of Iskandar Malaysia with six zones — A to F — which makes up four development clusters: Medini North (Zone A), Medini Business (Zone B), Medini Central (Zones C, D and E) and Medini South (Zone F).

Began in 2007, Medini’s 20-year development plan is expected to see a gross development value (GDV) of more than RM6.8 billion with its total area translating to 9.6 million square feet of land and a total gross floor area of nearly 18.8 million square feet. Among the landmark developments in Medini is the Pinewood Iskandar Malaysia Studios boasting over 100,000 square feet in film stages as well as Asia’s first Legoland — the Legoland Malaysia theme park.